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MontanaNebraska PPP and EIDL Loan Fraud Lawyers

By Spodek Law Group | March 18, 2023
(Last Updated On: March 18, 2023)

The Paycheck Protection Program (PPP) was established as a part of the CARES Act to provide financial relief to small and medium-sized businesses that were adversely affected by the COVID-19 pandemic. Despite its $350 billion in allocated funds, the PPP ran out of cash in just a matter of minutes. This caused lenders participating in the program to be overwhelmed with applications, leading to numerous eligible companies being overlooked. Due to the substantial amount of funds allocated, it was inevitable that there would be fraudulent activities associated with the program, and this has led to significant scrutiny of those companies that received PPP loans. As a result, many borrowers will likely be subjected to close oversight and prosecution by federal authorities.

Various types of fraud allegations directly relate to the PPP, and companies are at risk of facing significant legal consequences if they are found guilty of these offenses. These allegations include intentional misrepresentations of facts; misclassifications of employees, thus allowing for more substantial debt relief and fraudulent loan certification. Even individuals involved in fraudulent activities could be found guilty under the False Claims Act and face significant fines and imprisonment. In this article, we will be discussing PPP loan fraud, the potential consequences, and how businesses can mitigate potential risk factors.

### 1. Loan “Stacking”
Loan stacking occurs when an applicant receives PPP loans from different lenders. The Office of the Comptroller of the Currency (OCC) will focus on loan stacking as one of the PPP’s primary fraudulent activities. Companies that received funds from more than one lender, thereby repaying the whole loan amount, might be among the first companies prosecuted for PPP fraud since the federal government can monitor the distribution of all funds.

### 2. PPP Loan Application Fraud
The PPP has multiple eligibility criteria that businesses must satisfy, including restrictions on the number of employees to qualify for the funds. Misrepresenting employee numbers in the PPP loan application and misclassifying employees as independent contractors to fall below the 500-employee threshold are examples of loan application fraud. Companies with more than 500 employees might also misrepresent the applicable Small Business Administration (SBA) employee-based size standards for eligibility in their respective industries.

### 3. Fraudulent Loan Certification
PPP loan applicants were required to certify to the following facts. Certifications had to be made in good faith to secure PPP loans. Unfortunately, any bad-faith certifications can lead to charges for federal fraud.

### 4. Using PPP Funds for Ineligible Business Purposes
Businesses that receive funds through the PPP are restricted from using these funds for non-essential purposes. Funds can only be used for specific purposes, including payroll expenses, rent, and utilities. PPP funds can only be used to cover expenses under prior obligations as of February 15, 2020, related to mortgage interest, rent, and utilities.

### 5. Using PPP Funds for Fraudulent Purposes
It is worth highlighting that companies and individuals involved in fraud, including those that fraudulently obtained loans through PPP, will be punished. Fraudulent PPP fund usage, which includes using funds in ineligible business activities, typically carries serious legal consequences under the False Claims Act. The severity of punishment increases if prosecutors go after multiple statutory offenses, which is typical in significant fraud cases, resulting in significant fines or incarceration.

### 6. Fraudulent Loan Forgiveness Certification
Many companies will be eligible for loan forgiveness with only a small 1% interest rate on the amounts received. For companies to be eligible for loan forgiveness, they must continually meet the eligibility criteria and prove that they have used their PPP funds for authorized purposes. Companies must also certify that the loans “are accurate” and that used funds “to keep employees and make eligible mortgage interest, rent, and utility payments.

### 7. Misrepresenting or Concealing Information During a PPP Audit or Investigation
The PPP loan program will face audits and investigations related to the receipt of funds. While a company’s primary goal would be to avoid disclosing potentially harmful information, it is imperative to avoid making false statements or withholding pertinent information. False statements or withholding from federal authorities is fraud and could lead to individual prosecution.

What Should Companies Do if they become a Target in SBA PPP Loan Fraud?
Companies involved in PPP fraud audits and investigations should consult experienced federal defense attorneys immediately. The seriousness of the issue requires that a business can rely on the advice and representation of seasoned attorneys who can expertly defend against federal charges. Spodek Law Group’s federal defense attorneys’ experience in representing clients with a plethora of issues related to the COVID-19 pandemic makes them the ideal firm to fight charges of PPP loan fraud.

In summary, while PPP funds were intended to provide financial relief to small and medium-sized businesses, many companies may have unintentionally or willfully become entangled in potentially fraudulent activities. It is vital to become more familiar with this program’s potential fraudulent activities and avoid engaging in them. With a higher likelihood of scrutiny in federal investigations, it’s better to err on the side of caution and remain proactive in your efforts to avoid fraudulent activities.

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