The CARES Act’s Paycheck Protection Program (PPP) was meant to be a financial lifeline for small- and medium-sized businesses grappling with the economic impact of the COVID-19 crisis. The program distributed over $350 billion in federal funds, but the funds were quickly depleted, leaving many firms that had expected to receive aid high and dry, while businesses with less need walked away with PPP funds. The PPP’s severe flaws have led to questions about fraud, and federal authorities are expected to scrutinize PPP loan recipients closely. To identify the flaws in the PPP’s implementation and design, the US Treasury Department’s Office of the Comptroller of the Currency (OCC) is seeking input from lenders. These flaws will require attention and correction in future programs. Given the chaos experienced during the distribution of the PPP, fraud identification is likely to be an area of increased focus, and fraudulent applications will face stringent legal penalties.

What Constitutes Paycheck Protection Program (PPP) Loan Fraud?
Fraud allegations can arise from both intentional and unintentional misrepresentations. For instance, the practice of “loan stacking,” receiving PPP loans from multiple lenders, is fraudulent. The government monitors the distribution of PPP funds, and authorities are likely to target companies that received funds from more than one lender. Misrepresenting the number of employees or payroll costs in loan applications is also fraudulent. PPP obtained through fraudulent certification of eligibility or the misuse of funds also exposes the recipient to the risk of accusations of fraud. Since the PPP funds were intended for specific purposes, any use of the funds for other purposes can be considered fraudulent. Individuals and companies involved in fraudulent activities, no matter how small their involvement, may be criminally liable for fraudulently obtaining funds from the PPP.

PPP Loan Forgiveness Certification and Fraudulent Purposes
The PPP’s low 1.00% interest rate makes it attractive, but many companies also want to qualify for loan forgiveness. For loan forgiveness to occur, applicants must meet eligibility criteria and provide documentation proving that they have used their PPP’s funds for specific business-related purposes. The certification has to provide certifiable evidence of eligibility criteria and valid expenses, and any company found to have made a fraudulent loan forgiveness certification is likely to face serious legal consequences. Companies that are currently under investigation for SBA PPP loan fraud need to take swift and decisive action by hiring experienced federal defense counsel immediately to minimize the risk of prosecution and to help ensure the least possible adverse impact.

Getting Professional Help When Accused of SBA PPP Loan Fraud
If a business or individual is targeted in an investigation or audit related to an apparent PPP loan scam, it is essential to engage experienced federal defense counsel immediately. It is a matter that needs immediate attention, and the advice and expertise of competent attorneys who can offer adequate representation and defense in cases of federal charges. At Spodek Law Group, our team comprises skilled attorneys who are actively representing clients in various aspects of the COVID-19 pandemic, including PPP loan fraud. We can provide the expertise required to protect our clients from fraud charges and will work hard to ensure that they can continue to pursue their business objectives with minimal disruption.
Below is a detailed list of the types of Paycheck Protection Program (PPP) loan fraud that may lead to criminal charges:

PPP Loan Fraudulent Allegations and Charges- Key Points

Loan Stacking
Loan stacking means fraudulently applying for Paycheck Protection Program (PPP) loans from several lenders. The Treasury Department has confirmed that investigators will focus on this type of fraud because they can track the distribution of all PPP funds. Hence, companies that received PPP funds from more than one lender face criminal prosecution risks.

PPP Loan Application Fraud
The Paycheck Protection Program’s criteria included several eligibility criteria. False claims of eligibility could lead to allegations of fraud. This includes:
• Misrepresenting the company’s number of employees
• Misclassifying employees as independent contractors
• For companies with more than 500 employees, misrepresenting that they met the Small Business Administration (SBA) employee-based size standards
• Misrepresenting the company’s payroll costs to increase the loan amount

Fraudulent Loan Certification
To secure PPP loans, applicants also had to certify to various facts, which include:
• “Current economic uncertainty makes the loan necessary to support your ongoing operations.”
• “The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.”
• “You have not and will not receive another loan under [the PPP].”
• “All the information you provided in your application and all supporting documents and forms [are] true and accurate.”

Using PPP Funds for Ineligible Business Purposes
The Treasury Department states that the four authorized purposes of PPP funds are:
• To cover payroll costs
• To pay interest on mortgage obligations
• To pay rent
• To pay for utilities
PPP funds can only be used for proper business purposes. Companies that use funds for any other use face allegations of fraud.

Using PPP Funds for Fraudulent Purposes
Although the PPP loans have a 1.00% interest rate, misuse of funds could qualify individuals for criminal charges. Hence, the government plans to go after any individual that utilized PPP funds fraudulently.

Fraudulent Loan Forgiveness Certification
Loans under the PPP scheme are eligible for loan forgiveness, but companies must provide evidence of continued qualification and the proper use of PPP funds. Companies requesting forgiveness must certify that the funds were used to maintain payroll, mortgage interest payments, lease payments, and utility payments, and must be able to provide documentation of payroll and other costs.

Misrepresenting or Concealing Information During a PPP Audit or Investigation
Many companies will likely come under suspicion of PPP loan fraud, and hence, they will get audits and investigations related to their PPP loan funds receipt. Disclosing potentially damaging information or concealing pertinent information can expose companies to further legal troubles. Hence, avoiding making false statements or withholding required information during a federal audit is crucial.