Paycheck Protection Program Loan Fraud: What You Need to Know

Small and medium-sized businesses across the United States were provided relief from the economic impact of the COVID-19 pandemic by the CARES Act in March 2020. The centerpiece of the program was the Paycheck Protection Program (PPP), which was allocated nearly $350 billion in federal funds to provide financial relief. However, the program ran into difficulties when the money allocated for it disappeared within a matter of minutes. This left many small businesses in financial strain due to the impact of the COVID-19 crisis.

Due to the disorganized roll-out of the program, the unprecedented rate at which the over $350 billion funds were depleted has raised concerns of fraud identification. As a result, the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) has sought input from lenders, and other regulatory agencies are exploring measures to address concerns arising from the PPP loans. However, one issue that is likely to remain a key focus is fraud, and companies that received loans from the program could face scrutiny from federal authorities.

Various acts and omissions have the potential to lead to allegations of federal fraud with the PPP loans. It is important to engage experienced federal counsel who can help minimize the risk of facing substantial monetary and other penalties in the event of a PPP audit or investigation.

The following are potential allegations of fraud in relation to the PPP loans:

1. Loan Stacking

Loan stacking involves applicants receiving PPP loans from multiple lenders. The OCC has identified this as one specific type of potential fraud, and will focus specifically on this type of fraud.

2. PPP Loan Application Fraud

Misrepresenting information on the loan applications to fraudulently claim eligibility is also a type of fraud with the PPP loans. Examples of misrepresentations include the company’s number of employees, misclassifying employees as independent contractors, and misrepresenting the company’s payroll costs in order to increase the loan amount.

3. Fraudulent Loan Certification

PPP loan applicants were required to certify to various facts in good faith, and any bad-faith certifications have the potential to lead to charges for federal fraud. The mandatory certifications for securing PPP loans include making sure the loan is necessary to support the company’s ongoing operations, that the funds will be used to retain workers and maintain payroll or pay mortgage, lease, and utility payments, and that all information provided in the application and related documents is true and accurate.

4. Using PPP Funds for Ineligible Business Purposes

Companies that received PPP funds through the program are restricted to using those funds for four specific purposes. They are to cover payroll costs, including benefits, to pay interest on mortgage obligations, to pay rent, or to pay for utilities. Using PPP funds for any other purpose is impermissible and has the potential to lead to allegations of fraud. The source of payment for all eligible and non-eligible expenses must be documented clearly, to demonstrate compliance.

5. Using PPP Funds for Fraudulent Purposes

Individuals who participate in fraudulent activities with the PPP funds will also be prosecuted, and the government intends to hold individuals criminally accountable for fraudulent use of PPP funds.

6. Fraudulent Loan Forgiveness Certification

Many companies that received PPP loans will be eligible for loan forgiveness. In order to request loan forgiveness, the company must provide adequate documentation that they have continuously used their PPP funds for eligible expenses.

7. Misrepresenting or Concealing Information During a PPP Audit or Investigation

In the event of an audit or investigation related to their receipt of PPP loan funds, companies should avoid making any misrepresentations or concealing information. Making false statements or withholding information required to disclose to federal authorities is itself a form of fraud, and companies could potentially face individual prosecution for making false statements to federal law enforcement agents.

Engaging an experienced federal defense counsel is the best course of action if a company is targeted in a PPP loan fraud audit or investigation. It is a serious matter that requires immediate attention and representation by experienced attorneys who know how to handle federal charges. At Spodek Law Group, our federal defense attorneys are actively representing clients in a broad range of issues related to the novel coronavirus (COVID-19) pandemic, especially PPP loan fraud, and we can use our experience to protect you.

Conclusion

PPP loans have now become a matter of serious concern due to the possibility of fraud. Companies that received PPP loans should consult experienced federal defense counsel to minimize risk associated with these loans. Engaging a reputable and experienced federal defense firm such as Spodek Law Group is the best way to secure your financial stability and legal interest in the event of a PPP audit or investigation.