The Paycheck Protection Program (PPP) is a central feature of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020 to provide much-needed relief to small and medium-sized businesses affected by the COVID-19 pandemic. With almost $350 billion in federal funds at its disposal, the PPP was expected to provide financial aid to companies facing difficulties due to the pandemic. However, due to the high volume of applications, the program ran out of funds within minutes, leaving eligible companies in the lurch. Given this situation, many companies that received assistance via the PPP are now at risk of federal scrutiny, especially in the face of the fraud concerns that have arisen.

Various fraud concerns have been identified in relation to the PPP, such as loan stacking, which is the receipt of PPP loans from multiple lenders. Loan application fraud is another serious issue, with companies potentially facing charges if they misrepresented information such as the number of employees or their payroll costs. Other fraud allegations include using PPP funds for ineligible business purposes, such as boat payments or other non-business expenses. In addition, there is a risk of using PPP funds for fraudulent purposes, which could result in federal reserve charges and criminal imprisonment for the individuals involved.

The U.S. Treasury Department’s Paycheck Protection Program Information Sheet emphasizes that the government intends to pursue criminal charges against anyone who fraudulently uses PPP funding. This includes owners and executives of companies that have committed PPP loan fraud, who could face hundreds of millions of dollars in criminal fines and decades behind bars due to multiple statutory offenses. Additionally, companies can face audits or investigations related to PPP loan funds, with the potential for internal or external audits and investigations conducted by the FBI, DOJ, or other federal agencies.

In response to these concerns about fraud and in order to identify various other “lessons learned,” the Office of the Comptroller of the Currency (OCC) is seeking input from lenders regarding how to improve future programs and address issues that have arisen from the flawed nature of the PPP. One specific type of potential fraud mentioned by the OCC is “loan stacking,” which has already gained widespread negative publicity since the federal government can track the distribution of all funds from the Paycheck Protection Program. The OCC has specifically focused on loan stacking in order to mitigate the risks of prosecution that companies may face.

Companies that have taken PPP loans and are worried about federal scrutiny should engage experienced federal counsel for legal advice. Given the high stakes, this is not a time to take risks or try to defend oneself alone. At Spodek Law Group, we have many years of experience providing sound advice and wise counsel through a range of legal issues related to the COVID-19 pandemic. If you are dealing with allegations of PPP loan fraud, our experienced team of attorneys can represent you and mitigate the risk of you facing substantial penalties.

Types of Allegations that Constitute PPP Loan Fraud

As with all federal programs, there are various acts and omissions that could potentially result in allegations of PPP loan fraud. Some of these issues are outlined below. It is important for companies that have received PPP funds to be aware of these potential issues and to engage with legal counsel to ensure their compliance:

1. Loan “Stacking”

Loan stacking, or receiving PPP loans from multiple lenders, is one of the most prevalent forms of PPP fraud that has been observed. Companies that received funding from more than one lender may become early targets in the government’s efforts to prosecute PPP fraud.

2. PPP Loan Application Fraud

To be eligible for funding under the PPP, companies were required to meet certain eligibility criteria. Companies that misrepresented information on their loan applications in order to fraudulently claim eligibility can face prosecution. These misrepresentations could include the number of employees in the company, classifying employees as independent contractors, and misrepresenting payroll costs to increase the loan amount.

3. Fraudulent Loan Certification

PPP loan applicants were also required to certify to various facts, including that the loan would be used to support ongoing operations and that all information provided in the application was true and accurate. Any instance of bad-faith certifications have the potential to lead to charges for federal fraud.

4. Using PPP Funds for Ineligible Business Purposes

Companies that received PPP funds are restricted to using those funds to cover payroll costs, interest on mortgage obligations, rent, and utilities. Using PPP funds for any other purpose is impermissible and has the potential to lead to allegations of fraud. In order to prove compliance with this, companies should document the sources of payment for all eligible and non-eligible expenses.

5. Using PPP Funds for Fraudulent Purposes

Using PPP funds for fraudulent purposes is a criminal offense that can result in fines and imprisonment for individuals involved. Company owners and executives could stand to face hundreds of millions of dollars in criminal fines and even decades behind bars, depending on the severity of the fraud.

6. Fraudulent Loan Forgiveness Certification

Many companies are eligible for PPP loan forgiveness once certain criteria have been fulfilled. However, certifications must be made that the forgiveness amount was used to keep employees and make eligible payments. Any fraudulent certifications have the potential to lead to allegations of PPP loan fraud.

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

Companies that receive PPP loans are likely to face audits and investigations related to their receipt of funds. While it is important to avoid disclosing harmful information during this process, it is also imperative that companies avoid making any misrepresentations or concealing pertinent information. Any false statements made with respect to a PPP audit or investigation is a form of fraud that can lead to individual prosecution.

What Should Companies Do if They are Targeted for PPP Loan Fraud?

If your company is targeted for PPP loan fraud allegations, you should seek the help of experienced federal defense counsel right away. You need the advice and representation of knowledgeable attorneys who know how to fight federal charges. Spodek Law Group has a team of federal defense attorneys who can use their experience to protect you in cases related to federal programs related to the COVID-19 pandemic.