Paycheck Protection Program Fraud: What Companies Need to Know

The Paycheck Protection Program (PPP) is a federal relief program that was signed into law on March 27, 2020, in response to the COVID-19 pandemic. The program was intended to provide financial assistance to small and medium-sized businesses that were facing financial strain due to the economic impacts of the pandemic. However, the program quickly ran out of funds, and many companies that should have been eligible were left out. With any federal program that offers financial relief, there is a risk of fraud; and, with the PPP’s multi-hundred-billion-dollar allocation being depleted in a matter of minutes, many companies that received PPP loans can expect to face heavy scrutiny from federal authorities.

Various fraud concerns have been identified in relation to the PPP, and the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) is seeking input from lenders about how to improve future programs and address issues that have arisen out of the PPP. In response to concerns about fraud, the U.S. Treasury Department (and other agencies) is looking back to try to identify companies that unlawfully received funds from the PPP, and the risk of prosecution for these companies is likely to be high. It is important for these companies to engage experienced federal counsel to mitigate the risk of facing substantial penalties.

What Constitutes PPP Loan Fraud?

There are a variety of acts and omissions that have the potential to lead to allegations of federal fraud in relation to the PPP. This includes not only intentional misrepresentations, which can lead to criminal fraud charges, but also inadvertent mistakes that still resulted in the improper receipt of federal funds.

Loan Stacking

One specific type of potential fraud mentioned by the OCC is “loan stacking,” in which an applicant receives PPP loans from multiple lenders. The federal government has the ability to track the distribution of all funds from the Paycheck Protection Program, and companies that received funds from more than one lender may become early targets in the government’s efforts to prosecute PPP fraud.

PPP Loan Application Fraud

The PPP contained multiple eligibility criteria, and companies that misrepresented information on their loan applications in order to fraudulently claim eligibility could face prosecution. Misrepresentations could include misclassifying employees as independent contractors or misrepresenting the company’s number of employees or payroll costs in order to increase the loan amount.

Fraudulent Loan Certification

PPP loan applicants were required to certify to various facts, including that the funds would be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments, and that all information provided in the application and supporting documents was true and accurate. Any bad-faith certifications have the potential to lead to charges for federal fraud.

Using PPP Funds for Ineligible Business Purposes

Companies that received federal funds through the PPP are restricted to using those funds for four specific purposes: to cover payroll costs, including benefits; to pay interest on mortgage obligations; to pay rent; and to pay for utilities. Using PPP funds for any other purpose is impermissible and has the potential to lead to allegations of fraud.

Using PPP Funds for Fraudulent Purposes

Individuals who are personally involved in fraudulent activities related to PPP can face tens of thousands of dollars in fines and up to five years of federal imprisonment. Company owners and executives could be at risk of hundreds of millions of dollars in criminal fines and decades behind bars.

Fraudulent Loan Forgiveness Certification

Many companies will be eligible for loan forgiveness under the PPP, but companies must provide documentation that they have continually met eligibility criteria and used their PPP funds for authorized expenses. Companies must also certify that the documents submitted are true and that they used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.

Misrepresenting or Concealing Information During a PPP Audit or Investigation

If a company is audited or investigated for PPP loan fraud, they must be extremely careful to avoid disclosing potentially-harmful information. It is also imperative to avoid making any misrepresentations or concealing pertinent information as making false statements or withholding information from federal authorities is itself a form of fraud.

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

The single most important thing a company can do if targeted for PPP loan fraud is to engage experienced federal defense counsel right away. This is a serious matter that requires immediate attention, and it is critical to rely on the advice and representation of experienced attorneys who know how to fend off federal charges. At Spodek Law Group, our federal defense attorneys are actively representing clients in a broad range of issues related to the COVID-19 pandemic, and we can use our experience to protect companies facing allegations of PPP loan fraud.

Conclusion

The PPP was intended to provide much-needed financial relief to small and medium-sized businesses affected by the COVID-19 pandemic. However, the program’s rapid depletion and various fraud concerns have left many companies to face heavy scrutiny from federal authorities. The risk of prosecution for PPP loan fraud is high, and companies need experienced federal defense counsel to mitigate the risk of facing substantial penalties.