Table 1: Types of Fraud in PPP Loans

| Type of Fraud | Explanation |
|—————|————-|
| Loan Stacking | Applying for PPP loans from multiple lenders |
| PPP Loan Application Fraud | Misrepresenting information on loan applications to fraudulently claim eligibility |
| Fraudulent Loan Certification | Falsely certifying information on loan applications |
| Using PPP Funds for Ineligible Business Purposes | Misusing funds for anything other than payroll and related expenses |
| Using PPP Funds for Fraudulent Purposes | Deliberately engaging in activities to fraudulently obtain PPP loans |
| Fraudulent Loan Forgiveness Certification | Falsely certifying that loan forgiveness criteria have been met |
| Misrepresenting or Concealing Information During a PPP Audit or Investigation | Failing to disclose pertinent information or making false statements during an audit or investigation |

Introduction

Signed into law on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted to provide benefits to both individuals and companies heavily affected by the COVID-19 pandemic. One of the key promises of the CARES Act centered around the Paycheck Protection Program (PPP). With $350 billion in federal funds, the PPP aimed to provide financial relief to smaller companies impacted by the pandemic. However, the PPP quickly ran out of funds and many eligible companies were unable to apply, which raised questions regarding fraudulent activity. The extraordinary rate at which its allocation was depleted led to concerns of fraud, and companies that received PPP loans fraudulent activity can expect to face scrutiny and severe consequences from the federal authorities.

PPP Fraud Concerns

Many fraud concerns are related to the PPP. There is concern that companies that received PPP loans fraudulently will face prosecution by the federal authorities. To ensure improvement in future programs and address concerning issues, the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) is requesting assistance from lenders. The OCC confirms that the Office would be focusing specifically on the loan stacking phenomenon, where one company receives PPP loans from multiple lenders.

Possible Fraud Allegations in Relation to PPP

PPP loans have eligibility criteria, which if misrepresented, can lead to allegations of federal fraud. Any bad-faith certification has the potential to lead to charges for federal fraud. Additionally, the misuse of funds can lead to fraud allegations. The following are the possible allegations of fraud under the PPP:

Loan Stacking

Loan stacking occurs when a company receives PPP loans from multiple lenders. This type of fraud is of interest to federal officials, and the government has the ability to track the distribution of all funds. Companies that receive funds from multiple lenders may become a prime target for federal authorities to prosecute PPP fraud.

PPP Loan Application Fraud

The PPP program contains multiple eligibility criteria. Companies that misrepresent information on their loan applications in order to fraudulently claim eligibility could face prosecution. Misrepresenting information such as the company’s number of employees, the misclassification of employees as independent contractors, and misrepresenting the company’s payroll costs, which influence the loan amount, will be viewed as fraudulent activity.

Fraudulent Loan Certification

PPP loan applicants were required to make certifications in good faith. Bad-faith certifications can lead to charges for federal fraud. Mandatory certifications include “Current economic uncertainty makes the loan necessary to support your ongoing operations”, and “All information you provided in your application and all supporting documents and forms [are] true and accurate”.

Using PPP Funds for Ineligible Business Purposes

Companies that received PPP funds must only use those funds for authorized expenses. Misuse of PPP funds for any other purposes is impermissible and potentially fraudulent.

Using PPP Funds for Fraudulent Purposes

The PPP has a low 1.00% interest rate, and loan forgiveness can be requested by companies. Under the False Claims Act, individuals can face fines and federal imprisonment for fraudulently obtaining PPP funds. Company owners and executives who are personally involved in fraudulent activity can face tens of thousands of dollars in fines and risk decades behind bars.

Fraudulent Loan Forgiveness Certification

Loan forgiveness entails companies providing documents showing that they have continually met the eligibility criteria and used their PPP funds for authorized expenses. None of the funds received from the loans should have been used for anything other than the authorized payroll and related expenses. False certification of loan forgiveness criteria being met would result in fraud allegations.

Misrepresenting or Concealing Information During a PPP Audit or Investigation

Many companies will face audits and investigations related to their receipt of PPP loan funds. Making false statements or withholding information required to disclose to federal authorities is a form of fraud.

Conclusion

PPP loan fraud is a severe crime, and companies or individuals found liable could face severe consequences. If faced with allegations, companies must engage experienced federal defense counsel immediately.