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Protecting Your Business: What You Need to Know About SBA PPP Loan Fraud
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020, aiming to provide relief to individuals and businesses that were affected by the COVID-19 pandemic. The Paycheck Protection Program (PPP) was a critical component of the CARES Act, intended to provide financial assistance to small and mid-sized businesses that were struggling due to the economic impact of the COVID-19 crisis. The PPP, with nearly $350 billion in federal funds, faced a significant challenge as it ran out of funds within minutes, leaving many businesses that were eligible for loans stranded.
Anytime a program offers financial relief to businesses or consumers, fraud concerns are inevitable. Due to the large sums of money involved and the unprecedented speed of the PPP’s nearly immediate depletion, many companies that received PPP loans can expect heavy scrutiny from federal authorities for potential fraud.
An article on FastCompany.com notes that the US Treasury Department is seeking input from lenders in response to concerns about fraud and other flaws in the PPP system to identify how to improve future programs and address related issues. Some examples of the fraud concerns include multiple loan approvals, misrepresentation, misuse of loan funds, and fraudulent loan-forgiveness certifications. Companies that obtained PPP loans under false pretenses face high risks of prosecution.
The following are some of the possible PPP loan fraud allegations:
The Office of the Comptroller of the Currency will be focusing specifically on loan stacking or the receipt of PPP loans from multiple lenders. Tracking the distribution of all funds disbursed from the PPP allows the government to pinpoint companies that received funds from more than one lender, making them the government’s priority targets for prosecuting PPP fraud.
PPP’s multiple eligibility criteria created opportunities for firms that misrepresented information on their loan applications to fraudulently claim eligibility, leading to potential prosecution. Misrepresenting company size, the number of employees, status of employees, meeting specific SBA criteria, and payroll costs are examples of fraud in relation to PPP.
PPP loan applicants made mandatory certifications for securing PPP loans. Any fraudulent certification, including providing false information, lacking good faith in any certification, and intentional bad-faith certifications, or concealing information, exposes the loan recipient to charges for federal fraud, punishable by high criminal fines and imprisonment.
PPP loans are allowed to be used for four specific purposes; payroll, including benefits, interest on mortgage obligations, rent, and utilities, and only for obligations preexisting before February 15, 2020. Any other use of PPP’s funds holds the potential to lead to allegations of fraud.
Under the False Claims Act, individuals who are part of fraudulent activities face tens of thousands of dollars in fines and up to five years of imprisonment for fraudulently obtaining funds from PPP. Owners and executive officers of companies found guilty of significant fraud can be at risk of hundreds of millions of dollars in criminal fines and decades behind bars.
In requesting loan forgiveness, PPP loan participants must provide ongoing documentation of eligibility criteria fulfillment and authorized expense usage. PPP loans’ forgiveness requires a request that the forgiveness is used to maintain workers and make eligible mortgage, lease, and utility payments while providing truthful documentation.
Audits and investigations of PPP loan funds are conducted by the DOJ, FBI, federal agencies, and task forces established to investigate PPP loan fraud. Companies must avoid misrepresentation or concealing pertinent information from federal authorities, as these are considered forms of fraud.
What to Do if You or Your Business is Accused of PPP Loan Fraud?
If you or your company is the subject of a PPP loan fraud investigation or audit, it is imperative to engage experienced federal defense counsel immediately. It is a severe issue that requires your immediate attention and the advice and representation of experienced attorneys who can fend off federal charges. At Spodek Law Group, our experienced federal defense attorneys can provide you with the necessary expertise and advice to protect you against PPP loan fraud allegations.
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