The Paycheck Protection Program (PPP) was the centerpiece of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020. The PPP was designed to offer financial aid to small and medium-sized companies that were affected by the economic effects of the COVID-19 pandemic. The PPP was given almost $350 billion in federal funds to offer much-needed financial relief, but it quickly ran out of funds and many companies left didn’t receive any loans. Moreover, due to the program’s magnitude, several concerns regarding fraud have been raised.

The US Treasury Department’s Office of the Comptroller of the Currency (OCC) is taking steps to manage fraud and improve PPP’s flaws. The department is looking for recommendations from lenders and is increasingly focusing on fraud identification since similar relief programs have been subjected to fraudsters’ scams. PPP saw its fair share of fraudulent practices. Several agencies are trying to prevent companies from getting away with unlawfully receiving funds from the PPP. Companies that find themselves in such circumstances face challenging chances since the public acknowledges loans depletion. These companies require skilled federal counsel to help them with hefty penalties reduction.

PPP loan fraud is a severe crime, and several acts and omissions can lead to allegations of fraud in relation to the Paycheck Protection Program. This may include intentional misrepresentations which can lead to criminal fraud charges and inadvertent mistakes resulting in the misappropriation of federal funds. One type of potential fraud that can subject a company to allegations of PPP loan fraud is loan “Stacking,” which sees an applicant receiving PPP loans from multiple lenders. Moreover, fraudulent loan certification is also a form of fraud since PPP applicants are required to make several mandatory certifications in good faith.

One must only apply for a PPP loan after carefully reading and understanding the eligibility criteria. Misrepresentations can lead to prosecution since PPP loan contained multiple eligibility criteria. To fraudulent receive a PPP loan, one had to misrepresent the number of employees, payroll costs, or falsely represented meeting the applicable Small Business Administration (SBA) employee-based size standards, for instance. Another type of PPP loan fraud is using PPP funds for an ineligible business purpose, which only demonstrates that one is fraudulent. To demonstrate compliance, companies must document the source of payment for all eligible and ineligible expenses. In instances of significant fraud, company owners and executives could face hundreds or millions of dollars in criminal fines and decades behind bars.

Just like many companies, some dishonest individuals may be involved in PPP loan fraud. They could face tens of thousands of dollars in fines and up to five years of federal imprisonment for fraudulently obtaining funds from the PPP. Company owners and executives could be at risk of serious criminal penalties for fraudulently obtaining funds from the PPP.

Loan forgiveness can act as a trap for some fraudulent companies. Loan fraud certification can be committed by companies under the guise of requesting loan forgiveness. Companies could provide documents that they have continuously met the eligibility criteria and used their PPP funds for authorized expenses to request loan forgiveness. To avoid making any misrepresentations or withholding pertinent information, companies must be careful during PPP audits and investigations conducted by various federal agencies such as the Federal Bureau of Investigation. Companies must also avoid disclosing potentially harmful information since making false statements or withholding information that federal authorities would require is a form of fraud.

Engaging experienced federal defense counsel is the most critical step if an individual or a company is targeted with SBA PPP Loan Fraud. Such allegations require immediate attention, and experienced attorneys could provide advice and representation on how to defend federal charges. Oberheiden P.C federal defense attorneys actively represent clients that are fighting allegations of PPP loan fraud. These highly experienced attorneys can help companies fight allegations of PPP loan fraud, which could protect their financial interests.

Types of PPP Loan Fraud

To understand PPP loan fraud better, we have to look at each type of fraud and how to avoid it.

Loan “Stacking” Fraud

Loan “Stacking” fraud happens when an applicant receives PPP loans from multiple lenders. As earlier indicated, the PPP was created to provide financial relief to small and medium-sized businesses facing financial difficulties after the COVID-19 crisis affects them. Banks can quickly identify fraudulent loans since the federal government records all funds distributed from the PPP. Consequently, companies that received funds from different lenders become early targets in the government’s campaigns to prosecute PPP fraud.

PPP Loan Application Fraud

It’s essential to heed the criteria in the PPP loan application to avoid PPP loan application fraud. Companies that misrepresented information on their loan applications to fraudulently claim eligibility could face prosecution. Misrepresenting the number of employees, payrolled costs, and the number of employees fulfilling SBA employee-based size standards are all fraudulent activities under PPP loan application fraud.

Fraudulent Loan Certification

PPP loan applicants are required to make several mandatory certifications in good faith before receiving the loan. Failure to adhere to the certification requirements has the potential to lead to charges for PPP loan fraud. PPP mandatory certifications required include certification that the funds would be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments. Applicants for the PPP loan must also make a certification that the information they provided in their application and documents are true and accurate.

Using PPP Funds for Ineligible Business Purposes

Companies that received federal funds through PPP face several restrictions on how to use the funds. They are restricted to utilize the funds for payroll, utilities, rent, and interest on mortgage obligations. Furth than that, the PPP loan amounts can only be used to cover expenses under obligations pre-existing as of February 15, 2020. Companies can avoid allegations of PPP loan fraud by keeping track of how they spend their PPP funds, especially when filing documents for the PPP loan.

Using PPP Funds for Fraudulent Purposes

Individuals or companies found to use PPP funds for fraudulent purposes face criminal charges. Companies must only use PPP funds for specific purposes designated for them. Although there is no personal guarantee requirement, the U.S. government will pursue criminal charges against individuals or companies that used the funds for fraudulent purposes.

Fraudulent Loan Forgiveness Certification

In some instances, many companies are eligible for loan forgiveness in the Paycheck Protection Program. To receive loan forgiveness certification, companies must meet eligibility criteria continually and demonstrate that they use PPP funds for authorized expenses. They must affirm in writing that documents presented to verify PPP loan forgiveness are true and that they used the loan’s forgiveness amount to maintain payroll or make eligible mortgage interest, rent, and utility payments.

Misrepresenting or Concealing Information During a PPP Audit or Investigation

To ensure that they make no mistakes or misrepresentations during PPP audits or investigations, companies must be attentive. Making false statements or withholding information required by law enforcement agents is itself a form of fraud, and individuals who make such statements face severe fraud allegations.