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Corporate Investigations & PPP Loan Fraud Lawyers

April 1, 2022 Federal Criminal Attorneys

The Paycheck Protection Program gave businesses a line of support during the hardest periods of the COVID-19 pandemic. Many businesses were in a panic to get their funds as quickly as possible, and lenders did not have enough time to carefully review every application. The speed at which applications were submitted and approved has led regulatory experts to believe that there may have been significant fraud in some PPP applications.

The Federal Government Is Auditing Previously Approved PPP Applications

Several federal government agencies have launched initiatives to investigate PPP loan applications that were improperly approved. In instances where fraud is discovered, the government is cracking down by pursuing criminal charges. As a result, it is important for businesses that accepted PPP funds to understand current developments in the regulatory environment.

The Small Business Administration is leading a new initiative to audit all PPP applications that exceeded $2 million and any application that appears suspicious. The SBA is working with the Office of Inspector General, the Federal Bureau of Investigation, the Internal Revenue Service, and the Department of Justice.

Several initiatives have already been implemented, and some of the worst offenders have already been charged. However, regulatory scrutiny is expected to get much more intense over the next year as regulators obtain the data necessary to flag applications that may have been fraudulent.

Why Corporations Need to Launch Internal Investigations on Their Use of PPP Funds

When regulators choose to press charges, they have to conduct an extensive investigation before moving forward. As a result, companies almost always know when they are facing the possibility of an indictment. In the process of conducting an investigation, regulators almost always give companies a chance to come clean instead of facing charges. Regulators especially like to work with companies that demonstrably did everything in their power to comply before regulators ever made contact.

If your company launches an internal investigation into how PPP funds were handled, you will be in a much better position to avoid charges if you later face regulatory scrutiny. Regulators were officially offering an amnesty program for companies that discovered they had made mistakes in their PPP applications. Although the amnesty program has officially ended, the reality is that regulators are highly unlikely to charge companies that have conducted an internal investigation and done everything possible to come clean.

Significant Uncertainty Existed When PPP Loans Became Available

It is important to keep in mind that regulators are well aware of the fact that the loan approval criteria were not defined in a clear manner when PPP loans first become available. Initially, banks were completely overwhelmed with a flood of applications because businesses were led to believe that funds would be made available on a first-come, first-served basis. Since businesses could potentially get millions of dollars in badly needed funds, they slapped together an application and submitted it quickly. Many of these businesses had good intentions, and they planned to review their application at a later date.

Furthermore, the SBA is forced to be lenient with businesses because its FAQ page on PPP loans was not even released until months after PPP loans became available. Companies cannot be held liable for mistakes they made because of regulatory guidance that had not been issued. Nevertheless, companies do become responsible for amending their application after guidance has been revised, and companies that thoroughly analyze their application can iron out the details of their application to avoid any accusations of wrongdoing.

Companies Must Certify Compliance With PPP Terms to Receive Loan Forgiveness

Although companies may not be liable for many types of mistakes that were made in PPP loan applications, companies still have to get in compliance if they want to have their loans forgiven. Most companies have already written off the cost of their loans since receiving forgiveness is easy as long as broadly defined terms are complied with.

However, to receive forgiveness, companies first have to certify that they have fully adhered to regulatory guidance determining how PPP funds should be used. If you made mistakes in your initial application, the government could later argue that your certification is fraudulent if your plan for using funds in your application was not lawful.

Additionally, before asking for loan forgiveness, businesses need to make sure they carefully adhered to regulatory criteria when using PPP funds. In many cases, businesses have been advised to put PPP funds in segregated accounts to avoid problems with regulators. If you ask for a large PPP loan to be forgiven, you can expect to be audited by the SBA. Your use of PPP funds will be carefully reviewed, and every item purchased with PPP funds must be in accordance with the law. In some cases, businesses that did not carefully manage their PPP funds may be advised to ask for only a portion of their PPP loan to be forgiven.

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