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Paycheck Protection Program (PPP) Loan Fraud Cases

November 3, 2021 Federal Criminal Attorneys
Paycheck Protection Program (PPP) Loan Fraud Cases

For many Americans, the Paycheck Protection Program was a lifeline during the height of the COVID-19 pandemic.

Many business owners were struggling to stay afloat. Millions of workers feared that their next paycheck would be their last. The federal government came to the rescue with a $950 billion program offering partially or fully forgiven loans to qualifying businesses, self-employed workers and certain organizations.

It’s not as though no one anticipated the potential for fraud. There was extreme pressure to screen applicants and approve PPP loans quickly. Understaffed lending institutions relaxed the rules on vetting applicants. Given the circumstances, a formal federal prosecutor named James W. Cooper called the PPP a “fraud magnet.”

Only now, however, months after the program ground to a halt, is the full scope of the fraud being realized.

“Unprecedented” Fraud

The PPP was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. It was created to keep workers on the payroll and boost businesses that were at risk of going under.

Hannibal “Mike” Ware, inspector general of the Small Business Administration and one of its fiercest watchdogs, describes the widespread PPP fraud as “unheard of” and “unprecedented.” Ware is busier than ever these days. As of August 2021, reported ABC News, Ware’s efforts to recoup fraudulently obtained funds were impressive: more than 200 arrests, 300-plus indictments and close to 70 convictions.

Still, the $600 million he’s recovered is probably just the tip of the iceberg. Ware guesses that there are tens of billions of dollars to go. When the PPP got underway, cases of fraud cropped up almost immediately around the country. Uncovering and prosecuting the cheaters could take years or even decades.

According to The New York Times, a team of researchers at the University of Texas estimates that around 15% of the PPP’s 11.8 million loans have at least one red flag. That doesn’t mean that 15% are bogus. For example, it’s always suspicious when several home-based businesses operate out of one household. However, that’s not especially uncommon, and the operations might be perfectly legitimate. The analysts acknowledged other false positives as well.

As for putting a dollar amount on the fraud, the UT study examined PPP loans in both traditional banks and financial technology firms — also known as fintechs — that specialize in digital lending. Allowing for false positives, the researchers concluded that anywhere from $38 billion to $76 billion was lost to various PPP loan scams.

The Perpetrators and Their Short-lived Rewards

Criminals seem to get savvier and more brazen all the time. They are never far behind evolving security technology that is meant to thwart them.

Leveraging technology, thieves quickly organized and enlisted “straw applicants” to apply for multiple PPP loans. The idea behind straw buying, a common ruse in mortgage lending, is to conceal the identity of the ringleader, who stands to reap the greatest benefits.

Not every perpetrator acted in cahoots with others. Some individuals made off with a cool million or two by submitting applications under multiple business names. Others inflated the number of employees on the payroll.

Many large companies that shouldn’t have qualified under SBA guidelines wound up with multimillion-dollar loans. Most likely, much of the money lines executives’ pockets today.

PPP scammers who have been caught include a reality TV star, a mild-mannered tax preparer, a 23-year-old entrepreneur, a mayoral candidate, a former NFL player and a NASA executive. Plainly, people from all economic classes and walks of life were tempted by the prospect of free money. They spent lavishly on sailboats, cars, swimming pools and jewelry. Some paid off their mortgages. Others bought Tesla stock or moved money overseas. At least one got into dog breeding.

The Charges and Penalties

The U.S. Department of Justice, which has never been known for its sense of humor, is prosecuting cases with relish.

It is going after big fish and little fish in ponds of all sizes. The charges it has brought include bank fraud, wire fraud, identity theft, money laundering, knowingly providing false information on a loan application, and many more. The DOJ has little sympathy for cheats who didn’t get away with much. It is not showing leniency to those who claim the fraud was unintentional.

In short, it’s time for scammers to pay the piper. Sentences of several months in jail and a few years’ probation, even for small-potatoes theft, are not unusual. A Dallas man must serve 11 years in prison and pay upwards of $17 million in restitution — and he is among those who pleaded guilty in hopes of getting a lighter sentence.

The worst and most far-reaching consequence, experts agree, is the impact that PPP fraud will have on emergency funding in the future.

https://home.treasury.gov/policy-issues/coronavirus/about-the-cares-act

https://abcnews.go.com/US/unprecedented-fraud-penetrated-rollout-covid-19-small-business/story?id=79218028

https://www.sba.gov/funding-programs/loans/covid-19-relief-options/report-id-theft-fraud

https://www.natlawreview.com/article/doj-continuing-to-target-ppp-recipients-fraud

https://www.uschamber.com/co/run/business-financing/commonly-asked-questions-coronavirus-small-business-loans

https://www.investopedia.com/terms/s/straw-buying.asp

https://www.newsweek.com/texas-man-gets-11-years-24-million-worth-fraudulent-covid-19-relief-claims-1614132

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