Under PPP Fraud Investigation

The Paycheck Protection Program (PPP) was established when the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law on March 27, 2020, and the federal government has already begun taking measures to crack down on suspected PPP loan fraud. More than a dozen individuals have already been criminally charged with PPP fraud in states across the country, and others are likely currently under PPP fraud investigation by the FBI, the IRS and other federal law enforcement agencies. If the federal government suspects you of defrauding the Paycheck Protection Program, you could end up being arrested and indicted for PPP loan fraud. Even just being the target of a PPP fraud investigation can wreak havoc on your personal and professional life. Investigations for financial crimes like fraud are typically complex and very thorough and a PPP fraud investigation could end up costing you your job, your reputation and your relationships, whether the allegations are true or false. If you believe you may be the target of a PPP fraud investigation, your future and your reputation are at stake. Contact our skilled federal criminal defense lawyers today.

Paycheck Protection Program Loans

The Paycheck Protection Program is a federal loan program administered by the U.S. Small Business Administration (SBA) and designed to provide critical financial relief in the form of private, forgivable loans to small business owners affected by the coronavirus pandemic. The purpose of the PPP is to encourage small business owners to retain their workforce during the COVID-19 crisis and stem the rising tide of unemployment, and a key incentive for business owners to take part in the $670 billion loan program is the stipulation that the loans can be forgiven in full or in part if they keep their employees on payroll and maintain their salaries. Under the PPP, small business owners and self-employed individuals can fill out an application to obtain a forgivable loan to help cover their payroll costs and other specified expenses, such as rent and lease payments, interests on mortgages, and utility payments. There are a great many benefits to the Paycheck Protection Program. However, those receiving funds through the PPP should be aware that there is also a federal criminal risk.

PPP Loan Eligibility and Forgiveness

A number of small businesses and self-employed individuals facing significant financial problems stemming from the COVID-19 pandemic qualified for assistance under the Paycheck Protection Program and are now seeking loan forgiveness. In order to qualify for loan forgiveness, at least 60% of the loan amount must have been used for payroll costs, including salaries, wages, bonuses, commissions and tips, plus employee benefits (sick leave, vacation pay, etc.), and the remaining 40% for mortgage interest, rent and utilities. The PPP loan eligibility and forgiveness criteria are strict and there are a number of potential legal pitfalls that could expose applicants to federal criminal liability without their knowledge. For instance, small business owners who have never filled out a government loan application before may have accidentally miscalculated their payroll costs or unknowingly used the PPP funds for purposes other than authorized payroll costs or eligible business expenses.

PPP Loan Fraud

False statements or other alleged fraudulent activity carried out in connection with the Paycheck Protection Program may subject violators to potential federal charges for fraud. The PPP loan program requires applicants to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The application also indicates that those applying for PPP loans may face criminal prosecution for “knowingly making a false statement to obtain a guaranteed loan from SBA” or knowingly using the PPP funds for unauthorized purposes. It is also possible to face criminal prosecution for PPP loan fraud for fraudulently attempting to have a PPP loan forgiven, knowing that you did not meet the employee retention criteria or used the funds for unauthorized purposes.

In order to disburse PPP funds as quickly as possible to businesses affected by COVID-19, the SBA allowed lenders to rely on borrower certifications to determine PPP loan eligibility, which the Government Accountability Office (GAO) says increases the potential for fraud. In June, the GAO issued a report underscoring the high probability of individuals having defrauded the Paycheck Protection Program. “Because of the number of loans approved, the speed with which they were processed, and the limited safeguards, there is a significant risk that some fraudulent or inflated applications were approved,” the GAO report stated. “GAO recommends that SBA develop and implement plans to identify and respond to risks in PPP to ensure program integrity, achieve program effectiveness, and address potential fraud.”

Examples of PPP Loan Fraud

The Paycheck Protection Program is a federal program and, as with any federal financial assistance program, there are various acts and omissions that could potentially lead to allegations of fraud, not only intentional misrepresentations intended to defraud the loan program, but also honest mistakes that resulted in the improper disbursement of federal funds. The following are some examples of conduct that could result in a PPP fraud investigation and possibly even federal criminal charges:

• Underestimating the number of employees on payroll or misclassifying employees as independent contractors in order to qualify as a small business
• Inflating payroll costs to capture higher loan amounts
• Obtaining PPP loans from multiple lenders
• Using PPP funds for unauthorized purposes
• Misrepresenting or concealing information during a PPP loan audit or investigation
• Creating a fake business to obtain a PPP loan
• Attempting to fraudulently obtain loan forgiveness

Criminal Charges for Alleged PPP Fraud

The federal government is determined to aggressively prosecute individuals attempting to use the COVID-19 crisis as an opportunity to fraudulently obtain funds through the Paycheck Protection Program and an investigation for PPP loan fraud is a serious matter that demands your immediate attention. Among the criminal charges that may be brought against individuals suspected of committing PPP loan fraud are:

• Bank fraud (18 U.S.C § 1344)
• Wire fraud (18 U.S.C. § 1343)
• Mail fraud (18 U.S.C. § 1341)
• Making false statements to federal agents (18 U.S.C. § 1001)
• Making false statements to the SBA (15 U.S.C. § 645)
• Making false statements to a financial institution (18 U.S.C. § 1014)
• Conspiracy to defraud the government (18 USC § 371)
• Identity theft (18 U.S.C. § 1028)

PPP loan fraud offenses are handled in federal court, and depending on the nature of the crime, a PPP loan fraud charge can carry harsh, long-lasting criminal penalties upon conviction. For instance, the punishment for wire fraud, a violation of 18 U.S.C. § 1343, is up to 20 years in federal prison and/or up to $250,000 in fines. The punishment for making false statements to a financial institution, a violation of 18 U.S.C. § 1014, is up to 30 years in federal prison and/or up to $1,000,000 in fines.

Federal Law Enforcement, Prosecutors Primed for PPP Loan Fraud Cases

Federal law enforcement officers and prosecutors alike are primed for a fight and they are clearly making an example of those individuals who have already been charged with PPP loan fraud in an effort to deter others. In a May 5 press release published by the DOJ announcing the first arrests and criminal charges for PPP loan fraud, which took place in Rhode Island, Special Agent in Charge Joseph R. Bonavolonta of the FBI’s Boston Field Office said, “Thankfully we were able to stop them before taxpayers were defrauded, but today’s arrests should serve as a warning to others that the FBI and our law enforcement partners will aggressively go after bad actors like them who are utilizing the COVID-19 pandemic as an opportunity to commit fraud.” Said U.S. Attorney Aaron L. Weisman for the District of Rhode Island in the same press release, “Attorney General Barr has directed all U.S. Attorneys to prioritize the investigation and prosecution of crimes related to coronavirus and COVID-19, and we are doing just that.”

Contact Our Experienced PPP Attorneys for Legal Help

The Department of Justice is intent on swiftly and aggressively investigating and prosecuting cases of PPP fraud, and since May, the agency has criminally charged more than a dozen individuals with defrauding the PPP loan program of millions of dollars. Fraud investigations typically take months, if not years, to carry out, but the DOJ brought charges against these individuals in a matter of weeks. The biggest challenge federal prosecutors face in bringing those accused of committing PPP loan fraud to justice is proving that they intended to defraud the government. Unfortunately, facing increased pressure to identify and apprehend those suspected of PPP fraud, the FBI, IRS, DOJ and other federal agencies may not take the time to differentiate between individuals who acted deliberately with the intent to commit fraud and small business owners who made honest mistakes on their PPP loan applications. If you are under investigation for PPP loan fraud, you need a knowledgeable PPP attorney on your side who has experience handling federal criminal cases.