What Constitutes Paycheck Protection Program (PPP) Loan Fraud?
Under the Paycheck Protection Program (PPP), businesses are eligible to apply for federal funds to cover payroll costs and other expenses during the COVID-19 pandemic. Unfortunately, the PPP has also become a target for fraudsters who are attempting to exploit the program for personal gain. In this article, we’ll explore what constitutes PPP loan fraud and what companies need to do to avoid becoming targets of federal investigations.
Types of PPP Loan Fraud
There are various types of PPP loan fraud that can lead to allegations of federal fraud. The following are all possible allegations of fraud in relation to the PPP:
1. Loan “Stacking”
“Loan stacking” is an illegal practice where an applicant receives PPP loans from multiple lenders. The federal government has the ability to track the distribution of all funds from the Paycheck Protection Program, and companies that received funds from more than one lender may become early targets in the government’s efforts to prosecute PPP fraud.
2. PPP Loan Application Fraud
PPP loan applications have multiple eligibility criteria. Companies that misrepresented information on their loan applications in order to fraudulently claim eligibility could face prosecution as well. Misrepresenting information such as the number of employees, misclassifying employees as independent contractors, misrepresenting that they met the applicable Small Business Administration (SBA) employee-based size standards for eligibility in their particular industries, and misrepresenting the company’s payroll costs can all result in allegations of fraud.
3. Fraudulent Loan Certification
PPP loan applicants were required to certify to various facts, and bad-faith certifications have the potential to lead to charges for federal fraud. Certifications include statements such as “Current economic uncertainty makes the loan necessary to support your ongoing operations,” and “All the information you provided in your application and all supporting documents and forms [are] true and accurate.”
4. Using PPP Funds for Ineligible Business Purposes
Companies that received federal funds through the PPP are restricted to using those funds for specific purposes. Using PPP funds for any other purpose is impermissible and has the potential to lead to allegations of fraud.
5. Using PPP Funds for Fraudulent Purposes
Individuals who are personally involved in fraudulent activities related to the PPP can face tens of thousands of dollars in fines and up to five years of federal imprisonment. Company owners and executives could be at risk of hundreds or millions of dollars in criminal fines and decades behind bars.
6. Fraudulent Loan Forgiveness Certification
Companies that are eligible for loan forgiveness must provide documentation that they have continually met the eligibility criteria and that they have used their PPP funds for authorized expenses.
7. Misrepresenting or Concealing Information During a PPP Audit or Investigation
Making false statements or withholding information you are required to disclose to federal authorities is itself a form of fraud, and you could potentially face individual prosecution for making false statements to federal law enforcement agents.
What to Do if You’re Targeted for PPP Loan Fraud
If you or your company is targeted in a PPP loan fraud audit or investigation, the single most important thing you can do is to engage experienced federal defense counsel right away. At Todd Spodek Law Firm, our federal defense attorneys are actively representing clients in a broad range of issues related to the novel coronavirus (COVID-19) pandemic, and we can use our experience to protect you.
Understanding PPP Loan Fraud
When most small business owners and company executives applied for PPP loans, they had no idea they were potentially exposing themselves to criminal liability.
The CARES Act, which established the PPP, was designed to provide financial security to individuals and businesses that were struggling due to the pandemic’s economic impacts. However, with the PPP’s limited eligibility requirements and limited oversight at the time, the program was highly susceptible to fraud.
As a result, the SBA established a grace period during which individuals and businesses could return fraudulently obtained funds without penalty. Now that this period has expired, federal agencies such as the SBA-OIG and the DOJ are actively pursuing investigations to uncover PPP loan fraud, and many of these investigations are resulting in criminal charges.
What is PPP Loan Fraud?
PPP loan fraud refers to obtaining benefits under the program despite not being eligible to do so, and it can encompass both civil and criminal offenses. Any act undertaken in furtherance of efforts to either (i) obtain a PPP loan despite being ineligible, (ii) take advantage of a PPP loan for unauthorized purposes, or (iii) secure PPP loan forgiveness without eligibility can be prosecuted as PPP loan fraud.
Some examples of acts that are being prosecuted as PPP loan fraud include obtaining multiple PPP loans from multiple SBA 7(a) lenders, misrepresenting a company’s payroll or misclassifying employees, misrepresenting a company’s eligibility under the SBA’s employee-based size standards for particular industries, and using PPP loan funds for ineligible business purposes or for an illegal purpose.
What to Do if You’re Accused of PPP Loan Fraud
If you or your company is accused of PPP loan fraud, it is important to take immediate action to protect yourself. The first and most critical step is to engage experienced federal defense counsel who can help you navigate the complex legal and regulatory issues involved in defending against fraud allegations.
At Todd Spodek Law Firm, we have extensive experience representing clients in federal criminal investigations and prosecutions, and we are committed to fighting for our clients’ rights and interests. Our attorneys are dedicated to providing personalized attention to each and every client, and we will work tirelessly to develop a customized legal strategy that is tailored to your specific circumstances.
The Consequences of PPP Loan Fraud
Individuals and companies that are found guilty of PPP loan fraud can face severe consequences, including fines, restitution, and imprisonment. The exact penalties will depend on the specific nature of the offense, the amount of money involved, and other factors.
In addition to criminal penalties, PPP loan fraud can also result in civil liability, including the requirement to repay fraudulently obtained funds and the imposition of treble damages and penalties under the False Claims Act. These consequences can be devastating, both personally and professionally, and it is critical to take immediate steps to protect yourself if you are facing allegations of PPP loan fraud.
Contact Todd Spodek Law Firm for Help with PPP Loan Fraud Allegations
If you or your company is facing allegations of PPP loan fraud, the attorneys at Todd Spodek Law Firm can help. We have the experience and expertise necessary to defend against even the most complex fraud allegations, and we are committed to protecting our clients’ rights and interests throughout the legal process.
Contact us today to schedule a consultation and learn more about how we can help you navigate this challenging and uncertain time.
PPP Fraud | EIDL Defense | Loan Fraud