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The COVID-19 pandemic prompted the government to provide forgivable loans to small businesses through the Paycheck Protection Program (PPP). However, changes in the rules governing the loan application process and allowable spending have occurred several times over the last two years. If you’re being investigated for PPP loan fraud, there are some essential steps you need to take.
The Small Business Administration (SBA) typically begins a PPP loan fraud investigation with an audit. During the audit, the SBA will examine your original application to determine if there were any lies or inconsistencies, assess whether your business was genuinely affected by COVID-19, and review how the loan funds were spent, including loan forgiveness. In certain instances, a fraud investigation or prosecution may begin with the Department of Justice.
While emotions ran high when the pandemic first began, the SBA may ask borrowers to repay loans if they weren’t eligible or misused the loan funds, without resulting in a criminal fraud case. If the borrower made a genuine mistake, they will likely avoid a criminal fraud case.
If an SBA audit leads to a criminal investigation, the penalties for PPP loan fraud convictions can be severe. Borrowers accused of lying on their PPP loan application can face other penalties, including wire fraud, bank fraud, and making false statements, each of which carries hefty fines and jail sentences if convicted.
There are four common types of PPP fraud, and many otherwise ordinary business owners indulged in one or more forms of this fraud.
Misreporting financial data while seeking a loan is committing the white-collar fraud crime. For instance, some convicted of PPP fraud inflated the number of employees on the payroll to take advantage of the fact that the maximum loan a person could receive was an amount that was 2.5 times the monthly payroll. Even adding one inflated employee number to the list could be worth a significant sum of money.
Others resorted to more overt forms of fraud, such as creating fake companies with fake employees, falsified payroll documents, and applying in the name of defunct companies, or using stolen identities to falsify ownership of existing businesses.
The third type of fraud happens when a business owner runs afoul of the uncertain language in the PPP application. Applicants had to sign a document stating that the “current economic uncertainty makes this loan request necessary to support the ongoing applications of this applicant.”
Another pitfall is seeking forgiveness when you’re not eligible for it. To be eligible for forgiveness, employee and compensation levels must have been maintained, and at least 60% of the proceeds had to be spent on payroll costs. If any expenses were ineligible, there’s a chance you could run afoul of the law.
The SBA audits these loans first. If you receive an adverse audit determination from the SBA, your loan could come under scrutiny from the Justice Department. It is wise to retain a federal criminal attorney the moment you realize the SBA did not like what it saw to avoid making vital mistakes during the investigation.
Because a PPP loan fraud investigation is a federal criminal investigation, you might receive a target letter or a subject letter informing you that you are under investigation.
The federal government can charge you with several crimes if they believe they have a case against you for PPP fraud. You can be charged with wire fraud, bank fraud, identity theft, mail fraud, and making false statements. The penalties for these charges are severe.
If you’re being investigated for PPP loan fraud, the first step is to contact a qualified federal criminal attorney. Gather all your documentation, including the PPP loan application, PPP forgiveness application, and all business expense documentation. Provide names and contact information for employees and a detailed accounting of how PPP money was spent. All of these documents are evidence that can be used to both evaluate and defend your case.
There are three common defenses that your attorney may use: lack of intent, legitimate purposes, and identity.
If your defense is “lack of intent,” your attorney will show that you did not knowingly or intentionally misrepresent the facts. Instead, you were simply wrong about what you reported for whatever reason.
The second defense is to show that the government is mistaken, working to prove that you used your PPP loan for legitimate purposes.
Finally, your attorney may be able to make an identity-based defense if the government cannot prove you were the one who submitted the loan application.
In any case, if you think you’re in trouble, it’s to have a qualified federal criminal attorney by your side. Reach out today to schedule an appointment.
PPP loan fraud investigations can be complex, and the penalties can be severe if convicted. It’s essential to understand what happens during an investigation, the penalties for a PPP loan fraud conviction, and the common types of fraud. If you’re being investigated for PPP loan fraud, the first step is to contact a qualified federal criminal attorney, who can evaluate your case and determine the defense strategy. With proper legal representation, you can mitigate the consequences of a PPP loan fraud investigation and protect your business’s future.
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