PPP Loan Fraud Lawyers
Paycheck Protection Program Fraud Attorneys
The provisions of the federal Paycheck Protection Program (PPP) are complex, and as such, there are many ways individuals can find themselves accused of fraud in relation to a loan secured in this way. Deliberately misrepresenting information during the loan application process can lead to criminal charges, but unintentional errors made in connection to a receipt of federal money can also result in serious trouble. Some of the ways in which fraud can be alleged against recipients of PPP funds include:
1. Stacking of Loans
A specific type of potential PPP fraud described by the Office of the Comptroller of the Currency (OCC) is what is known as “loan stacking.” This is when an applicant secures PPP funds from more than one lender. The OCC has stated its intention to concentrate on this brand of fraudulent conduct, and because the government can track all PPP loan disbursements, entities that accepted funds from multiple lenders may find themselves the target of such an investigation.
2. Application-Related Fraud
Eligibility for PPP loans was assessed according to a range of criteria. Entities that are found to have falsified application information as a way to fraudulently obtain funds through the program may also be vulnerable to prosecution. Misrepresented information could include things like the company’s total number of employees, fraudulent classification of employees as independent contractors in order to meet the eligibility threshold, misrepresentations regarding Small Business Administration business size standards, or submission of fraudulent company payroll costs to boost the available loan amount.
3. Loan Certification Fraud
Applicants for loans under the PPP also needed to attest to the truth of a series of facts. Such certifications needed to be rendered in good faith, and if they are found not to have been, federal fraud charges are possible. PPP certifications included attesting to the economic need for the funds in order to continue operations, certification that the loan would be used to continue paying workers or to make lease, mortgage, or other overhead payments, that no other PPP loan had been or would be obtained, and that all information offered in support of the application was true.
4. Impermissible Use of PPP Loan Proceeds
Any recipient of PPP funds are required to use them for four purposes only, namely, to make payroll (including benefits), for mortgage interest pyaments, for rent payments, and/or for utility payments. In terms of rent, utility, and mortgage interest costs, PPP money may only be utilized to pay obligations that arise prior to February 15, 2020. Entities that are found to have used the funds for additional purposes may be subject to a fraud investigation.
Because of this, it is wise for companies that were granted PPP loans to fully document how all expenses were paid during the relevant time period into order to ensure compliance should an investigation arise.
5. Fraudulent Use of PPP Funds
It is worth nothing that the PPP’s terms provide that no personal guarantee is required in order to receive a loan, but if proceeds are ultimately used in fraudulent ways, the federal government can pursue criminal charges against involved individuals. This is not insignificant, because according to the False Claims Act, it is possible to receive upwards of five years’ incarceration in addition to hefty fines if found guilty of fraudulently securing PPP funds. For those engaged in more substantial fraud, it is possible that multiple criminal charges will be lodged, exposing the accused to lengthier prison terms and fines into the millions.
6. Fraud in Seeking Loan Forgiveness
The PPP is known for having a very low rate of interest, but still, there are many entities that will find themselves eligible to have their loan balances forgiven. To secure forgiveness, companies need to certify that they have met all eligibility terms on an ongoing basis and that their PPP funds have been used in an authorized manner. Part of this certification is an attestation that all supporting documentation is true. Failure in this realm can also be a predicate for a fraud investigation.
7. Concealment or Misrepresentation During PPP Investigation
The Justice Department, the FBI, and a number of additional federal agencies will be tasked with performing fraud investigations and audits related to companies’ use and handling of PPP funds. Should your company find itself the subject of such a probe, it is essential that care is taken to prevent the disclosure of potentially concerning material. At the same time, however, it is vital that no misrepresentations or attempts to conceal key facts are made. False statements to federal law enforcement agencies in and of themselves comprise a type of fraud that can lead to federal prosecution.
If an Investigation Should Arise
If you learn that your company will be the subject of a PPP audit or criminal probe, it is critical that you engage the services of an experienced team of federal criminal defense attorneys immediately. There is no time to waste when it comes to preparing your response. The stakes are very high when it comes to fraud allegations of this nature, so it is best to leave nothing to chance.
Criminal Liability for PPP Loan Fraud
When the Paycheck Protection Program began in the early stages of the COVID-19 pandemic in 2020, many companies were forced to completely shut down their operations. Panic was widespread, the stock market had crashed for a brief period at the time, and supply chains around the world were completely disrupted. As a result, businesses hastily applied for any PPP assistance they could get.
Initially, the federal oversight aimed at determining which businesses would receive funds was relatively poor. Government agencies simply did not have time to scrutinize every application. In most cases, businesses were able to receive funds on the basis of very limited research and without any independent auditing. Additionally, since businesses were in a race to get funds immediately, they often did not work with legal counsel as much as they normally would when applying for assistance under the program.
Consequently, many businesses that received PPP funds are facing regulatory scrutiny and even criminal charges. For this reason, it is imperative for businesses to determine whether their use of PPP funds was legal.
How Is PPP Loan Fraud Defined?
Companies looking to determine the legality of their use of PPP funds need to first understand what PPP loan fraud is. It is important to keep in mind that in the U.S., fraud is a very broad legal term. Some frauds merely involve misrepresenting the nature or quality of a product or service in a way that causes very limited damage to another party. On the other hand, severe frauds can range from Bernie Madoff’s $65 billion Ponzi scheme to deliberate scams involving fictitious products that are never delivered.
Additionally, there are many different ways that fraud charges can be pursued in court. Most fraud cases are civil cases that are brought to court by the counterparty in a transaction. As a result, many civil fraud cases are dismissed or settled out of court. Other more severe fraud cases can involve criminal fraud charges that are brought by the federal government. However, most states have their own criminal fraud laws, so state and local governments are also often able to bring their own fraud charges against wrongdoers who are not pursued at the federal level.
Common Fraud Charges Involving PPP Funds
Currently, businesses owners who received PPP funds need to be most concerned about fraud charges brought by the federal government. Some businesses have been hit with fraud charges involving “loan stacking,” a practice that involves applying for multiple loans using subsidiaries. In some cases, the PPP program was so disorganized that business owners who submitted multiple applications had multiple loans approved. Even though the federal government may seem to be at fault for approving multiple loan applications, the reality is that depositing multiple PPP checks for redundant claims is usually considered fraud.
Other companies have faced charges for misrepresenting their payrolls or intentionally misclassifying employees to receive more funds. PPP loans are supposed to be limited to two months of a company’s average payroll, but some companies engineered ways to make their payrolls seem higher to get more funds. Loans were also supposed to only be taken out if they were necessary to support ongoing operations, but many businesses subsequently invested their PPP funds in acquiring new assets or even distributed their PPP funds in their next dividend.
Possible Charges for PPP Loan Fraud
No specific statute has been implemented to make PPP loan fraud a crime. However, any action that can be construed to involve defrauding the government can be considered a serious crime.
The False Claims Act can be used to indict businesses that made any misrepresentations on their PPP applications. Additionally, there are fraud laws that impose particularly steep penalties for making false statements to the Small Business Administration.
Many small businesses were led to believe that their PPP applications were approved by a private bank, but these applications were ultimately approved by the SBA. Of course, there is also a fraud law involving making false statements to an FDIC-insured bank, so businesses that made even the smallest misstatements in their applications could face multiple charges.
In some cases, common fraud charges, such as bank fraud and wire fraud, can be used in cases involving PPP funds. Charges can be even more severe when businesses or individuals engaged in deliberate fraud in an attempt to take money from the federal government. PPP-related schemes involving identity theft and tax evasion have been common, and many perpetrators of these schemes are starting to be prosecuted.
How Much Risk Exposure Does Your Business Have?
As always in criminal matters, businesses can never be certain that they will not face charges. Nevertheless, businesses can assess their risk by considering what actions could constitute fraud and reviewing the evidence that would be available to prove fraud charges in court. After all, businesses are protected by the fact that prosecutors have to prove that misstatements were deliberately made to defraud the government. In many cases, it is not possible to prove that a misstatement was made intentionally. Therefore, businesses that received PPP funds should work with their attorney to assess their risk and take the right actions to mitigate potential charges.
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