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Last Updated on: 28th July 2023, 07:21 pm
The Paycheck Protection Program (PPP) loan fraud is a federal crime under the Small Business Act, which occurs when small businesses falsely obtain money through the CARES Act. The PPP loan was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020. The PPP loan offered businesses up to $10 million to cover payroll, mortgages, rent, and utilities for eight weeks, and the government will forgive the debt if the money goes towards these “qualified expenses.” Only businesses affected by COVID-19 and with fewer than 500 full-time employees are eligible for CARES relief.
Cheating the Small Business Administration (SBA) out of this stimulus money is a federal felony that carries potential prison time, fines, and repayment of the loan. The sentence depends on the specific offense, such as making false statements or overvaluing securities, which can result in a felony charge of $5,000 and/or 2 years in Federal Prison.
However, there are several common defenses that people facing PPP loan fraud charges can argue, such as that the defendant had no intent to defraud or that the SBA made a mistake. In some cases, defendants are not criminally liable if they accidentally provided false information, such as in the case of an applicant who inadvertently added an extra zero to their monthly payroll amount. Additionally, business owners should keep all their records, such as email communications, voicemails, bank statements, accounting notes, receipts, and bills, as they may serve as valuable proof of the defendant’s innocence if the government levies a false accusation.
It’s worth noting that most federal criminal records are unsealable, and that non-citizens convicted of CARES Act fraud are vulnerable to deportation. Therefore, aliens facing criminal charges are encouraged to consult with legal counsel as soon as possible to get the charges dismissed or reduced to a non-deportable offense.
The Paycheck Protection Program was immensely popular, but with lenders overwhelmed by applications, little regulation in place, and many businesses left out in the cold, accusations of fraud soon followed. To date, the SBA’s Office of Inspector General has issued 11 reports detailing widespread fraud and abuse in the PPP loan program. With the vulnerabilities the PPP had, it’s important for businesses to be aware of the potential dangers and the consequences of committing fraud under the PPP program.
As our federal criminal defense attorneys have witnessed, federal prosecutors are relentlessly pursuing criminal charges for a plethora of conduct related to the Paycheck Protection Program. Investigations and indictments often pertain to the following types of alleged misconduct:
PPP Application Fraud
The CARES Act mandated that businesses applying for PPP loans must provide accurate and truthful information on their application. The Small Business Act, 15 U.S.C. § 632, imposed various requirements for businesses to meet in order to qualify for a loan and eventually loan forgiveness. For instance, businesses had to be of a certain size and demonstrate that they had been adversely impacted by the pandemic. The funds could only be used for specific purposes. Under the act, providing false information as part of a loan application could result in an investigation or criminal charges. The federal government is particularly interested in false information relating to:
The number of employees working for the company (companies with more than 500 employees were not eligible for PPP funds)
Accurate Employee Payroll Numbers – if a company submitted an application which overstated the number of employees or the amounts that employees would make in order to get more money, then that could result in criminal charges.
Companies that categorized a number of its employees as independent contractors to qualify as eligible applicants.
Salary and Revenue Numbers for the Company and its Employees
Using someone else’s information to apply for a loan.
Fraudulent Use of the PPP Loan Funds
The Paycheck Protection Program imposed limits on the use of the funds from the PPP loans. For example, Congress required that the loans be used for the following expenses:
To pay for interest and rent under current leases.
To pay a company’s payroll expenses.
To pay insurance premiums.
To pay for utility costs.
The funds were not supposed to be used for other purposes, and the use of the funds for other purposes would result in the funds not being eligible for loan forgiveness. Therefore, if the funds were used for personal expenses or luxury items rather than legitimate business expenses, those expenditures could attract the attention of federal prosecutors in the United States Attorney’s Office or Department of Justice.
Fraud in the Loan Forgiveness Certification Process
The PPP allowed for the complete forgiveness of many of the loans provided that certain requirements were met. Providing false information in connection with a forgiveness application, however, could lead to criminal charges. Companies that sought forgiveness of the loans had to comply with the terms of the program and prove that they were in fact eligible for forgiveness. Some companies were also required to provide supporting documentation. If a borrower submitted fraudulent or inaccurate documents, attested to statements that were not true, or provided incomplete information, those submissions could attract federal attention.
In order to obtain loan forgiveness, borrowers were required to certify that:
The loan was needed due to economic uncertainty related to the pandemic.
The funds were in fact used for the intended purposes such as retaining employees or paying rent, leases, or utility bills.
The business only received one loan (or two loans for qualifying businesses) and did not receive loans from multiple lenders,
And that the documents and information submitted is in fact accurate and truthful.
Obtaining Multiple PPP Loans From Different Lenders
Finally, the PPP allowed for up to two loans for some companies. Companies that applied for more than one loan with multiple lenders for which they were not eligible could be investigated by the government and criminally charged. As the federal government has records of who received funds under the program, any business that borrowed from more than one lender should contact a criminal defense attorney immediately.
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