As the nation continues to grapple with the economic fallout of the COVID-19 pandemic, federal prosecutors have been cracking down on alleged fraud related to the Paycheck Protection Program (PPP). Our seasoned federal criminal defense attorneys have witnessed firsthand the aggressive pursuit of charges for a wide range of conduct associated with these loans. In this article, we will explore the various types of PPP loan fraud that have been the focus of investigations and indictments.

PPP Application Fraud

The CARES Act, which established the PPP, stipulated that businesses applying for loans must provide accurate and truthful information on their applications. Failure to do so could result in criminal charges. The Small Business Act, 15 U.S.C. § 632, also imposed requirements that businesses had to meet in order to qualify for a loan and eventual loan forgiveness. For instance, businesses were required to be of a certain size and to demonstrate that they had been negatively impacted by the pandemic. The money could also only be used for specific purposes.

One area of particular interest to federal prosecutors is false information provided in relation 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 PPP Loan Funds

The PPP imposed limits on the use of funds from these loans. For instance, 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 intended for other purposes, and using them for other purposes would result in the funds not being eligible for loan forgiveness. Consequently, if the funds were used for personal expenses or luxury items instead of legitimate business expenses, those expenditures could attract the attention of federal prosecutors.

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. However, providing false information in connection with a forgiveness application 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

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