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Corporate Investigations & PPP Loan Fraud

Is your company at risk of PPP loan fraud allegations due to a federal audit, or federal investigation? Our criminal defense lawyers can help you assess your level of risk, and build a defense strategy.

The PPP was designed to help businesses, but it led to widespread fraud due to a lack of oversight. The SBA is auditing all companies that got loans of $2 million or more, and the OIG, FBI, IRS, DOJ, and other agencies are also getting involved in these PPP loan fraud allegations. Companies that received PPP loans must take measures to ensure they don’t face criminal liability in the event of an audit or investigation by the SBA.

At Spodek Law Group, we have experience representing clients nationwide in a wide array of PPP matters, and other issues. This includes cases involving numerous federal agencies, at various stages of the criminal defense investigation process.

Why business owners need to conduct due diligence regarding their PPP loans

The PPP offered relief to business owners. The issue is the loan comes with a number of risks. Banks were flooded with applications – some which were fake, some which had false information, and some which were legitimate. Companies were rushing to get their application in quickly. When the initial round of funding opened for the PPP program, the eligibility criteria for getting PPP loans wasn’t clear. Even though the CARES Act provided a framework, there were many unanswered questions. The SBA was forced to issue a subsequent FAQ in order to help explain the PPP requirements.

While the DOJ has started subpoenaing PPP lenders, at this point it is focused on getting more information about PPP applicants. There is a chance that some lenders could face allegations for enabling fraudulent PPP loan applicants, but ultimately – it’s likely that the blame will rest entirely on the applicants themselves. Asa  result, just because the bank issued you the PPP loan doesn’t mean you are absolved of guilt. If your PPP application contained inaccuracies, or if it contained blatant lies, or if you submitted your PPP loan application to multiple lenders – then your company is likely to be at risk of an SBA audit, or worse.

Another common reason for PPP loan fraud investigations is when a company submits a request for PPP loan forgiveness, based on inaccurate information. All loans issued under the PPP loan program are eligible for forgiveness, assuming the loan recipient adheres to the requirements required for the use of the PPP funds. Specifically, companies can only for forgiveness on the PPP loan when its used for payroll costs, insurance premiums, interest, rent payments, utilities, and payroll.

When submitting your request for PPP forgiveness, companies have to submit a certification that the business owner complied with the terms of the PPP. Making this certification requires that you make the affirmative stance that you are not lying, or relying on assumptions/willful ignorance, and the statements you are making are correct.

Another issue regarding corporate investigations for PPP loan fraud is applying for a loan that you weren’t eligible for. When the first round of funding opened under the PPP loan, banks were flooded with applications and the funds were quickly exhausted. Companies rushed to get their applications in, and as a result – many applicants got funding that they didn’t deserve.

Initially, the PPP eligibility wasn’t clear. As a result, banks gave loans to people who didn’t deserve it. In reality, many companies didn’t even know they didn’t deserve the PPP funds. Once the SBA realized that their guidance wasn’t clear – and it was their fault partially, the SBA offered a grace period – where borrowers could return PPP funds – without any penalty.

The penalties for PPP loan fraud can be huge

If you’re accused of PPP fraud under the CARES Act PPP program, corporate entities can face huge penalties. Owners, executives, etc, can be at risk for a civil or criminal prosecution.

Below are examples of charges that you can be at risk: wire fraud, tax fraud, tax evasion, making false statements to the government, conspiracy to commit wire fraud, conspiracy to make false statements to the government.

In civil cases, penalties for PPP fraud can include many fines, such as treble damages, attorney fees, exclusion from other federal government programs, and more. In criminal cases, company owners and board members can face fines and federal imprisonment.

What’s involved in an internal corporate PPP loan fraud investigation?

When you conduct an internal corporate investigation, the focus has to be on confirming you are in compliance with the CARES Act. The facts have to confirm you were in compliance when you applied. Companies should rely on legal counsel who can oversee the investigation, and help ensure there are no issues.


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