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PPP LOAN FRAUD PENALTIES

March 12, 2022 Federal Criminal Attorneys

Are you being accused of PPP loan fraud? There is a lot of scrutiny going on – with recipients of the Paycheck Protection Program. There are so many fraudulent PPP loans that were issued, and now being investigated by the Department of Justice. At the same time, the IRS, the FBI, and the SBA, are all looking at borrowers who received $2 million or more in PPP funds and investigating them for fraud. Some borrowers who received smaller loans, as part of an ongoing effort to investigate potential abuses – are also being looked at. If you’re a small business owner who applied for the Paycheck Protection Program – you could be at risk for an SBA audit, or a federal investigation.

The PPP loan fraud penalties can be severe. You shouldn’t hesitate to seek legal guidance from the Spodek Law Group. We encourage you to contact our PPP loan fraud attorneys today, for a risk free consultation.

About the Paycheck Protection Program

The Paycheck Protection Program is a $670 billion federal loan program which was established by the SBA in March 2020, under the CARES act. In the middle of the pandemic, the PPP program was intended to provide business owners the economic aid they needed to keep employees on their payroll. PPP provided funds in order to pay employee salaries, and support ongoing business operational costs. The key component of the Paycheck Protection Program was the provision that the loans can be forgiven provided that recipients retained their workforce, maintained employee salary levels, and used the funds to cover the payroll costs and other eligible expenses. The loan amount was based on the # of employees, average payroll costs. 60% of the loan had to be used for payroll, while the other 40% could be used for interest on office mortgage, rent, utilities, etc.

PPP Loan Recipients Could Be At Risk

The PPP program was very susceptible to fraud schemes, more than anyone could have predicted. As a result of this, the federal government has increased their oversight of the program, and are working very hard to ensure compliance of the loan program .The rules and regulations governing the Paycheck Protection Program is constantly changing, and business owners are unsure of whether they were eligible for it – and qualify for loan forgiveness. The Department of Justice is very carefully investigating allegations of PPP loan fraud, and the SBA is auditing PPP loan recipients. There is immense risk for criminal prosecution re: PPP fraud.

What Constitutes PPP Loan Fraud?

The PPP rollout was very rocky. There was high unemployment, and there were ongoing concerns about the pandemic. Small business owners scrambled to get PPP funds before the cash ran out. Lenders struggled to keep up with the influx of loan applications. As of mid-July, the PP program had issued almost 4.9 million forgivable loans for a total of $521 billion in funds. Unfortunately, there was so much confusion – many businesses got PPP funds that weren’t eligible for it. As the federal government undertakes an effort to root out abuses with the PPP program, many applicants and recipients are now concerned about audits and investigations, or being charged with a crime.

Below are examples of things that can trigger criminal prosecution for PPP loan fraud:

  • Overestimating the number of employees
  • Misclassifying employees in order to qualify as a small business
  • Making bad-faith certifications on a PPP loan application
  • Inflating payroll costs to get a higher PPP loan amount
  • Getting PPP funds from multiple lenders
  • Using PPP funds for unauthorized expenses
  • Firing, or failing to rehire employees or cutting employee salaries despite getting PPP funds

PPP Loan Fraud Penalties

The CARES Act doesn’t specifically contain provisions for criminal enforcement of the Paycheck Protection Program. The Act simple says that PPP loan recipients who fail to retain employees, and fail to use funds for qualified expenses for loan forgiveness, have to repay the loan at an interest rate of 1%. As a result, the DOJ has relied on pre-existing federal statutes when pursuing charges for PPP loan fraud. Below are examples of some of the federal crimes the DOJ might pursue against individuals who are suspected of committing PPP fraud and the associated penalties.
  • Bank Fraud – max sentence of 30 years in prison, and/or up to $1,000,000 in fines
  • Wire Fraud – Fine, and/or imprisonment of 20 years. Or 30 years, plus a maximum fine of $1,000,000
  • Mail Fraud – Fine, and/or maximum prison sentence of 20 years
  • Making false statements to the SBA or a financial institution – Imprisonment of up to 30 years, fine up to $1,000,000 or both
  • Aggravated Identity Theft – 2 year term of imprisonment, in addition to the penalty for the underlying offense
  • Attempt and Conspiracy – Any attempt or conspiracy to commit a fraud crime, can be punished by the same penalties as the actual fraud
  • Making false statements to federal agents – Fine, and or a maximum sentence, of 5 years in prison
  • Conspiracy to defraud the government – Fine and/or term of imprisonment of up to 5 years
  • Tax evasion – Fine of up to $100,000 for an individual, or $500,000 for a business, a term of imprisonment of up to 5 years or both

The most serious penalties are tied to crimes like bank fraud, mail fraud, and wire fraud. Making a false statement to the SBA or a financial institution can lead to a prison term of up to 30 years. Other federal crimes carry varying degrees of penalties. If you are accused of attempting, or conspiring, to defraud the Paycheck Protection Program —- even if you didn’t get PPP Funds, you could still face criminal penalties upon conviction as if the fraud was successful.

DOJ Aggressively Pursuing PPP Loan Fraud Penalties

Federal investigators have ramped up efforts to combat PPP loan fraud. Since 2021, individuals in many states have been arrested, and criminally charged with fraud crimes and/or the attempt to commit fraud crimes like bank fraud, wire fraud, and for making false statements to a financial institution. The DOJ has issued many press releases following the announcement of charges in each case. Below are examples of what the government is cracking down on:

  • Applicants who are making false or misleading statements on their PPP loan application
  • PPP funds used for unauthorized purposes
  • Loan recipients making false statements on PPP loan forgiveness applications

 

 

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