Last Updated on: 28th July 2023, 07:21 pm

The CARES Act and the Paycheck Protection Program (PPP) were established to provide financial assistance to businesses suffering from the COVID-19 pandemic. But with such a large amount of money allocated, the government and private banks have launched investigations to uncover fraud and irregularities in the PPP loan application process.

If your business is under audit or investigation, retaining a skilled federal criminal defense attorney is crucial to protect yourself from facing criminal charges. Federal and state law enforcement agencies are actively looking into cases of Loan Stacking, unauthorized use of PPP funds, and fraudulent Loan Forgiveness Certification.

Don’t make the mistake of disclosing incriminating information or making false statements to law enforcement agents, as this can result in separate charges. Possible federal charges related to PPP loans include:

• 15 U.S.C. § 645 – False Statements, Commerce Fraud
• 18 U.S.C. § 371 – Conspiracy to Make False Statement
• 18 U.S.C. § 1001– Making a False Statement
• 18 U.S.C. § 1014 – False Statement to a Bank
• 18 U.S.C. §1343 – Wire Fraud
• 18 U.S.C. § 1344 – Bank Fraud
• 18 U.S.C. § 1349 – Conspiracy to Commit Bank Fraud

The PPP was an essential part of the CARES Act and was meant to provide much-needed relief to struggling businesses. Despite its size, the program was depleted in a matter of minutes and many eligible companies were left without funding. Due to the disorganized nature of the application rollout, many companies that received PPP loans can expect to face scrutiny from federal authorities.

The U.S. Treasury Department’s Office of the Comptroller of the Currency is seeking feedback from lenders on how to improve future relief programs and address the flaws of the PPP. Meanwhile, other agencies are looking back to identify companies that received PPP funds illegally. For these companies, the risk of prosecution is high, making it imperative to engage experienced federal counsel to mitigate the risk of substantial penalties.

RED FLAGS FOR PPP LOAN FRAUD

1. Lack of Documentation to Prove Affirmative Representations in Loan Application

• Companies must make several important claims during the loan application process.
• To be eligible, they must show:
  • Need for the loan due to economic uncertainty and to maintain operations.
  • Having fewer than 500 employees or fitting the definition of a small business.
  • Owners being eligible for SBA programs with no felony convictions in the past 5 years.
• Federal agents will check for documentation to verify these representations during audits or investigations.

2. Submitting Multiple Loan Applications to Different Lenders

• The CARES Act allows only one PPP loan from one lender per company.
• Obtaining multiple loans (“stacking”) is illegal and can lead to criminal charges.
• Attempting to get more than one loan can also result in the same penalties.

3. Failure to Adopt PPP Compliance Policies

• The CARES Act requires companies to have policies in place to ensure PPP compliance.
• Lack of such policies can raise a red flag for fraud during SBA audits or investigations.

4. No Separate Account for PPP Loan Funds

• Companies must use the loan funds for specific authorized purposes, like payroll and insurance.
• To account for all expenditures, companies should deposit the loan into a separate account.

5. Inadequate Documentation of PPP Loan Expenditures

• Extensive documentation is necessary to show that the loan funds were used only for authorized purposes.
• Incomplete or insufficient documentation can be seen as a red flag for fraud and make it difficult to defend against federal allegations.

Austin PPP and EIDL Loan Fraud Lawyers

What is Paycheck Protection Program (PPP) Loan Fraud All About?

The Paycheck Protection Program, just like any other federal program, has the potential to attract allegations of fraud. This could stem from intentional deceit or simply from accidental errors that still led to receiving of federal funds wrongly. Let’s delve into the various forms of fraud that could be associated with the PPP:

• Loan “Stacking” The OCC is keen on monitoring this form of fraud where an applicant receives multiple PPP loans from different lenders. This can easily be detected by the federal government as they have the ability to track all PPP funds. Companies that received funds from more than one lender could be early targets for prosecution.
• PPP Loan Application Fraud Misrepresentation of information on loan applications could lead to prosecution. This could include but not limited to:
  • Misrepresenting the company’s employee count to meet eligibility criteria
  • Misclassifying employees as independent contractors to meet eligibility
  • Misrepresenting the company’s size to meet SBA standards
  • Overstating payroll costs to increase loan amount
• Fraudulent Loan Certification Mandatory certifications for securing PPP loans include:
  • “Current economic uncertainty makes the loan necessary”
  • “The funds will be used for payroll, mortgage, rent, or utilities”
  • “You have not and will not receive another PPP loan”
  • “Information provided is true and accurate” Any bad-faith certifications could result in charges for federal fraud.
• Using PPP Funds for Ineligible Purposes Companies are restricted to using PPP funds for specific purposes only (payroll, mortgage, rent, utilities). Using funds for other purposes could lead to fraud allegations. To prove compliance, companies should thoroughly document all eligible and non-eligible expenses.
• Using PPP Funds for Fraudulent Purposes Individuals involved in fraudulent activities could face fines and imprisonment under the False Claims Act. In the event of significant fraud, company owners and executives could face criminal fines and decades of imprisonment.

The U.S. Treasury Department warns that if PPP funds are used for fraudulent purposes, the government will pursue criminal charges. This highlights the government’s determination to prosecute both companies and individuals involved in fraudulent activities under the PPP.