Paycheck Protection Program (PPP) Loan Fraud / CARES Act Fraud
Paycheck Protection Program (.i.e. PPP) loan fraud occurs when a person through deception or lying or misrepresenting facts wilfully obtains a loan under the PPP created by the Coronavirus Aid, Relief, and Economic Security Act, Senate Bill 3548 (.i.e. CARES Act) that they know or ought to have known they are not entitled to or exceeds the loan amount that they would have been entitled to but for the deception or misrepresentation.
PPP provides fully forgivable loans that are guaranteed by the federal government to qualifying employers who maintain their payroll during the COVID-19 emergency. If employers maintain their payroll, the loans will be forgiven for up to 8 weeks of the payroll based on the employee retained and salary levels. To be eligible for the PPP Loan and other CARES Act relief, small businesses must have less than 500 full time employees, be affected by COVID-19 and have a net worth of less than $15 million. An eligible person can obtain up to $10 million to cover payroll, mortgages, rent, and utilities for eight weeks but the loan will be forgiven if it is used to cover expenses that are allowed by the Act. PPP also covers certain individuals who operate a sole proprietorship, independent contractor and eligible self-employed individuals.
Wilfully obtaining a loan through deception and misrepresentation of facts from the Small Business Administration (SBA) out of the PPP for personal benefit is a Federal felony (a crime punishable by death or imprisonment in excess of one year). If prosecuted and convicted you can be sentenced to time in Federal prison, fines and ordered to repay the loan. Becoming a felon can have serious long term legal consequences including losing the right to own fire arms, you may be legally discriminated in employment, and deported, among other consequences.
For businesses employing illegal immigrants, it should be noted that, the Small Business Act provides that none of the funds made available pursuant to this Act may be used to provide any direct benefit or assistance to any individual in the United States if the Administrator or the official to which the funds are made available receives notification that the individual is not lawfully within the United States.
PPP loan fraud occurs when a person through deception or lying or misrepresenting facts wilfully obtains a loan under the PPP created by the Coronavirus Aid, Relief, and Economic Security Act, Senate Bill 3548 (.i.e. CARES Act) that they know they are not entitled to or exceeds the amount that they would have been entitled to but for the deception or misrepresentation. It extends to instances where a person obtains a PPP loan under the CARES Act or seeks for loan forgiveness under the Act yet that person does not meet the requirements set by the Act. Examples of such fraud include:
For oversight purposes, the CARES Act created the Office of the Special Inspector General for Pandemic Recovery. Under Section 4018 of the CARES Act, the Inspector General is authorized to conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury including the PPP. Prosecutions arising from such investigations by the Inspector General are carried out by the Justice Department.
PPP loan fraud is a federal crime under the Small Business Act. It is a federal felony (a crime punishable by death or imprisonment in excess of one year) because if you are prosecuted and convicted you can be sentenced to time in prison, fines and ordered to repay the loan. Becoming a felon can have serious long term legal consequences including losing the right to own fire arms, you may be legally discriminated in employment, among others. The sentence depends on the specific offense as indicated below:
|Crime under the CARES Act||Section applied in Small Business Act||The punishments prescribed by the law|
|Making false statements, or
|16 (a)||This is Felony because a defendant is liable to:
· Fine not exceeding $5,000 and/or
· 2 years in Federal Prison
|Embezzlement||16(b)||This is Felony because a defendant is liable to:
|Concealment of mortgaged property||16 (c)||This is a misdemeanor because a defendant is liable to:
· $1,000 and/or
· 1 year in Prison
|Misrepresenting a business as a small business yet it is not||16 (d)||This is Felony because a defendant is liable to:
In addition, the defendant is required to pay restitution which may include interest on the amount that was fraudulently obtained and the full loan.
To successfully prosecute people facing PPP loan fraud charges, the government must prove beyond reasonable doubt that the accused person wilfully misrepresented facts or deceived with an intent to deprive the government of money or other property for personal gain. Proof beyond reasonable doubt means that the evidence against the accused is such that it leaves only a remote possibility of that person’s innocence. In their defense the accused person’s lawyer can argue that either:
Criminal law presumes that every offence except a few regulatory offenses require a guilty mind on the part of the accused. Therefore, the state must prove that the accused person had an intent to defraud but the defense can rebut the accusation by showing that the actions of the defendant were not wilful or deliberate but were inadvertent or due to a human error or mistake and thus, there was no intent to defraud. However, in such cases there is often a duty of care on the applicant to provide accurate claims, or information. Therefore, if the state can prove that you failed to exercise sufficient skill and care that would be expected of a person of your knowledge, skill and experience, it might succeed on the charge.
Defendants are not criminally liable if they accidentally or through a common mistake or error provided false information. Any person can made an error when applying for a loan because the applications are usually complex and technical. In addition, due to heightened stress as a result of COVID 19 and financial difficulties, a person may inadvertently (unintentionally) get things wrong.
For example: Moses might include an employee in his loan application without remembering that the employee left the business. He does not realize this mistake when he submits the loan application. In such circumstances, Moses has not committed a crime because he has no intent to defraud, he merely made a mistake in his application. He can explain away his error and the state would find it difficult to prove to court beyond reasonable doubt that his intention in including the departed employee was to defraud the government.
However, if the state can find a witness or a correspondence which shows that Moses included the name to increase his loan amount or the amount forgiven, it could successfully prosecute him because it would show an intent to defraud. The state might also succeed if it can prove that Moses was reckless /negligent.
Given the number of application handled by the U.S. Small Business Administration, the short time frame and the anxieties surrounding COVID-19, errors by government staff are inevitable. Where fraud is alleged against a person, that person can argue that the SBA made a mistake especially if that person has records to back up the claim. In the circumstances, it is always prudent for business owners to keep all their records and to document everything they do. The business owners should ensure that they keep copies of all their business records, including emails, voice mails, notes, receipts, orders, pay checks, employee correspondences, bank statements, business correspondences and other business records.
Federal criminal records are sealed only in exceptional circumstances at the discretion of the judge to protect minors, witnesses, trade secrets and national security. It is highly unlikely that court will agree to seal your criminal record unless you fall within these categories.
Under Section 1227 (2) (A) of the Aliens and Nationality Act any alien who is convicted of a crime involving moral turpitude committed within five years (or 10 years in the case of an alien provided lawful permanent resident status and is convicted of a crime for which a sentence of one year or longer may be imposed is deportable.
Fraud is an offense involving moral turpitude and most fraud offenses under the Small business Act are felonies because the Act imposes imprisonment of more than one year. In the circumstances, non-citizens convicted of CARES Act fraud are vulnerable to deportation.
Therefore, we encourage non-citizens facing criminal charges to consult with legal counsel as soon as possible. A criminal defense attorney may be able to get the charges dismissed or get them reduced to a non-deportable offense.
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