PPP Loan Fraud involves submission of false or fraudulent information to the Small Business Administration in an effort to secure funding under the Paycheck Protection Program.
What is the Paycheck Protection Program?
The Paycheck Protection Program (commonly abbreviated as “PPP”) is legislation that was passed by Congress as part of the Coronavirus Aid, Relief, and Economic Security Act (commonly abbreviated as “CARES”), that allows businesses and self-employed individuals to apply for government funding in order to cover their payroll and operating expenses to stay in business. Although PPP funding is considered a loan, it is a fully forgivable loan so long as the business or the self-employed individual spends the funding in compliance with the federal guidelines. Specifically:
- 60% or more must be spent on payroll (W2 employees only, no 1099 employees);
- Remainder, 40% or less, must be spent on “eligible business expenses,” such as rent payments, utilities, and other fixed business expenses.
In order to quality for PPP funding, the employer (business or self-employed individual) will need to submit an application to a commercial bank along with supporting documentation. As part of the application, the business owner will need to certify that the financial information is truthful. In the event the applicant does not meet the required spending provisions for the PPP funds, theres no criminal penalties. Rather, the loan must be repaid at 1% interest. Criminal charges and penalties only become an issue if the documents submitted in support of the application or forgiveness are fraudulent.
What is PPP Loan Fraud?
PPP loan fraud happens when the applicant for PPP funding submits false, or exaggerated information in an effort to obtain PPP Funding or a greater amount of PPP funding than the business or the self-employed individual otherwise qualifies for. Eligibility for PPP funding is controlled by strict requirements. Similarly, the spending of PPP funds is also controlled by stringent requirements. Creating of
PPP loan fraud is when an individual or business submits false information in an application or certification for a loan under the federal Paycheck Protection Program (PPP). The PPP was created to help companies stay in business during the coronavirus pandemic by providing forgivable loans to cover payroll and operating expenses. Businesses can apply for PPP loans through commercial banks but must meet several criteria for eligibility. Even after a business obtains a PPP loan, it must abide by strict requirements and limits on how businesses can spend the funds. Any false application or mismanagement of PPP funds can result in criminal charges being brought against you.
What Are the Types of PPP Loan Fraud?
There is no specific federal criminal charge that applies to PPP Loan Fraud. However, the federal criminal charges are very broad and can apply to PPP loan fraud, based on specific criminal conduct. PPP Loan Fraud case be prosecuted under the following statutes:
- Bank Fraud,
- Wire Fraud,
- Mail Fraud, AND
- Making False Statements to a Financial Institution,
Bank Fraud is codified in 18 U.S.C. Section 1344. This charge involves engaging in a scheme to defraud a U.S. financial institution. Since PPP loan and forgiveness applications are processed by commercial bank, PPP Loan Fraud can be prosecuted as Bank Fraud. Bank fraud is punishable by up to 30 years in prison as well as a fine.
PPP Loan Fraud can also be prosecuted under the Wire Fraud Statute, which is codified in 18 U.S.C. Section 1343. Under the federal Wire Fraud Statute, it is a crime to defraud an individual or an entity using “wire communications” that affect interstate commerce. As this charge is very broad, wire, radio, television and telephone communications all fall under this statute. As submission of PPP loan applications is frequently done via internet, PPP Loan Fraud can be prosecuted under the federal wire fraud statute. Similarly to Bank Fraud, Wire Fraud is punishable by up to 20 years in prison as well as a fine.
For PPP loan applications or forgiveness documents that are submitted through USPS or another commercial mail carrier, PPP loan fraud can be prosecuted through the Mail Fraud statute. Mail Fraud statute is codified in 18 U.S.C. Section 1341, and is punishable by up to 20 years in jal.
False Statements to a Financial Institution
Another charge that can be used to prosecute PPP fraud is 18 U.S.C. Section 1014, titled False Statements to a Financial Institution. Under 18 U.S.C. Section 1014, an individual can be prosecuted for making a false statement on a loan application or any other documents submitted to the bank to get a loan. This charge is punishable by up to 30 years in prison as well as a fine.
What Happens During a PPP Loan Fraud Investigation?
Initially, either the federal investigators or federal prosecutors become alerted to suspicious PPP loan applications or PPP forgiveness documents. Generally, these violations involve:
- Making false statements or submitting false documents in support of a PPP loan application,
- Spending PPP loan money on non-business related purposes,
- Making false statements or material omissions when being interviewed by the agents, AND
- Submitting a false certification or false documents to obtain PPP loan forgiveness.
After being alerted to potential PPP fraud, the investigators will conduct their investigation, which will include:
- Obtaining copies of loan applications and supporting documents,
- Reviewing company’s tax filings for prior years,
- Executing search warrants and subpoenas to find out how the funds are being spent, AND
- Conducting interviews of employees as well as targets of the investigation.
After starting the investigation, the Agents will make contact with the target of the PPP Loan Fraud application, who most likely is the person who applied for the loan and signed the certification.
How Do I Find Out If I Am Under Investigation for PPP Loan Fraud?
There is no set way in which you find out that you are under investigation for PPP Loan Fraud. Some of the ways you can find out that you are under investigation is:
- Having the agents at your home or place of business seeking to interview you or to execute a search warrant,
- Receiving a Target letter from the U.S. Attorney’s Office advising that you are under investigation,
- Discovering that your bank accounts are seized or frozen,
- Getting a call from the SBA with follow up questions regarding your application, OR
- Receiving a notification that the PPP loan funds have been taken out of your bank account and reverted back to the SBA.
What Should I Do If I Find Out I Am Under Investigation for PPP Loan Fraud?
Although the natural instinct may be to pick up the phone and talk to the agents, that is the last thing you should be doing. Agreeing to an interview without the help of an attorney can put you in a much worse situation than the one you are in. You should consult and retain an experienced federal criminal defense attorney before you agree to be interviewed by the agents or before you comply with a subpoena compelling a production of documents.
You shouldn’t feel compelled or rushed to speak to the investigators regarding PPP Loan Fraud. In the event the agents are pressuring you to speak to them immediately, calmly tell them that you are in the process of retaining an attorney and the attorney will call them back.
Contact Us Today
Given the magnitude of federal spending on the CARES Act, enforcement and prosecution of PPP Loan Fraud is a a priority for the U.S. Department of Justice. Although enforcement of PPP Loan Fraud has only started recently, we are already representing several individuals charged or suspected of PPP Loan Fraud. If you or your loved one is under investigation for PPP Loan Fraud, please contact us today to schedule your initial consultation. We look forward to working with you.