PPP Loan Fraud Charges

In March 2020, the Coronavirus Aids, Relief and Economic Security (CARES Act) was passed by Congress to offer stimulus to families and small businesses. One part of this stimulus included the Paycheck Protection Program (PPP) – at the time $349 billion in funds allocated as forgivable small business loans. The purpose of these loans was to cover payroll costs, most mortgage interest, rent and utility costs over the period the loan is made. As one would expect for a program created hastily in the midst of a crisis, it was rife with loopholes and overwhelmed with applications. As regulatory requirements have been rapidly evolving, many businesses have been confused about their eligibility or how they are supposed to allocate loan funds. This has put many businesses who received PPP loans at risk of federal investigation and legal penalties over alleged fraud.

If your business is facing an investigation for PPP loan fraud, or you are concerned about your risk of legal penalties, please contact our North Carolina PPP loan fraud attorneys today. Tarlton Polk Law is committed to representing small business owner’s and fighting for their rights.

Paycheck Protection Program Application

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Other White-Collar Crime Practice Areas

  • Wire and Bank Fraud
  • Internet/Computer Fraud
  • Tax Evasion
  • Perjury, Obstruction, Bribery.

Risk Factors for PPP Fraud Investigation

With the media mostly publicizing cases of PPP fraud that are obvious scams, such as companies that don’t exist applying for loans, it may seem like regular businesses that follow the rules to the best of their knowledge should have nothing to worry about. However, any business that has submitted a PPP application should be aware of the program’s stipulations and the various things that could raise a red flag for federal investigators. The U.S Small Business Administration (SBA) released a list of frequently asked questions about eligibility for PPP loans to offer some helpful guidelines, but there are still several gray areas that leave business owners at risk of investigation. Some riskier aspects of the loan include:

  • Assessing “need” when your business has a source of liquidity: According to Question 31 of the FAQ, business owners who have some source of liquidity to support their business operations have to assess and certify whether they will need a loan “in good faith”. This issue can boil down to how convincing of a case you can make that the economic uncertainty caused by Covid-19 makes your liquid assets possibly insufficient.
  • Applying for PPP loans as a seasonal business: Seasonal businesses have struggled to predict what business would be liked during their typical peak activity periods as the pandemic crisis has been ongoing. Certifying payroll costs for impending seasonal employees can be especially challenging,

With these areas of subjectivity and uncertainty, businesses trying their best to stay in line with regulations can still face investigation and possible charges. While these issues should not deter you from applying for a loan you strongly believe your business needs, you should have experienced trustworthy lawyers you can contact if you are getting targeted for fraud investigation.

Types of PPP Loan Fraud

The laws surrounding PPP fraud are still developing, but for now the laws concerning PPP loans fall under three main categories:

  1. Application Fraud: There are various acts and practices concerning whether a business presents honest and accurate information when applying for a PPP loan. When it comes to federal funds under the PPP program, only companies that qualify as having “small business concerns” under the Small Business Act, 15 U.S.C. § 632 are eligible for funds. The program also specifies that applications must be based on need due to “the uncertainty of current economic conditions making necessary the loan request to support the ongoing operations of the eligible recipient.”
  1. Fradulent use of loan Funds: Funds obtained through a PPP loan may only be used for (1) payroll expenses, (2) interest and rent payments under pre-existing obligations, (3) insurance premiums and (4) utility costs. Use of the loan funds for any other purposes can be investigated as fraud.
  1. Loan Forgiveness Certification Fraud: Some businesses can qualify to not have to repay their PPP loans, but they must first certify that they have complied with all the requirements of the program. If a company submits a false certification, including one with incomplete information, this could be considered PPP loan fraud.

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PPP Loan Fraud Charges

Under each of the above categories, there are a variety of possible charges business owners can face, some of which have very serious consequences. Some allegations you can be charged with include, but are not limited to:

  • Aggravated Identity Theft: If an individual is accused of using another company or individual’s information to obtain a PPP loan, they can face charges for identity theft under 18 U.S.C. § 1028A. This typically coincides with an underlying fraud offense (i.e. Bank Fraud), and entails additional years of federal prison time served after fraud penalties if convicted.
  • Bank Fraud: Under 18 U.S.C. § 1344, individuals and companies that submit fraudulent loan applications can also face charges for bank fraud. The penalty for bank fraud can be up to a $1 million fine and 30 years of federal imprisonment for knowingly defrauding or attempting to defraud a financial institution by means of false pretenses, representations or promises.
  • Conspiracy: Conspiring to commit PPP loan fraud is also considered a federal offense, under 18 U.S.C. § 371 and 18 U.S.C. § 1349. It can even lead up including the same penalties placed on successfully committing a PPP loan fraud offense.
  • False Claims Act Violations: The False Claims act (31 U.S.C. §§ 3729 – 373) prohibits submitting any false claim for payment under a federal benefit program. Submitting false information in a PPP loan application or in a PPP loan forgiveness certification both carry potential to lead to false claims charges.
  • Making False Statements to Federal Agents: When targeted for fraud investigation, individuals must be extremely cautious when sharing information, because sharing false information can lead to federal prosecution under 18 U.S.C. § 1001. Prosecution carries fines up to $250,000 for individuals or $500,000 for corporations and up to five years in federal prison. In general, it’s essential when facing any federal investigation to contact an experienced lawyer immediately to avoid giving federal agents any incriminating testimonies.
  • Making False Statements to the Small Business Administration (SBA): As the SBA is the agency responsible for administering PPP loans, it is also a federal violation to knowingly make any false statements to them, in accordance with 18 U.S.C. § 1014.
  • Tax Evasion: Charges for tax evasion can be filed against anyone who is accused of fraudulently obtaining PPP loans, as a result of unlawful use of loan funds. For example, claiming deductions for expenses paid with PPP funds can lead to federal tax evasion charges, under 26 U.S.C. § 7201. Federal tax evasion prosecution entails fines of up to $100,000 for individuals and $500,000 for corporations, and up to five years in federal prison.
  • Wire Fraud: Fradulent activity that involves internet communication or activity over the internet can be charged as wire fraud under 18 U.S.C. § 1343. As PPP applications are largely submitted online, wire fraud charges can be easily tagged onto other charges for PPP loan fraud.

What to do if Your Company is Targeted by an Investigation

The burden of proof is on the federal government to show that you were acting in bad faith when applying for PPP loans or forgiveness certification or using the loan funds. It is in your best interest that you hire experienced fraud defense attorneys who can defend your innocence and work diligently to eliminate the many charges the federal government can file against you. You will also need the protection and guidance of legal experts when dealing with federal agencies that are looking to find any issues in the statements you give them. 

Additionally, maintaining a thorough trail of your loan application process and spending of PPP loan funds will aid in defending your case. Keeping an ongoing record and demonstrating that you were trying to diligently follow program requirements will help show that you were acting in good faith.