PPP FRAUD AND CARES ACT FRAUD

In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. $2 trillion in economic relief was provided to help Americans cope with the economic impact of the COVID-19 global pandemic. Significantly, the Act authorized up to $349 billion in forgivable loans to small businesses through the Paycheck Protection Program (PPP). Later, Congress authorized $321 billion in additional PPP funding. In fact, the CARES Act has authorized other relief, such as the Economic Injury Disaster Loan (EIDL), Economic Impact Payments (EIP), Provider Relief Fund (PRF), Pandemic Unemployment Assistance (PUA), and Federal Pandemic Unemployment Compensation (FPUC).

Emphasis on PPP Fraud

Since that time, the government has developed task forces and divisions within U.S. Attorney’s Office to ferret out PPP fraud in connection with these economic relief programs. So far, for example, the volume and quantity of the PPP fraud investigations is enormous. The government has prosecuted hundreds of people, small business owners, lenders, borrowers, and other professionals for fraud or false statements related to obtaining a PPP loan. DOJ is also charging persons most frequently with wire fraud, false statements, fraud in connection with a major disaster (18 U.S.C. Section 1040), aiding and abetting a false return, bank fraud, and theft of government property.

The focus of the PPP fraud investigations is on the most egregious types of fraud. Nonetheless, DOJ and prosecutors are also asking the following questions:

Are the certifications on SBA Form 2483 true and accurate? If not, why not?

Is the business seeking a loan a real business with real employees, contractors, or expenses?

Is the business seeking a loan a business with true employees and a real payroll?

Has the business counted 1099s as employees and included those figures in its calculation of payroll?

Is one business applying for a loan on behalf of another business?

Is the business seeking forgiveness for the loan through SBA Form 3508S? If not, how has the business recorded or categorized the monies received from the SBA on its tax return?

Has the business accurately stated its eligibility for forgiveness in the SBA Form 3508S?

Have the owners of one business applied for multiple PPP loans or a PPP loan and an EIDL loan? Why?

Are the businesses able to verify the uses of the PPP loans? For example, if the business stated that it paid $100,000 for a commercial lease can that same business demonstrate proof of an existing commercial landlord-tenant relationship?

The government will continue to initiate these investigations and prosecutions. Importantly though, in these cases, the dollar amount does not seem to matter. DOJ is still willing to pursue civil actions under the False Claims Act and they are still willing to indict persons for supposedly fraudulent conduct if the dollar amount is less than One Hundred Thousand dollars.

Accordingly, it is incumbent upon any business, or managing member or partner of a business to seek counsel early on. Furthermore, it is essential that the client fashion a defense that accounts for the individual circumstances of the loan and the particulars of the business. Indeed, SBA rolled out more than a dozen announcements including safe-harbors during the pandemic to clarify and then to re-clarify policies. Many businesses sought to operate lawfully and in good faith. Conveying this message to the government or, if necessary, to a jury may therefore be a critical component of a defense to PPP fraud or false statement allegations.

 The Firm has experience representing individuals and business in these investigations. We would welcome the opportunity to represent you and your business.