The Paycheck Protection Program is a government-sponsored loan program that was designed to help businesses keep their doors open during the COVID-19 pandemic.
However, the program has been plagued with accusations of fraud and abuse. In response, the Department of Justice has been actively investigating and aggressively prosecuting cases of suspected Paycheck Protection Program (PPC) loan fraud.
If you have been accused of PPP loan fraud, it is important to seek legal counsel immediately. Contact federal criminal defense lawyer Robert M. Helfend for a free consultation – 800-834-6434.
- What is the Paycheck Protection Program?
- What is PPP loan fraud?
- Are banks involved in reporting PPP loan fraud to the government?
- Elements of federal fraud charges
- What are the penalties for PPP loan fraud?
- What should you do if you have been targeted for suspected SBA PPP loan fraud?
What is the Paycheck Protection Program?
The Paycheck Protection Program was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020.
The PPP offered businesses up to $2 million in loans, with no interest or principal due for the first 12 months. The loans were guaranteed by the U.S. Small Business Administration (SBA), were to be used for payroll, rent, utilities and other essential expenses.
The program was immensely popular. Lenders were flooded with applications as soon as the program opened, and with an initial $350 billion endowment, the PPP effectively ran out of funding within minutes. Congress authorized an additional $310 billion for the program one month later, but it was also quickly tapped out.
With lenders overwhelmed by applications, little regulation in place and many businesses left out in the cold, accusations of fraud soon followed.
To date, the SBA’s Office of Inspector General has issued 11 reports detailing widespread fraud and abuse in the PPP loan program. In one report, the OIG found that “the PPP is vulnerable to fraud because it lacks adequate controls to prevent, detect and punish misuse of funds.”
In another report, the OIG found that approximately 60% of the loans reviewed “may have had eligibility problems” and that “lenders did not always properly calculate or verify payroll costs.”
The OIG has referred dozens of cases of suspected fraud to the Department of Justice for criminal prosecution.
What is PPP loan fraud?
As with any federal program, if someone misrepresents facts to the federal government and this leads to the improper receipt of funding, they might face federal fraud charges.
Some of the most common examples of this with the Paycheck Protection Program include the following.
PPP loan application fraud
The Paycheck Protection Program included a set of eligibility criteria, primarily that it was only available to small businesses.
In order to be eligible for PPP funding, a business had to certify that it had fewer than 500 employees (a “small business,” as defined by the SBA). Companies might misclassify full-time employees as contractors to fall below the 500-employee threshold.
In addition to this, businesses were eligible to receive funding equal to two months of their average monthly payroll costs plus an additional 25 percent. They could misrepresent the size of their payrolls in order to improperly secure more funding under the program.
Using the loan proceeds for purposes other than those specified in the CARES Act
The Paycheck Protection Program was designed to help business owners keep their employees on the payroll during the COVID-19 pandemic.
However, some businesses might have used the loan proceeds for other purposes, such as paying off business debts or making personal purchases.
In order to be eligible for loan forgiveness, businesses had to use at least 60 percent of the loan funds for payroll expenses. If they used the funds for other purposes, they would not be eligible for loan forgiveness and would be required to repay the entire loan amount plus interest and fees.
PPP loan stacking
In order to get around the limit of one PPP loan per business, some businesses might have applied for multiple loans through different lenders.
This is sometimes referred to as “loan stacking” and it is not allowed under the terms of the Paycheck Protection Program.
Misrepresenting eligibility to also obtain unemployment benefits
Businesses that received PPP funding were not eligible for unemployment benefits. However, some businesses might have misrepresented their eligibility in order to receive both PPP funding and unemployment benefits.
These are just a few examples of PPP loan fraud. If you have been accused of any type of federal fraud related to the Paycheck Protection Program, it is important to seek legal counsel immediately.
Are banks involved in reporting PPP loan fraud to the government?
The Paycheck Protection Program is a federal loan program, which means that it is administered by the Small Business Administration (SBA).
Banks are the lenders for these loans, but they are not responsible for verifying the eligibility of the businesses that apply for them.
However, banks might be required to report any suspicious activity related to PPP loans to the SBA. This includes activity that might be indicative of fraud, such as loan stacking.
Elements of federal fraud charges
When it comes to federal fraud charges, there are a few key elements that need to be present in order for the prosecution to have a strong case. These include the following.
Intent to defraud
One of the key elements of federal fraud is intent to defraud. This means that the defendant must have intentionally tried to deceive the victim (the SBA, in this case) in order to gain some sort of advantage.
In order to constitute fraud, there must be a material misrepresentation made by the defendant. This means that the misrepresentation needs to be significant enough that it could have influenced the victim’s decision-making process.
In order for fraud charges to be successful, the prosecution must be able to demonstrate that the victim suffered some sort of financial loss as a result of the defendant’s actions.
If you are facing federal fraud charges, it is important to seek legal counsel immediately. The penalties for fraud can be severe, and with experienced representation you can increase your chances of achieving a favorable outcome in your case.
What are the penalties for PPP loan fraud?
The penalties for PPP loan fraud can be severe. Anyone convicted of federal fraud charges related to the Paycheck Protection Program can face up to 30 years in prison and a fine of up to $1 million.
In addition, businesses that are found to have committed fraud can be required to repay the entire amount of the loan, plus interest and fees.
If you have been accused of PPP loan fraud, it is important to seek legal counsel immediately. An experienced defense attorney can review your case and help you understand your options.
What should you do if you have been targeted for suspected SBA PPP loan fraud?
If you have been targeted for suspected SBA PPP loan fraud, it is important to seek legal counsel immediately. An experienced defense attorney can review your case and help you understand your options.
The sooner you seek legal counsel, the better your chances will be of achieving a favorable outcome in your case.
Robert M. Helfend is an experienced federal criminal defense attorney who has represented clients accused of all types of federal crimes, including fraud.
Contact us today for a free consultation – 800-834-6434.