Can I be charged with PPP fraud? The Scheme of the Century: PPP Fraud and its Fallout. What to do if you fear you’ve committed PPP fraud?

August 8, 2022 COVID-19

By: Guy Fronstin, Esq. and Richard Silverman, Duke Law Student

In one of the largest fraud schemes in U.S. history, the Small Business Administration (SBA) is left chasing its tail in $80 billion circles. And the government wants its revenge.

The U.S. Department of Justice (DOJ) has begun to crack down on Paycheck Protection Program fraud across the country. So, before you sail off into the sunset on that government-funded yacht or cruise the streets in your new Beamer, it’s important you know your rights. Did you do anything wrong when you applied for PPP? Have you properly used the PPP funds you received? If you made a mistake, can you get caught?

We’re here to answer those questions, so let’s dive in.  

What is the Payment Protection Program?

Following the passage of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, the U.S. Small Business Administration launched the Paycheck Protection Program, or PPP, to “help businesses keep their workforce employed during the COVID-19 crisis.”

From April 2020 through May 2021, the SBA issued businesses with less than 500 employees low interest, uncollateralized loans to maintain up to eight weeks of payroll, cover overhead and operating expenses, and pay mortgage interest, rent, and utilities. To secure a PPP loan, a company had to qualify as a small business under Section 3 of the Small Business Act, and the owner(s) must not have been convicted of a federal felony in the last five years. The Government Accountability Office warned against both the simplicity and swiftness of the application process, but its notions that PPP opened the government up to a high degree of fraud risk were dispelled.

Over the course of the program, the government spent $800 billion and issued over 11.8 million PPP loans, with the maximum loan of $10 million awarded to 708 borrowers. The government wanted to disperse funds as quickly as possible to struggling businesses, which resulted in its awarding of fraudulent applications an estimated $80 billion in taxpayer money.

What does PPP fraud entail?

As of March 2022, the DOJ had convicted 178 individuals of PPP fraud, and federal prosecutors are indicating that this is only the tip of the iceberg. There are more criminal cases to come.

The most common fraud prosecutors are uncovering is the acquiring of funds via a fake or stolen identity, providing false information about the existence of a company and its number of employees, and allocating funds towards personal expenses or other unapproved purposes. Additionally, a company may only receive one PPP loan at a time. If it is found that the company submitted applications to more than one lender, the company’s principals are likely liable for fraud.

WARNING: The government is using artificial intelligence data scientists, directed by the Pandemic Response Accountability Committee, to regularly search millions of records to uncover fraudulent PPP applications and ensure funds from the CARES Act are not misused. When these searchers suspect misuse, federal agents then pursue it directly on foot, often leading to the arrest of the alleged fraudsters.

A further warning to be aware of is that under the False Claims Act, signed into law by President Lincoln in 1863, if whistleblowers disclose fraud that created financial loss for the federal government, the whistleblower is guaranteed an award of between 15% to 30% of the resulting fines.

What can I be charged with?

Since the CARES Act does not contain a provision for criminal enforcement, the DOJ must use existing Title 18 statutes­ to make its convictions. This leaves businesses and individuals susceptible to not only civil penalties, but also severe criminal charges under 18 U.S. Code § 1014, 1342 and 1349.

All over the country, PPP profiteers are being charged with wire fraud, false statements (to the SBA, FDIC-insured banks, or federal agents), identity theft, conspiracy, and tax evasion. Not only will courts require defendants to repay the fraudulent funds received, but further consequences could include seizure of assets, up to thirty years in prison, and imposition of a $1 million fine.

How do I protect myself?

If you think you might have committed PPP fraud, you need to immediately have a criminal defense attorney assess your exposure. Get out ahead of it, halt all potential illegal payments, and have a criminal defense attorney review compliance, rectify any false documentation, and correct inaccurate numbers.

Whether you willfully engaged in deception or were simply careless or negligent in your PPP application or spending of PPP funds received can prove critical to your defense. The Law Offices of Guy Fronstin and Criminal Defense Clinics remain committed to helping you navigate this climate. Contact us anytime for a free consultation and to learn more about any criminal exposure you might have and how to best protect and defend yourself.

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