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DOJ Cracks Down on PPP Loan Fraud: What You Need to Know

The COVID-19 pandemic drove the U.S. government to set up the Paycheck Protection Program (PPP) to help support small businesses and keep workers employed. Sadly, some individuals and companies have abused the system and submitted fraudulent loan applications or misused PPP funds. In response, several law enforcement agencies, including the U.S. Small Business Administration Office of Inspector General, the Federal Deposit Insurance Corporation Office of Inspector General, the Federal Bureau of Investigation, and the Internal Revenue Service Criminal Investigations, are working with the Department of Justice (DOJ) to investigate and prosecute potential PPP loan fraudsters.

If you or your business is under investigation for PPP loan fraud, it is critical to act quickly and get legal representation. Criminal charges and large fines can result from a DOJ investigation. However, there are defenses available to individuals and businesses facing accusations of PPP loan fraud.

Defenses that May Work in a PPP Loan Fraud Case

PPP Compliance Defense

One of the most effective defenses in a PPP loan fraud case is PPP compliance. This defense requires demonstrating full compliance with PPP loan terms, including using the money only on eligible expenses, setting up a dedicated PPP loan account, and preparing detailed documentation to support loan forgiveness applications. PPP compliance can mitigate the risk of prosecution for PPP fraud.

Lack of Intent to Defraud

Any criminal prosecution must prove intent to defraud. If you obtained a PPP loan inadvertently or submitted a fraudulent forgiveness certification without any fraudulent intent, you could use the lack of intent as a defense. However, for civil violations of the False Claims Act and other statutes, lack of intent is not an adequate defense to avoid substantial fines, treble damages, or other penalties.

PPP Legal Counsel Defense

Hiring experienced legal counsel with specific knowledge of the PPP program can increase your chances of a favorable outcome during a PPP investigation. An experienced attorney can help you understand the legal process, assist you in responding to government inquiries, and build a legal defense.

Cooperation with the Government

Working with government officials during a PPP fraud investigation may help reduce criminal charges or penalties. By cooperating with the government, you gain an opportunity to negotiate downgraded charges, possibly plea or settlement agreements, and, in some cases, avoid potential criminal prosecution.

Potential Charges in a DOJ PPP Loan Fraud Investigation

PPP loan fraud can trigger civil and criminal charges under pre-existing federal statutes. Here are some of the potential charges that individuals and companies may face during a PPP loan fraud investigation.

Making False Statements to the SBA

Making false statements on a PPP loan application or borrower application form with the aim of getting a PPP loan can trigger criminal charges under the law.

Bank Fraud and FDIC Fraud

Bank fraud and FDIC fraud can be charged when an individual or a company knowingly perpetrates a fraud or scheme to defraud a financial institution or receives or attempts to obtain funds, credits, or money from the institution using fraud or false representations.

Wire Fraud

PPP loan fraud cases can also trigger criminal wire fraud charges. The law provides criminal penalties for anyone who knowingly uses wire communication to obtain money or property through false pretenses or representations.

Conspiracy and Attempt

Individuals and businesses involved in fraudulent PPP loan schemes can face charges of criminal conspiracy for their fraudulent actions. Attempt to carry out a PPP loan fraud that ultimately does not succeed or any PPP loan fraud attempt attracts the same penalties as those prescribed for the offense, the action of which was the objective of the attempt.

Tax Evasion

Tax evasion can be charged for any company or individual who willfully tries to defeat, evade, or obstruct any tax imposed under the Internal Revenue Code. Acquiring PPP loans and using them for purposes not aligned with the program’s terms may also attract payroll tax evasion or income tax evasion charges.

Violations of the False Claims Act

Violations of the False Claims Act can be charged for obtaining government funds through fraudulent means. The law provides for both civil and criminal penalties for pharmaceuticals, healthcare providers, or other entities.

In conclusion, PPP loan fraud is a serious federal criminal offense that can carry significant civil penalties and criminal charges. It is essential to act carefully not to open yourself up to a criminal investigation for suspicion of PPP loan fraud. Obtain legal assistance from Todd Spodek Law Group, a reputable legal aid that has years of experience helping clients with matters related to PPP loan fraud.