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Protect Your Business from Prosecution for PPP Loan Fraud: What You Need to Know

The Paycheck Protection Program (PPP), established to help businesses affected by the COVID-19 pandemic, has unfortunately become a target for fraudulent activities. The United States Department of Justice (DOJ) has been actively pursuing individuals and companies suspected of PPP loan fraud, including submitting false loan applications and misusing PPP loan funds. As a business owner, it is essential to comply with PPP’s terms to avoid prosecution.

DOJ Intent to Prosecute PPP Loan Fraud

PPP loan fraud comes at a tremendous cost to the government, and the DOJ is determined to pursue anyone involved in fraudulent activities. A recent DOJ press release stated that the PPP was intended to assist Americans struggling with the pandemic’s financial hardship. Thus, the DOJ’s Office is committed to enforcing PPP’s terms to ensure that no one defrauds the program, and if they do, they will be “aggressively” targeted.

Actively Pursuing PPP Loan Fraud Charges

The DOJ has already filed many charges in PPP loan fraud cases, including creating fake companies, presenting false payroll information to obtain PPP loans, using PPP loans for personal expenses and attempting to obtain multiple PPP loans. It is crucial to ensure that you comply with PPP’s terms and not engage in fraudulent activities that could lead to legal trouble.

Joint Effort with Other Federal Law Enforcement Agencies

The DOJ is not alone in the fight against PPP loan fraud. Several other federal agencies like the Small Business Administration (SBA), Internal Revenue Service Criminal Investigations (IRS-CI), Federal Deposit Insurance Corporation (FDIC), Office of Inspector General, and the Federal Bureau of Investigation (FBI) are working closely with the DOJ. These agencies are committed to identifying and prosecuting individuals and companies that have fraudulently taken advantage of the PPP loans.

Potential PPP Loan Fraud Defenses

If you or your company is being investigated for PPP loan fraud, certain defense strategies can help. Specific to the PPP, these defense mechanisms depend on the charges listed above. Here are effective defenses that you can assert to protect yourself or your company:

1. Paycheck Protection Program (PPP) Compliance: One of the defenses is to demonstrate that you complied with PPP’s program terms. This includes providing proof of a lawfully obtained PPP loan, showing evidence that you established a segregated account for PPP funds and providing documents that demonstrate appropriate use of the PPP funds. Ensuring compliance with the program is an excellent defense against PPP loan fraud.

2. Lack of Intent to Defraud: Proving a lack of intent to defraud is another defense mechanism. PPP fraud-related offenses require proof of intent to defraud, and if you can prove that you inadvertently obtained a PPP loan for which you were ineligible, you stand a chance to avoid the penalties of PPP fraud charges. However, intending to commit fraud can expose you to criminal prosecution and False Claims Act violations.

Potential PPP Loan Fraud Charges

While the CARES Act does not provide penal provisions for PPP loan fraud, potential charges that could arise from PPP loan fraud investigations include:

1. Making False Statements to the Small Business Administration (SBA): Submitting false information to influence SBA’s action on a loan application can result in prosecution.

2. Making False Statements to an FDIC-Insured Bank: Submitting false information to an FDIC-insured bank can also result in prosecution.

3. Bank Fraud: Seeking to defraud a financial institution or obtaining any funds or property by fraud or false representation can result in bank fraud charges.

4. Wire Fraud: Using wire communication fraudulently or by fraudulent means for personal gain is wire fraud, which carries substantial penalties.

5. Aggravated Identity Theft: An individual who knowingly uses another person’s identification to obtain loans fraudulently can face charges of aggravated identity theft.

6. Tax Evasion: Companies and their executives can face allegations of tax evasion for failing to report income derived from business activities funded by PPP loans.

7. Making False Statements to Federal Agents: If you have lied during a PPP loan fraud audit or investigation, the DOJ can prosecute you under 18 U.S.C. § 1001.

8. Conspiracy: Two or more individuals can be prosecuted under federal laws if their collective efforts defraud federal funds.

9. Attempt: This offense applies to unsuccessful efforts to commit fraud.

10. False Claims Act Violations: The False Claims Act imposes civil and criminal penalties for fraud targeting government programs.

Conclusion

It is critical to comply with the rules and regulations governing the Paycheck Protection Program to avoid severe prosecution, hefty fines, and imprisonment. If you face accusations of PPP loan fraud, contact Todd Spodek, an experienced attorney who can help you identify possible defenses and ensure the adequate protection of your rights throughout the legal process. Remember that the DOJ and other federal agencies remain committed to identifying and prosecuting anyone involved in PPP loan fraud.