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What You Need to Know When Facing a DOJ Investigation for PPP Loan Fraud

The COVID-19 pandemic created a massive financial burden for businesses and individuals. To combat this problem, the Paycheck Protection Program (PPP) was established to help companies facing difficulties by providing forgivable loans backed by the federal government. This program, however, has been a target for fraudulent activities. Several hundreds of millions of dollars that have been allocated in PPP loans went to illegitimate companies or individuals. It is also believed that a significant number of loan recipients misused the funds, using them for personal reasons or wrongful purposes.

Due to the ongoing misappropriation of funds, the US Department of Justice (DOJ) has initiated investigations aimed at unearthing evidence of PPP loan fraud. It is expected that this investigation will lead to criminal complaints and charges against individuals and companies guilty of breaking the law. Here is what you need to know if you or your business is facing a DOJ investigation for PPP loan fraud:

The DOJ Takes PPP Loan Fraud Seriously

The DOJ is committed to prosecuting those suspected of fraudulent PPP loan activities aggressively. Investigations are ongoing, and the DOJ has issued a statement stressing its intention to punish anyone who defrauds this critical program. They are also targeting those suspected of providing false certifications for PPP loan forgiveness.

The DOJ is Actively Investigating PPP Loan Fraud

The DOJ is not merely investigating PPP loan fraud cases; they are actively pursuing charges. Several individuals have been charged with creating shell companies and falsely representing payroll information to obtain PPP loans. Those charged also included those who used PPP loans to settle personal expenses, attempted to obtain multiple loans, amongst several other fraudulent activities.

The DOJ Works with Other Government Agencies to Combat PPP Loan Fraud

To bring those involved in PPP loan fraud to justice, the DOJ collaborates with other government agencies such as the U.S. Small Business Administration Office of Inspector General (SBA-OIG), Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), Federal Bureau of Investigation (FBI), and the Internal Revenue Service Criminal Investigations (IRS-CI). All these entities are keen on prosecuting those who abused the forgivable loan program.

Defenses in PPP Loan Fraud Investigations

If the DOJ investigates you or your company for PPP loan fraud, it is severe and could lead to severe consequences. However, there are several defenses you can use when accused of PPP loan fraud. Many of these defenses apply based on the specific charges accused of the following statutes:

1. Paycheck Protection Program (PPP) Compliance. If you lawfully obtained a PPP loan, established a segregated PPP loan account, and made appropriate use of the PPP funds, proving compliance to the DOJ could lead to a favorable resolution. However, be careful when giving information to the DOJ since it could end up incriminating you or your company. Accidental incriminating disclosure could enhance the risk of prosecution for PPP loan fraud.

2. Lack of Intent to Defraud. Criminal culpability at the federal level requires intent to defraud. Therefore, accidental PPP loan fraud activities such as accidentally obtaining a PPP loan despite being ineligible or submitting a false forgiveness certification could qualify as a defense. Nonetheless, fraud’s unintentional nature has led to civil charges, and civil violations of the False Claims Act and other laws can lead to significant fines, treble damages, and loss of federal program eligibility, among others.

Potential Charges in Federal PPP Loan Fraud Investigations

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the Paycheck Protection Program (PPP), which does not provide federal penal provisions for PPP loan fraud. Nevertheless, it can prompt civil and criminal charges under several pre-existing federal statutes such as:

1. Making False Statements to the Small Business Administration (SBA)(18 U.S.C. §1014)
2. Making False Statements to an FDIC-Insured Bank (18 U.S.C. §1014)
3. Bank Fraud (18 U.S.C. §1344)
4. Wire Fraud (18 U.S.C. §1343)
5. Aggravated Identity Theft (18 U.S.C. §1028A)
6. Tax Evasion (26 U.S.C. §7201)
7. Making False Statements to Federal Agents (18 U.S.C. §1001)
8. Conspiracy (18 U.S.C. §371 and 18 U.S.C. §1349)
9. Attempt (18 U.S.C. §1349)
10. False Claims Act Violations (31 U.S.C. §§3729 – 3733)

Summary

The Paycheck Protection Program was created to help struggling businesses during the COVID-19 pandemic. However, loan fraud threatened the program’s spirit, and the DOJ is committed to bringing those suspected of PPP loan fraud to justice. Facing a DOJ PPP loan fraud investigation requires skilled legal representation from experienced Todd Spodek attorneys. We’ll help you develop a personalized defense to secure the possible outcome for you or your business.