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Protecting Your Business: Surviving a PPP Loan Fraud Investigation by the DOJ
The COVID-19 pandemic has inflicted significant harm on businesses of all sizes, leaving many struggling to pay their employees and keep their operations afloat. To assist companies in surviving these challenging times, the US government established the Paycheck Protection Program (PPP), a forgivable loan program aimed at providing financial aid to small and medium-sized companies. Unfortunately, the program has become a target for fraud, leading to a wave of investigations by the US Department of Justice (DOJ). In this article, we will provide you with what you need to know if you are facing a DOJ investigation for PPP loan fraud, enabling you to take measures to safeguard your business.
DOJ Investigations Into PPP Loan Fraud
The DOJ is serious about prosecuting those accused of PPP loan fraud. With the immense cost of PPP loan fraud, the DOJ is vigorously pursuing companies and individuals who have submitted fraudulent PPP loan applications or made unauthorized use of the PPP loan funds. The DOJ is also investigating individuals and companies suspected of submitting fraudulent PPP loan forgiveness certifications. In a recent press release, the DOJ said, “The Paycheck Protection Program was designed to help Americans struggling with financial hardship during the pandemic. Our office will be aggressive in targeting anyone who defrauds this critical program.”
The DOJ has filed criminal charges in numerous cases and charged individuals with various fraudulent activities, including creating shell companies and submitting false payroll information to obtain PPP loans, using PPP loan funds to cover expenses such as luxury cars, Rolex watches, and vacation rentals, attempting to get multiple PPP loans illegally, and other types of PPP loan fraud.
The DOJ Works With Other Federal Law Enforcement Agencies
The DOJ is not working alone in its effort to combat PPP loan fraud. It collaborates with federal agencies that are equally dedicated to identifying and pursuing fraudsters who exploited the forgivable loans under the PPP. These federal agencies include 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 Internal Revenue Service Criminal Investigations (IRS-CI).
PPP Loan Fraud Investigation and Potential Defenses
If you’re facing a DOJ PPP loan fraud investigation, you’re probably overwhelmed, unsure how to defend yourself or your company. It can be daunting, but there are defenses that you or your company can undertake, which our attorneys rely on when defending clients accused of PPP loan fraud. Some common defenses you can assert during a DOJ PPP loan fraud investigation include:
PPP Loan Compliance – Demonstrating compliance with the PPP terms can be a crucial defense, so it’s essential to show compliance. If your company lawfully obtained a PPP loan, established a segregated PPP loan account and documented the appropriate use of its PPP funds, demonstrating your compliance can lead to a speedy resolution of the matter.
Lack of Intent to Defraud – Prosecutors must generally prove defendants’ intent to defraud. If your company inadvertently obtained a PPP loan despite being ineligible, used PPP funds erroneously, or submitted a fraudulent forgiveness certification without intending to deceive the government or take advantage of the program, your lack of intent may provide a defense to the charges. However, unintentional fraud can still bring civil charges under the False Claims Act and other statutes, carrying significant penalties like enormous fines, treble damages, loss of federal program eligibility, and more.
Potential Charges in DOJ PPP Loan Fraud Investigations
PPP loan fraud may trigger civil and criminal charges under different federal statutes. Even though the CARES Act, which created the PPP, does not contain penal provisions for PPP loan fraud, here are a few possible charges federal investigations into PPP loan fraud may bring, among others:
| Charge | Statute |
|———————————————|———————————————————-|
| Making False Statements to the SBA | 18 U.S.C. § 1014 |
| Making False Statements to an FDIC-Insured Bank | 18 U.S.C. § 1014 |
| Bank Fraud | 18 U.S.C. § 1344 |
| Wire Fraud |18 U.S.C. § 1343 |
| Aggravated Identity Theft |18 U.S.C. § 1028A |
| Tax Evasion |26 U.S.C. § 7201 |
| Making False Statements to Federal Agents |18 U.S.C. § 1001 |
| Conspiracy |18 U.S.C. § 371 and 18 U.S.C. § 1349 |
| Attempt | 18 U.S.C. § 1349 |
| False Claims Act Violations | 31 U.S.C. §§ 3729-3733 |
The Takeaway
Facing a DOJ investigation for PPP loan fraud is a serious matter with severe consequences. Whether or not your company obtained a PPP loan lawfully, the DOJ takes the potential misuse of funds seriously. Seeking legal guidance early on is crucial to ensure the possible outcome. Individuals and businesses need a skilled attorney experienced in defending PPP loan fraud allegations.
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