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

The COVID-19 pandemic has brought significant economic challenges. The Paycheck Protection Program (PPP) was created to provide struggling businesses with federally-backed and forgivable loans to help them pay their employees. But unfortunately, this program has been a target for fraud. It is suspected that a considerable amount of the PPP loan has gone to the wrong people, and some fraudsters have misused the funds for personal expenses. As a result, the U.S. Department of Justice (DOJ) has launched an investigation to uncover PPP loan fraud, which has led to criminal complaints and charges against individuals and companies suspected of breaking the law.

Here is what you need to know if you, or your company, is facing a DOJ investigation for PPP loan fraud.

The DOJ is Serious About Prosecuting PPP Loan Fraud

The DOJ is pursuing individuals and companies that have submitted fraudulent PPP loan applications or that have misused the funds. Charged individuals include those who have provided false certifications for PPP loan forgiveness; this is a severe matter with profound consequences. The DOJ has been clear about its aggressive approach. In a recent press release, it stated, “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 is Actively Pursuing Charges for PPP Loan Fraud

The DOJ is not merely investigating PPP loan fraud; they are actively pursuing charges. They have identified a series of fraudulent PPP loan activities, including individuals creating shell businesses and falsely representing payroll information to obtain PPP loans, using PPP loan funds for personal expenses, and attempting to obtain multiple loans. The DOJ is taking these investigations extremely seriously.

The DOJ is Working With Other Agencies to Combat PPP Loan Fraud

To bring anyone involved in PPP loan fraud to justice, the DOJ has been collaborating with other federal agencies. Other entities committed to prosecuting those who defrauded the forgivable loan program include the U.S. Small Business Administration Office of Inspector General (SBA-OIG), the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), the Federal Bureau of Investigation (FBI), and the Internal Revenue Service Criminal Investigations (IRS-CI).

Potential Defenses in PPP Loan Fraud Investigations

If you or your company is accused of PPP loan fraud, there are several defenses you can use. Many of these defenses relate to the specific charges brought under the statutes below. Some of the potential defenses include:

1. Paycheck Protection Program (PPP) Compliance: If you have lawfully obtained a PPP loan, established a segregated PPP loan account, and made appropriate use of its PPP funds, proving compliance to the DOJ could lead to a favorable resolution. However, companies must be careful when providing information to the DOJ since once offered, it can’t be taken back. Inadvertently disclosing incriminating information may enhance your (or your company’s) risk of prosecution for PPP loan fraud.

2. Lack of Intent to Defraud: Criminal culpability at the federal level requires “intent.” Therefore, failure that could lead to PPP loan fraud charges, such as accidentally obtaining a PPP loan despite being ineligible or submitting a false forgiveness certification, could be a defense. However, unintentional fraud can still result in civil offense, and civil violation of the False Claims Act and other statutes can result in enormous fines, treble damages, loss of federal program eligibility amongst others.

Potential Charges in Federal PPP Loan Fraud Investigations

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

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)

Conclusion

PPP loan fraud has threatened the spirit behind the program’s creation, and the DOJ is determined to bring anyone suspected of PPP loan fraud to justice. If you or your business is facing a DOJ PPP loan fraud investigation or charges, experienced and skilled legal representation from Todd Spodek attorneys can help you develop a personalized defense for the possible outcome.