PPP Loan Fraud

by Adam M. Hames on Dec. 04, 2020

Criminal White Collar Crime Criminal  Felony 

Summary: The PPP loan program helped a number of businesses. However, PPP loans have been subject to fraud and now authorities are prosecuting this fraud criminally.

PPP Loan Fraud

On March 17th 2020, The 116th U.S. Congress passed the CARES Act[1] (The Coronavirus Aid Relief, and Economic Security Act) that was designed to help provide fast and direct financial assistance to American workers, families, small businesses to help preserve jobs for American industries feeling the economic hardships associated with the Coronavirus pandemic. Congress initially allocated $349 Billion and then added an additional $300 Billion in forgivable loans to small businesses. To date, Congress has approved more than $2 Trillion with this economic relief package. These loans, known as the Paycheck Protection Program, or “PPP loans”, were supposed to be used by small businesses to retain employees, and to pay certain business expenses like interest on mortgages, rent, and utilities.  If the small business used the proceeds of the loans for the required expenses, then the loan would be forgiven.

The program was put together rapidly to respond to the economic hardships created by the pandemic.  There were several rules and regulations put into place in an attempt to safeguard the process and, in theory, direct the money to small businesses.  According to the New York Times there were 5.2 million PPP loans that totaled more than $525 Billion dollars. Although PPP loan fraud is thought to be a small percentage of the overall loan amounts distributed, the department of Justice brought its first fraud case in May 2020, mere weeks after the program started.

How were these PPP Loans Defrauded?

PPP loan fraud, like all fraud, involves submitting materially false applications (i.e.: documents designed to deceive) in return for banks approving, and issuing, these loans. In some cases, applicants created small businesses with supporting documents to look like they had a large number of employees. In other cases, the applicant had a legitimate small business that was entitled to a PPP loan, but instead of using the loan for the intended purposes like paying payroll and rent, the owners diverted those funds for their own personal use. 

What is being done about this fraudulent activity?

The DOJ has made it a priority to prosecute PPP loan fraud having already brought charges against dozens of individuals, and businesses, nationwide.  According to the New York Times[2], those cases ranged in requested loan amount from as little as $30,000.00 to over $24 Million!  More recently, the DOJ has investigated criminal organizations that have stolen large amounts of money from the loan program.  That appears to be where the DOJ is currently focused.

Those accused of PPP loan fraud are often charged with wire fraud, bank fraud and conspiracy to commit wire and bank fraud.  It is also not difficult to imagine The DOJ bringing money laundering charges as well.  Under the federal sentencing guidelines, the amount of actual or intended loss can be used to determine a sentencing range.  In other words, the more that someone steals the longer their sentence is likely to be.   These are serious charges that can carry significantly long sentences.  In addition to prison time the Government has seized cars, jewelry, property and will likely seek substantial fines in addition to restitution at sentencing.  A large percentage of those funds may never be recovered as in some cases people have spent the money on trips to Las Vegas, speculative investing, and visits to a strip club.

What does all of this mean, and should I be concerned?

The DOJ has said it will take a long time to find and prosecute people who defrauded the Government.  The Small Business Administration, which oversees these loans has already received tens of thousands of calls to its fraud hotline compared to only 800 calls the year before.[3] That means that the DOJ, the SBA, and other government agencies are organized, building investigation cases and are steadily prosecuting as quick as they can. If you are currently under investigation or charged with PPP loan fraud you need an attorney. You need an attorney that is experienced in handling federal fraud cases.

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