Enforcement Actions and Investigations of Fraud within the Paycheck Protection Program Continue to Build Momentum

By Brandon Mourges

PPP Lawyer in Hanover, MDAlthough the United States continues to grapple with economic issues relating to COVID-19, businesses continue to move forward and deal with evolving challenges.  For many, the initial struggles caused by government-imposed shutdowns were lessened by the Paycheck Protection Program (PPP).  Applications for funding under the PPP have long-since closed and most businesses have already applied for, and been granted, forgiveness of these relief loans.  However, this does not mark the end of the process for those that were not eligible for relief or, worse yet, knowingly submitted false applications.  Recent initiatives of the federal government show that enforcement is on the rise.  Businesses that submitted questionable or outright fraudulent applications should prepare for potential enforcement actions.

To qualify for the Paycheck Protection Program, businesses were required to certify, under penalties of perjury, that they were entitled to this relief under then-existing statutory and regulatory guidance.  Some of these requirements included that the applicant’s business be existing and in operation, have documented payroll, not be in receipt of another loan under the PPP, be an eligible type of business, and that “current economic uncertainty” made the loan “necessary to support ongoing operations.”  Furthermore, applicants were required to submit accurate supporting documentation and make representations under penalty of perjury.  To have the loans forgiven, applicants were further required to certify that the application and supporting documents were true and accurate (including tax returns and payroll summaries) and that funds obtained through the PPP were used for allowable purposes.  Needless to say, not all applicants that made these representations did so truthfully.

And even though the process was hectic and many businesses were struggling to survive, the potential penalties for those submitting false information are extensive and severe – and those submitting false information are not going unnoticed.  On the application itself, applicants were notified that “knowingly making a false statement to obtain a guaranteed loan from SBA” is punishable under 18 U.S.C. § 1001 and 18 U.S.C. § 3571 by up to five years of imprisonment and a fine of up to $250,000.  The loan application also indicated that false representations were subject to prosecution under 15 U.S.C. § 645 (false statements to the SBA) and 18 U.S.C. § 1014 (false statements on a loan application), if the application was submitted to a federally insured institution.  Aside from these potential sources of liability, those that submitted false information could also be subject to criminal penalties under a host of other federal criminal statutes, including for wire fraud (18 U.S.C. § 1343) and bank fraud (18 U.S.C. § 1344).  Those convicted could be subject to restitution, forfeiture, and other consequences.  Even those that did not necessarily violate a criminal statute, but may otherwise have been ineligible for the PPP, face potentially severe financial penalties.

Recent announcements from the federal government indicate that those obtaining fraudulent loans should prepare for significant consequences.  For instance, in July, a former NASA employee was convicted and sentenced to 18 months in prison for submitting fraudulent applications in connection with the PPP and Economic Injury Disaster Loan Program.  Aside from incarceration, the defendant was ordered to pay restitution of the amounts illegally obtained.[1]  In another case, a former Olympic athlete was criminally charged for making false statements to obtain significant funding through the PPP.[2]  According to that indictment, the defendant submitted eight loan applications and falsely claimed to have average monthly payroll in excess of $4,000,000.  According to the indictment, the defendant did not have any payroll.  In yet another case, a husband and wife pleaded guilty in connection with approximately $1.9 million in fraudulent loans submitted under the PPP.[3]  In Arizona, it has been reported that a financial institution that helped process more than $2 billion in PPP loans is under a Congressional probe as a result of unscrupulous practices.[4]  Clearly, this investigation is likely to have severe consequences for that institution as well as many of its customers.  These are but a few examples of recent criminal cases popping up nationwide.  Experts anticipate that this is the only beginning of a coming storm of PPP-related investigations and prosecutions.

If your business is currently under investigation by the federal government or made misrepresentations on either a loan application or forgiveness application, you should seek legal advice to review your exposure and potential options for addressing these issues.  The lawyers at Crepeau Mourges have extensive experience with the Paycheck Protection Program, government investigations, and related proceedings.  Please contact our PPP Lawyer in Hanover, MD today at brandon@usataxlaw.com or 667.900.9912 to schedule a consultation.

[1] See Department of Justice, “Senior NASA Employee Sentenced for COVID-19 Related Loan Fraud,” July 15, 2021, available at: https://www.justice.gov/usao-edva/pr/senior-nasa-employee-sentenced-covid-19-related-loan-fraud.
[2] See Department of Justice, “Taylorsville Woman Charged with Making False Statements to Obtain Millions of Dollars in PPP Loans”, December 16, 2021, available at: https://www.justice.gov/usao-ut/pr/taylorsville-woman-charged-making-false-statements-obtain-millions-dollars-ppp-loans.
[3] See “Atlanta couple pleads guilty to $1.9 million in PPP fraud,” December 1, 2021, available at: https://www.cbs46.com/
[4] See “Arizona-based Blueacorn questioned in congressional PPP loan fraud investigation,” December 18, 2021, available at: https://www.abc15.com/news/local-news/investigations/arizona-based-blueacorn-questioned-in-congressional-ppp-loan-fraud-investigation.