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PPP loan fraud investigations are happening more and more across the US.  Criminal investigators and federal prosecutors from numerous federal agencies are actively looking for possible PPP loan fraud and other CARES Act violations with the intention of recovering money that may have been fraudulently gained from coronavirus relief programs.

How is PPP Loan Fraud Defined?

PPP loan fraud occurs when an individual or business puts false information on an application or certification for a loan under the federal Paycheck Protection Program (PPP). This program was created to help companies remain in business during the coronavirus pandemic by furnishing forgivable loans to cover payroll and operating costs. Businesses can apply for PPP loans through commercial banks but must meet the criteria for eligibility. Once a business obtains a PPP loan, it must still abide by strict regulations and limitations on how businesses can spend the funds.

What Takes Place in a PPP Loan Fraud Investigation?

The point of a PPP loan fraud investigation is to find out whether charges should be brought against an individual for violating one or more of the strict requirements of the PPP loan program. In general, federal prosecutors have been targeting enterprises and persons who may have violated the PPP loan program by:

  • Giving a false statement on the PPP loan application
  • Applying for PPP loan funds from multiple lenders (“loan stacking”)
  • Using PPP loan funds for an improper or unapproved use
  • Submitting a false certification to obtain PPP loan forgiveness
  • Not being truthful to agents in the course of a PPP loan audit or investigation

An individual charged with PPP loan fraud may face serious criminal and civil penalties. Although several possible criminal laws may have been involved in a PPP loan fraud case, the most common criminal charges are the following:

18 U.S.C. Section 1343 Wire Fraud – This is when a person uses “the wires” (this includes using the internet or the phone) to steal money by making false statements or promises. The penalty depends on the amount of money involved, up to 20 years in prison.

18 U.S.C. Section 1344 Bank Fraud – This is akin to wire fraud but involves giving false statements to a bank or other financial institution. A violation of this law carries as much as 30 years in prison.

18 U.S.C. Section 1014 False Statements to a Financial Institution – This law renders it unlawful to lie to a bank or other financial institution. Basically, this involves false statements made on a loan application or in documents submitted to the bank to qualify for the loan. It also carries up to 30 years in prison

18 U.S.C. Section 1349 Conspiracy to Commit Fraud – This statute makes it a federal offense to enter into an agreement to violate the federal fraud legislation, even if the individual doesn’t actually steal any money or give any false statement. The consequences for conspiracy are the same as the consequences for the fraud crime that is the purpose of the agreement.

How do I Answer a PPP Loan Fraud Inquiry?

If you were contacted by a federal agent or other official about a PPP loan, you need to be extremely careful. In some recent cases, persons decided to talk to investigators without an attorney ended up being charged with obstruction or making a false statement to the agents, on top of the PPP loan fraud charges. You are strongly advised to contact us before saying anything to agents about your loan application or business with a federal agent.  You should certainly call our firm before agreeing to provide any documents or business records to federal investigators.

What If My Bank Accounts are Frozen or Seized by the Government?

If this happens to you as part of a PPP loan fraud investigation, don’t panic. Seizure of a bank account does not automatically mean criminal charges will follow. Nevertheless, there are steps you should take right away to respond to this action if you wish to contest the seizure or protect yourself from criminal charges. In our view, the best approach is a proactive one. Do not ignore the problem and expect it to disappear. The fact that your funds have been frozen is a strong indication that a criminal investigation could already be in progress.

Being proactive when a PPP loan fraud investigation is taking place can go a long way in evading criminal charges. Even though there are several criminal prosecutions underway, federal grand juries are limited at present due to wide-spread coronavirus restrictions. This means that an experienced PPP loan fraud defense lawyer can help steer the case to a civil disposition – such as paying back the funds and a fine – in lieu of federal criminal charges.

What to Do If You Think PPP Fraud Charges Could be Brought Against You

If you are concerned about potential PPP fraud charges, you should strongly consider retaining an experienced federal defense attorney and taking these common-sense steps to protect yourself and your business:

  1. Put all your business and personal financial records together. Make a digital copy of the records. These will serve as documentation of your loan request.  They will support your defense.
  2. Do not discard, shred or otherwise destroy any business documents, especially any that were part of your loan application or certifications. You might need these documents later. Furthermore, destroying any important document in anticipation of a PPP loan fraud investigation can result in a separate criminal charge.
  3. Notify all your employees that they can report their suspicions about PPP fraud to management without fear of repercussions. If any of them are uncomfortable talking to you, they could potentially go directly to government or a whistleblower lawyer. That could spark an investigation that’s expensive to defend, even when no violation of the PPP rules has occured.

While PPP loan fraud prosecutions are being filed across the United States, the Special Inspector General for Pandemic Recovery (SIGPR) and the U.S. Attorney’s Office in the Eastern District of Virginia have started a joint initiative to target businesses and individuals applying for PPP loans. We expect the outcome of this effort to be many more prosecutions down the pipeline.

Have you been charged with PPP loan fraud, or do you think you may be the target of a PPP loan fraud investigation?  If so, call us today for a confidential consultation.

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