Review of Paycheck Protection Program (PPP) Loan Fraud Charges
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was designed to help people and businesses affected by the coronavirus (COVID-19) pandemic.
A major part of the CARES Act was the Paycheck Protection Program (PPP), which was created to provide crucial financial relief to small businesses that were under financial stress from the economic impact of the COVID-19 crisis.
The PPP ran out of funds quickly and many eligible companies were not able to receive a loan. Whenever a federal program offers any type of financial assistance, there are always concerns over fraud, and the Paycheck Protection Program is no exception.
In response to valid concerns about the risk of fraudulent activity related to PPP, the United States Department of Justice launched a comprehensive federal investigation designed identify loan fraud and pursuing criminal charges against anyone defrauding the program.
PPP loan fraud investigations are now common across the United States. Federal prosecutors and law enforcement from various federal agencies are actively investigating potential PPP loan fraud and other CARES Act violations in an effort to recover money that could have been fraudulently acquired from COVID-19 relief programs.
If you are under a criminal investigation for PPP or EIDL loan fraud, we may be about to help you resolve the case without any criminal charges being filed against you. Our Los Angeles criminal defense lawyers will review the laws more closely below.
What is PPP Loan Fraud and How Is It Investigated?
PPP loan fraud occurs when a person or business submits false information on an application for loan under the federal Paycheck Protection Program (PPP).
As noted above, the PPP was created to help companies stay in business during the coronavirus pandemic.
The program gave them forgivable loans in order to cover their payroll and operating expenses. A business may apply for PPP loan through a commercial bank as long as they are eligible.
If a business is approved and acquires a PPP loan, they are required to follow specific guidelines on how they can spend the funds they just received from the government.
It's common knowledge that whenever the government offers money, then fraudulent activity is not far behind that can result in an investigation.
The purpose of an initial PPP loan fraud investigation is to find out if criminal charges should be pursued for violations of the requirements of the Paycheck Protection Program.
Typically, federal prosecutors and agents will target a person or business who violated the terms and conditions of the PPP program by doing any of the following:
- submitting false or fraudulent information on a PPP loan application,
- making application for a PPP loan from several lenders (loan stacking),
- fraudulent loan certification,
- use of PPP funds for an unapproved purpose,
- lying to federal agents during a PPP loan fraud audit.
Loan Application Fraud
One of the most common reasons is PPP loan application fraud. Companies that misrepresent the information on their loan application to fraudulently claim eligibility could face criminal prosecution.
The “misrepresentation” on the loan application include the following:
- number of employees as most were required to have 500 or less;
- misclassification of employees as independent contractors;
- misrepresenting they met the small business eligibility standard;
- misrepresenting the company's payroll cost to increase the loan.
Federal Statutes Used to Prosecute PPP Loan Fraud
Anyone who is charged with loan fraud could face criminal and civil penalties. While there is not a specific federal statute for a PPP loan fraud case, most cases are prosecuted under the following laws:
18 U.S.C. 1343 wire fraud charges are used by prosecutors someone uses electronic sources to obtain money by use of false statements or promises.
18 U.S.C. 1344 bank fraud charges are used when the false statements to acquire the money were made to a bank or other financial institution.
18 U.S.C. 1014 false statements to a financial institution prohibit lying on a loan application or in the documents provided to qualify for the loan.
18 U.S.C. 1349 conspiracy to commit fraud makes it a federal offense to enter into an agreement with someone to violate the federal fraud laws.
It should be noted that you could still be charged with federal conspiracy even if you didn't make any false statements or take any money.
What Should I Do If I'm the Target of a PPP Loan Fraud investigation?
If you were contacted by a federal law enforcement agency related to a PPP loan fraud investigation, then you must be careful about any statements you make.
Speaking to a federal agent without first consulting with a criminal defense lawyer is risky as some people have been charged with obstruction or making a false statement to the agents, along with the PPP loan fraud case.
Put simply, you should never agree to discuss a potential loan fraud case with a federal agent, or provide them with requested business documentation, without speaking with a lawyer.
While the agents may seem friendly and cooperative, they are not on your side, and their kindness is often perceived incorrectly. Don't ignore the issue, rather you need to be proactive and contact a defense attorney right away.
It's not uncommon for someone to have their bank account frozen due to a PPP loan fraud investigation, but this action does not automatically mean criminal charges will be filed against you, even though it makes it more likely.
There are steps you should take that might help you avoid criminal charges. We may be able to turn the case into a civil disposition, such a paying back the money that was taken, along with paying a fine, rather than facing federal criminal charges. Here are some useful tips:
- collect your personal and business financial documents that can offer support in the request you made for a PPP loan, and never destroy any documents related to the loan;
- advise your employees about the loan fraud investigation as they might be contacted by federal agents as part of the investigation.
Negotiation for Best Possible Outcome on the Case
Once you retain our law firm, we will contact the federal law enforcement investigators or the prosecutor who are assigned to your case.
We will gather all the crucial information, such as all the evidence the government has against you, along with your relevant documentation in order to review whether you have a strong defense against the fraud accusations.
We can then negotiate with the federal prosecutor or agents and may be able to provide them useful unknown information that can help you.
In many cases, we might be able to work out a resolution that doesn't involve the filing of formal criminal charges. If charges have already been filed against you, negotiation is still possible and we are prepared to fight case in court.
We are familiar with the what exactly the government is looking for in PPP loan fraud cases and will use that experience on your behalf.
If you were contacted about a PPP loan fraud investigation, we can help you, but first need to review all the details of your case.
Cron, Israels & Stark is based in Los Angeles County and we offer a free case evaluation by calling (424) 372-3112, or you can fill out our contact form.