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The DOJ is Serious About Prosecuting PPP Loan Fraud

July 23, 2020
Fulcrum Partners

A provision of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program, PPP, has been a difference-maker for many U.S. companies. As of June 30, 2020, nearly 5 million small and medium-sized businesses received a much-needed cash infusion to help them make payroll during the height of the COVID-19 pandemic. But where there is loan money available on payback forgiveness terms, there will inevitably be fraudsters attempting to game the system.

Department of Justice is pursuing PPP loan fraud

The Department of Justice, DOJ, is investigating and the Small Business Administration, SBA, is auditing companies and individuals that managed to qualify for, or attempted to qualify for, PPP loan money for which they were not legally entitled. Given that the entire program was launched quickly, no specific penalties were put in place to punish PPP loan abusers. Instead, the DOJ is relying on pre-existing federal statutes in its pursuit of offenders.

Among the types of charges being filed by the DOJ in PPP loan fraud cases are: Aggravated Identity Theft; Bank Fraud and Attempted Bank Fraud; Conspiracy; Making False Statements to the SBA; Making False Statements to an FDIC-Insured Bank; Making False Statements to Federal Agents; Tax Evasion; and Wire Fraud. In other words, authorities aren’t treating abuses of the PPP loan program lightly. For instance, wire fraud, or federal bank fraud each carry penalties of up to $1 Million and 30 years of federal imprisonment. Even criminal tax evasion, a lesser crime, carries a fine of up to $100,000 for individuals or up to $500,000 for a business and up to 5 years of prison time.

To be clear, for the DOJ to file charges, companies or individuals don’t have to have obtained loan money fraudulently, they only have to have attempted to obtain it.

Facts about PPP Loan Fraud and Loan Forgiveness

  • The overall average loan awarded was approximately $107,000.
  • Eighty-five percent of all PPP loans were made for less than $150,000.
  • SBA will be auditing all recipients of PPP loans of $2 million or more.
  • SBA will be auditing some recipients of PPP loans of less than $2 million.
  • Some statutes used by the DOJ in pursuit of loan fraud are quite broad, (such as wire fraud and bank fraud) and position investigators to seek criminal prosecution for a range of misuse and attempted misuse situations, including the submission of inaccurate or misleading loan applications.
  • The DOJ is, in many cases, working with the Criminal Investigation division of the Internal Revenue Service.
  • Borrowers who fully comply with the terms of the PPP loan and loan forgiveness program should not have reason for concern, however, they should be prepared for scrutiny of their loan application, loan use, and repayment or request for forgiveness.

Even if a business or individual can prove they did not knowingly commit loan fraud, they can still be prosecuted under the False Claims Act. The DOJ is well-versed on using the False Claims Act to pursue individuals who commit Medicare or Medicaid fraud. They’ll have no trouble applying the False Claims Act to those who knowingly or unknowingly abused the PPP program but are “outside the box” for other types of prosecution.

The False Claims Act, which can be pursued as a civil case, can result in damages and fines up to $23,000 per false claim, demand for immediate loan repayment and liability for the federal government’s time and legal fees in pursuing and charging the offender.

Loan Size* Loan Count Net Dollars Percent of Count Percent of Amount
$50K and Under 3,262,529 $58,652,110,621 66.8% 11.2%
>$50K – $100K 673,563 $47,963,195,310 13.8% 9.2%
>$100K – $150K 291,019 $35,626,300,937 6.0% 6.8%
>$150K – $350K 376,113 $84,452,629,388 7.7% 16.2%
>$350K – $1M 199,456 $113,442,814,223 4.1% 21.8%
>$1M – $2M 53,030 $73,522,278,271 1.1% 14.1%
>$2M – $5M 24,838 $73,841,502,099 0.5% 14.2%
>$5M 4,840 $33,982,986,907 0.1% 6.5%

* Data for this chart was published by the U.S. Small Business Administration 6/30/2020

#PPP #PPPfraud #PPPLoanfraud #COVID19

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