PPP Fraud Lawyers
After the COVID-19 pandemic, many companies and business owners are finding themselves charged with fraud as a federal crime for how they used or obtained assistance funds to keep their businesses running. In many cases, the accused business owners simply misunderstood the program’s payroll guidelines or loan application requirements.
Nevertheless, many small businesses are now dealing with federal investigations by the Department of Justice. PPP fraud charges have severe penalties and consequences.
If you or your business is the target of a criminal PPP fraud investigation, it’s time to consult an experienced federal defense attorney. At Luftman, Heck, and Associates, our Columbus PPP fraud attorneys know how these cases operate. We can work with state and federal investigators to help you and your business reach the most favorable resolution possible.
The Cares Act & The Paycheck Protection Program
The program provided low-interest (1%) and forgivable loans to various businesses impacted by the pandemic to help keep their employees on the payroll. The PPP loan forgiveness was conditional based on the funds used for specific operational expenses, such as payroll costs, rent, and utilities.
Businesses Eligible for PPP Loans Included:
- Sole proprietors, self-employed individuals, and independent contractors who file an IRS Schedule C with their Form 1040.
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or tribal business (sec. 31(b)(2)(C)) with 500 or fewer employees.
- Restaurants and hospitality businesses with more than one physical location but employ less than 500 per location
Businesses excluded from PPP loans:
- owners more than 60 days delinquent on child support
- farms and ranches
- sex businesses
- gambling establishments
- hedge funds
- private equity firms,
And most public companies with substantial market values. Also, the program was closed to companies involved in bankruptcy proceedings.
Paycheck Protection Fraud
The $670 billion program, administered by the U.S. Small Business Administration (SBA), was intended to keep businesses running in uncertain times. PPP loan applications had to be processed and approved much faster than traditional loans. Unfortunately, many of the standard safeguards against fraud were relaxed to accomplish this.
PPP applicants were asked to certify information about their business and advised that any bad-faith certifications could result in federal fraud charges. Some of the certifications to secure PPP funds included that:
- The economic uncertainty of the COVID pandemic made the loan necessary.
- Funds will be used to retain workers and/or pay operational expenses like rent and utilities.
- The applicant will not receive additional PPP loans from different lenders.
The volume and speed at which 100% forgivable loans were allowed made things difficult to track at the time. Still, the program helped many companies avoid mass layoffs, which would have hurt millions of Americans. But even though most recipients used their PPP funds as intended, there was potential abuse.
Examples of PPP Fraud
Some PPP applicants have been accused of intentionally misrepresenting the information on their loan application forms. And while some instances could be simple accounting mistakes or a misunderstanding, here are the most frequently seen examples of CARES Act fraud:
- Claiming to have an inaccurate number of employees
- Inflating payroll costs to secure a bigger loan
- Getting multiple PPP loans from several lenders
- Misappropriating PPP funds
- Making bad faith claims on the PPP application
- Firing or failing to rehire employees despite receiving PPP funds
Types of PPP Fraud & Penalties
Now as we’re returning to a state of normalcy, the federal government and the state of Ohio have begun investigating and charging PPP loan fraud cases. Remember that PPP loan fraud can result in criminal charges, any of which can result in severe penalties and consequences if convicted.
The following are some federal criminal offenses the Dept of Justice may pursue if they suspect you of PPP fraud:
- Bank fraud (18 U.S.C § 1344)– Up to 30 years in prison and/or up to $1,000,000 in fines
- Wire fraud (18 U.S.C. § 1343)– Up to 30 years, plus $1,000,000, if a financial institution or any major disaster or emergency benefit is involved
- Mail fraud (18 U.S.C. § 1341)– Up to 30 if a financial institution or any major disaster or emergency benefit is involved
- Making false statements to the SBA or a financial institution (18 U.S.C. § 1014) – Up to 30 years, a fine of up to $1,000,000, or both
- Attempt and conspiracy (18 U.S.C. § 1349) – Any attempt or conspiracy to commit a fraud offense is punishable by the same penalties as the actual fraud offense
- Making false statements to federal agents (18 U.S.C. § 1001) – Up to 5 years in prison and a fine.
- Conspiracy to defraud the government (18 USC § 371) – Up to 5 years in prison and a fine.
- Tax evasion (26 U.S.C. § 7201)– Up to $100,000 (for an individual) or $500,000 (for a business) in fines, up to five years in prison, or both
- Identity Theft (18 U.S.C. § 1028A) – This applies mainly to companies who submit a PPP loan with another’s information. – Up to 2 years in prison.
Red Flags that Spark a PPP Investigation
The Department of Justice’s National Center for Disaster Fraud (NCDF) allows individuals and whistleblowers to submit complaints of fraud, abuse, or mismanagement related to PPP loans. Banks and federal regulatory agencies also flag suspicious activity and notify the appropriate agencies.
Things that may trigger a PPP fraud case include:
- A newly formed business applying for PPP loans
- Discrepancies between previous payroll and post-PPP records
- A sudden surge in new employees before accepting PPP funds
- Inconsistent W2s or 1099s submitted to the IRS
- Multiple businesses using the same or very similar documentation
This list is not meant to be exhaustive. As banks and law enforcement struggle to catch up with PPP loan fraud cases, many business owners may be under suspicion for poor financial documentation during a stressful time.
In many cases, investigations begin with financial documents being flagged for discrepancies and the DOJ subpoenaing your bank records. You may not even be aware of their inquiry until an indictment and charges are filed.
To make matters worse, the DOJ and prosecutors aggressively pursue PPP fraud. If you suspect you are under investigation or recently indicted for federal PPP loan fraud, you must consult an attorney and take it seriously.
Recent PPP Loan Fraud Cases
Established in May 2021, the COVID-19 Fraud Enforcement Task Force coordinates resources between the DOJ and other agencies to combat pandemic-related fraud. Some recent examples of their efforts resulting in people being charged with federal PPP fraud include:
- The DOJ filed a civil injunction to bar nine tax preparers from preparing federal income tax returns for others.
- A California man was sentenced to 135 months in prison for submitting fraudulent PPP applications, submitting false statements to a financial institution, and money laundering.
- Two Florida men pleaded guilty to conspiracy to commit wire fraud for submitting fraudulent PPP loan applications for millions of dollars.
- An Oklahoma woman pleaded guilty to a scheme to defraud the PPP of more than $43.8 million on behalf of at least 111 entities.
Frequently Asked PPP Loan Fraud Questions
What is PPP Fraud?
PPP fraud refers to fraudulent activity related to the Paycheck Protection Program, a federal loan program created in response to the COVID-19 pandemic to help small businesses stay afloat.
What are Examples of PPP Fraud?
Examples of PPP fraud include submitting false information on loan applications, claiming ineligible expenses, and using the loan proceeds for unauthorized purposes.
How is PPP Fraud Reported?
People can report PPP fraud to the Department of Justice by emailing a complaint to the National Center for Disaster Fraud (NCDF) at email@example.com. You can also report it to the Federal Bureau of Investigation (FBI) and the Small Business Administration (SBA). Banks and law enforcement also initiate PPP investigations by flagging suspicious activity.
Can I Got o Jail for PPP Fraud?
Yes. The consequences of PPP fraud can include federal criminal charges, fines, and imprisonment. Individuals who committed fraud may also be required to repay the loan and damages.
How Can I Protect My Business from PPP Fraud?
To protect your business from PPP fraud, ensure that all information on your loan application is accurate and truthful. You should also carefully review the loan guidelines and requirements and ensure that you use the loan proceeds for eligible expenses.
A PPP Loan Fraud Lawyer Can Help You
Typical fraud cases, even at the federal level, usually take months or years. But there is a lot of pressure on the DOJ to identify instances of PPP fraud and get convictions. Law enforcement will move swiftly, and little sympathy is offered to business owners accused of misappropriating funds meant to help small businesses at the height of the pandemic.
Without legal help, it will be near impossible to explain that you were misidentified as a PPP fraudster or lacked the intent to defraud the government. An experienced attorney can review your PPP application and verification documents and build a unique defense.
At Luftman, Heck, and Associates, we can ensure your rights are respected. We’ll guide you through the investigation, negotiate with the DOJ and other agencies, review the evidence, and work towards getting you the best possible outcome. This could include a complete dismissal of the PPP fraud charges, a reduction to a more appropriate and manageable offense via a plea agreement, or proving your innocence.
Contact LHA for a Free Initial Consult
Our federal defense lawyers have extensive experience representing clients on a wide range of federal charges, including PPP fraud, tax evasion, identity theft, bank fraud, and more. With our resources and record of success in high-stakes fraud cases, we can help clear up misunderstandings about your PPP loan and find the best possible outcome in your case.