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White Collar Crime

Paycheck Protection Program (PPP) Fraud

The Paycheck Protection Program (PPP), as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), represents the largest financial assistance bill ever created.

To date, more than 5 million businesses and nonprofit organizations have received more than $525 billion in funding from the program. The CARES Act also authorizes the SBA to provide EIDL of up to $2 million to eligible small businesses experiencing financial disruption due to the COVID-19 pandemic.

Soon after the U.S. Small Business Administration (SBA) started accepting the PPP and EIDL applications, the complaints of fraud began piling up. Lenders and government officials have begun the task of recapturing illicitly obtained funds.

Complaints of PPP and EIDL fraud are investigated by the SBA’s Office of Inspector General (OIG) and other federal agencies including the FBI. The U.S. Department of Justice (DOJ) has priority for investigating and prosecuting criminal conduct related to the COVID-19 pandemic, including fraud in applying for or obtaining PPP grants or EIDL loans.

Significant resources are being devoted by the Department of Justice’s Criminal Division’s Fraud Section into investigations for financial fraud related to the COVID-19 Coronavirus Crisis.

Although the Paycheck Protection Program (PPP) was intended to help small businesses avoid laying off employees during the COVID-19 pandemic, the speed with which applications were processed and businesses were funded resulted in a lack of oversight. Some estimate that fraud rates could be more than 10%.

In fact, FBI agents and federal prosecutors have already begun investigating cases and bringing charges for a variety of PPP and EIDL fraud-related crimes including:

  • spending the funds on personal expenses;
  • making a false statement to influence the Small Business Administration (SBA);
  • bank fraud and conspiracy to commit bank fraud;
  • wire fraud and conspiracy to commit wire fraud; or
  • aggravated identity theft.

The grace period for small business owners to repay loans that may have been obtained “based on a misunderstanding or misapplication of the required certification standard” was extended through Monday, May 18, 2020. By August of 2020, federal prosecutors have filed at least thirty-four (34) PPP fraud cases involving more than 50 defendants.

Some PPP fraud case will be difficult to prosecute because of ambiguities in the PPP requirements. Many of the PPP fraud cases also involve submitting fraudulent EIDL loan applications.

Attorneys for PPP and EIDL Fraud in Florida

If you or your company is accused of committing fraud in obtaining an SBA Paycheck Protection Program (PPP) forgivable loan or submitting a fraudulent EIDL application to the SBA, then contact an experienced criminal defense attorney before taking any other action.

Some employees are motivated to turn in employers who are breaking the rules. The SBA website even has a form to submit a complaint. After the complaint is received, the criminal investigation might begin with an FBI agent or bank compliance officer knocking on your door.

If you make incriminating statements, then that evidence can be used against you. The only thing worse than making an incriminating statement is making a false statement. Instead of making any statement to a bank compliance officer or FBI agent, contact an attorney who can help you protect your rights.

You have the right to remain silent and to be represented by counsel during a criminal investigation. You can simply say, “I need to call my attorney before I made a statement” or “I wish to invoke my 5th and 6th Amendment rights until after I have spoken with my attorney.” Then don’t make a statement even if the investigator continues to ask questions.

The attorneys at Sammis Law Firm represent employers and small business owners accused of fraud. We understand the way that PPP and EIDL fraud complaints will likely be investigated and prosecuted by the FBI and the Internal Revenue Service (IRS) – Criminal Investigation, Tampa Field Office.

For more than 10 years, our main office has been in the same building in downtown Tampa, FL, just a block from the federal courthouse. We represent clients prosecuted in federal court in the Middle District of Florida, Tampa Division.

We can help you at any stage of a criminal investigation.

Call 813-250-0500.


Using PPP Funds for Personal Expenses and other Fraudulent Purposes

The answers to the frequently asked questions on the PPP fact sheet published by the U.S. Treasury Department provides :

Do I need to personally guarantee this loan?

No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

This statement shows the government’s intention to prosecute individuals who use the money obtained through the PPP loan for personal expenses and other fraudulent purposes. In fact, the False Claims Act creates penalties for using the funds in a fraudulent manner which would include heavy fines and up to five years in prison for each offense. The owners of the company and executives working for the company might also face criminal and civil penalties for allowing those fraudulent transactions.


Penalties for PPP Fraud

According to the PPP and EIDL applications, knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under federal law, including under:

  • 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000;
  • 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; and
  • 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000 (if submitted to a federally insured institution).

Any PPP loan is subject to an audit or a further review of a more informal nature. Mandatory audits are required for PPP loans in excess of $2,000,000 (two million dollars). Experts are unsure how the already overwhelmed SBA will manage a mandatory audit for each of the 29,000 loans subject to that requirement.


Different Types of PPP Fraud Complaints

The PPP loan allows small businesses to receive loans with a maturity of two years and an interest rate of one percent. After receiving the funds, the business owner must use the PPP loan proceeds for payroll costs, interest on mortgages, rent, and utilities.

Partway through the program, Congress relaxed some of the rules which effectively penalizing employers who felt compelled to use up the money quickly to comply with the original rules.

Interest and principal may be forgiven, but only if the business spends the proceeds on qualifying expenses within a set time period and uses at least a certain percentage of the loan towards payroll expenses.

The necessity requirement for the PPP loan required all borrowers to certify that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” as of the date on which the PPP loan application is submitted.

The most common types of complaints alleging PPP fraud in obtaining a forgivable loan include:

  • applying for the loan without meeting the eligibility criteria
  • making false certifications in their application
  • miscounting the number of employees
  • understating the number of employees by failing to count employees from affiliated entities
  • misrepresenting the company’s franchise status
  • stacking applications by applying for multiple PPP loans when more than one loan is funded
  • misrepresenting ownership
  • hiding their true corporate structure
  • misrepresenting payroll numbers
  • improper representations to have the loans forgiven
  • false certification on a PPP application
  • failing to include employees from affiliated entities
  • obfuscating a company’s franchise status
  • applying for multiple PPP loans (sometimes called “stacking”)

Knowingly making a false statement to get a Paycheck Protection Program loan is punishable by up to 30 years in federal prison and a fine of $1,000,000.

Types of fraud that will be difficult to prosecute because of the way the act was written include:

  • misrepresenting the immediate need for the PPP funds
  • misused SBA-loaned funds by spending them on non-business related expenses
  • improperly using more than 25 percent of their loaned funds for non-payroll costs
  • using the money to pay big bonuses or executive incentive compensation

The employees of the companies committing PPP fraud are often the first to learn about fraudulent practices. In some cases, those employees will be classified as a “whistleblower” who can file a complaint.

Federal laws prohibit retaliation against employees who tell the truth when blowing the whistle on employers committing fraud when applying for the Paycheck Protection Program loan administered by the Small Business Administration (SBA).

The whistleblower employee might be entitled to monetary rewards for turning in wrongdoers. For example, under the False Claims Act (FCA), the government might reward a PPP whistleblower with up to 30 percent of the recovered funds.


Investigations into EIDL Fraud

The CARES Act also authorizes the SBA to provide EIDL of up to $2 million to eligible small businesses experiencing financial disruption due to the COVID-19 pandemic. Fraud investigations center around business owners submitting fraudulent applications that misrepresent the number of employees, payroll expenses, or revenue.

Fraud occurs if the business owner does not use the funds for payroll payments, but instead uses the funds for personal expenses or transfers the funds to other businesses.

The EIDL program provides economic relief to small businesses that are currently experiencing a temporary loss of revenue. EIDL proceeds can be used to cover a wide array of working capital and normal operating expenses, such as the continuation of health care benefits, rent, utilities, and fixed debt payments. Of course, the funds from the PPP loan can not be used for the same expenses as the funds from the EIDL loan.

Read more about attorneys for EIDL fraud investigations.


How the Qui Tam Provision Might Apply to PPP or EIDL Fraud

Under the False Claims Act (FCA), it is illegal to apply for a loan under false pretenses. Federal law provides a financial incentive for whistleblowers to report wrongdoing by filing a lawsuit on behalf of taxpayers. This “qui tam” provision allows prevailing plaintiffs to receive up to 30% of the money returned to the U.S. Treasury.

If an employee gets fired for reporting the fraud as a whistleblower or suffers any other form of retaliation, the FCA provides relief to reverse that harm including getting the job back, receiving damages including back-pay, attorney fees, or even compensation for the emotional distress caused by the retaliation.

If an employer is accused of retaliating against an employee by complaining about the company’s initial false application or misuse of PPP or EIDL funds, then strict timelines apply.

As a general rule, the claim must be filed within three years of the retaliation. For the underlying fraud, the statute of limitations is six years although other deadlines in bringing the action might apply.


Additional Resources

Complaint to the SBA’s Office of the Inspector General – Visit the website of the SBA to find out more about the Office of Inspector General. The SBA OIG’s mission is to provide oversight to improve the integrity of the SBA. Under the Recovery Act, the OIG has jurisdiction to investigate whistleblower complaints related to SBA Recovery Act funds. Learn more about why the SBA’s Office of Inspector General has seen an increase in fraudsters targeting small business owners with schemes for grant fraud, loan fraud, phishing, forged documents, stolen identities, and false certifications.


This article was last updated on Tuesday, December 29, 2020.

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