ppp loan fraud lawyers
The original $350 billion allocated to the program was depleted within minutes of the early April rollout, as banks were overwhelmed with applications. Another $175 billion was added in a second round of relief, and those funds were dispersed within a matter of days. Business owners were able to submit applications with minimal documentation and to self-certify that they met the program’s qualifications. The law put very few verification requirements in place, with the intent of getting funds into business owners’ hands as quickly as possible without a lot of red tape.
Now that the nation is facing new, record-breaking outbreaks of the disease, and Congress is debating yet another stimulus package, evidence is emerging that the PPP program was subject to a number of abuses and fraudulent practices. According to a recent article in the Kansas City Business Journal, SBA inspectors have uncovered numerous instances of loans made to unqualified business owners, and the FBI has opened several hundred investigations. Charges have already been filed against 73 defendants. Investigations in those cases have revealed fake businesses created solely to obtain PPP loans, loan funds spent on luxury items for business owners and even groups who conspired together to defraud the program.
There are a number of ways in which individuals and companies could have defrauded the program, including misrepresentations in the loan application, obtaining loans from more than one lender and providing false certifications. Another common way that PPP fraud occurred was in the misuse of the funds. The law states that they money was only to be used to fund payroll, including benefits, and to pay business obligations such as mortgages, rent and utilities. However, those obligations had to be in place prior to February 15 to qualify as eligible spending.
Fraudulent loan forgiveness certification is another area under intense scrutiny. PPP loans bear a very minimal interest rate but can be forgiven altogether if a business meets the criteria. This includes certifying that the loan funds were used for only eligible expenses and that the business continually maintained eligibility during the 24-week period covered under the loan. The application, which is submitted through the bank which originated the loan, relies primarily on unaudited documentation, making it easy for business owners to receive loan forgiveness for which they don’t qualify.
Investigations began in earnest in May, when news broke that a number of large companies and well-known celebrities obtained millions of dollars in PPP loans, while small business owners across the nation reported challenges in simply applying, let alone receiving the needed funds. A number of companies later agreed to return the funds, while others resisted that demand. Government officials made it clear that any application for loan forgiveness of greater than $2 million would be subject to audit prior to approval, indicating that this is a likely way they intend to uncover fraud. While the SBA has established guidelines on how it will review loan forgiveness applications, individuals who suspect fraud in the use of PPP funds can also report their concerns through a special hotline. A federal judge recently ruled that the SBA must release a list of all entities who received loans under the PPP program, to aid in public oversight and scrutiny.
While the loans do not require a personal repayment guarantee from business owners, an interesting aspect to the PPP fraud investigations is that the US Treasury has indicated that it will investigate and potentially charge not only businesses but also individuals who are suspected of participating in fraudulent activities. Those who are convicted face up to five years in prison and thousands of dollars in fines. In significant fraud cases, the penalties and fines could be even greater.
Given all this scrutiny, even small business owners should ensure that they are keeping meticulous records regarding their PPP expenditures. There should be a clear paper trail supporting all transactions, particularly if an owner intends to apply for loan forgiveness. While not all applications will be audited, it should be expected that a significant number will be reviewed. Business owners may want to consider having their records reviewed by an independent auditor prior to submitting a loan forgiveness application, to ensure that everything is in order.
Small business owners hailed the PPP program as a lifeline when it was announced as part of the CARES Act in March. While many were able to benefit from it, the instances of fraud and abuse have demonstrated the need for more oversight and regulatory requirements for any future relief programs. In the meantime, the SBA and DOJ will continue to pursue claims against those who abused the program, in an effort to reclaim millions of dollars in taxpayer money.