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Indictments for Paycheck Protection Program (PPP) Loan Fraud Are Underway

PPP application

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Some are calling Paycheck Protection Program (PPP) loan fraud, “the biggest fraud in a generation,” and the federal government is beginning to investigate and indict individuals they claim stole money from the COVID-19 relief program that began in early 2020. The program was created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act with a goal to assist small businesses during the pandemic and keep people employed and insured. The U.S. Small Business Administration (SBA) gave out loans to mom-and-pops and other small enterprises during a period of pandemic mandates, lockdowns and job losses. Businesses were able to apply for PPP loans for up to a maximum amount of $10 million with commercial banks, and by the time the program ended at the end of May, 2021, the SBA had distributed over $800 billion in PPP loans.

Although there were criteria and affiliation rules established regarding which businesses could receive assistance, Congress left it up to the applicants to confirm (“self-certification”) that they qualified for assistance. The government determined that there was not time—nor a structure in place to confirm—that anyone was committing perjury by falsely claiming need. There was no way for them to know if COVID-19 had impacted the businesses or forced layoffs.

It has subsequently become obvious that vast sums were improperly distributed due to fraudulent claims and improper business representations. The need during the height of the pandemic was so great and time so limited, that the government decided it was more important to quickly make the money available. Not surprisingly, the government now wants to get some of that money back and demonstrate that fraud won’t go unpunished. Now the Department of Justice (DOJ), Federal Bureau of Investigation (FBI) and Internal Revenue Service (IRS) are moving forward with arresting people on charges like conspiracy to commit fraud, bank fraud and wire fraud.

Preparing for a PPP Fraud Indictment

If you are concerned about receiving an indictment from the federal government, the first thing to do is secure counsel. Do not be embarrassed to reach out as soon as possible; a good lawyer is essential to responding to any fraud allegation. And while large firms might charge upwards of $200,000 to handle a case, a boutique firm like Cantafio & Song with experience representing those accused of fraud and supported by skilled accountants can provide expert representation for a flat fee that is far less than the cost of working with larger firms. Choose a lawyer that can contact prosecutors or investigators quickly to get key information about your charge(s) and what resolution the government is seeking.

The next step is to get all of your records and paperwork in order. And if you know you received your PPP loan illegally, begin paying it back immediately, if possible. If an indictment does come, your case will look more favorable if any loan payback has already been initiated. And with your records organized and transparent, your lawyer will have the best chance of working for a favorable resolution.

PPP Loan Fraud and Civil Forfeiture

PPP loan fraud often presents as bank fraud because fake bank documents and fake bank statements are used to disguise fraudulent payments as payroll payments. And since bank accounts are typically commingled with domestic partners, spouses or other family members that might be innocent bystanders, their financial wellbeing can come under threat due to civil forfeiture statutes. Civil forfeiture allows law enforcement to seize, keep or sell any property they allege is involved in a crime. The owner of the property does not even have to be arrested or convicted of a crime for their real estate, cars, cash and other assets to be taken away permanently by the federal government.

Forfeiture was originally conceived as a way to cripple large-scale criminal enterprises by taking away their resources, but in PPP loan fraud cases, property is being confiscated by the government as a means to reclaim stolen funds. If you are charged with fraud, it is critical to have an experienced attorney who can negotiate with the government to reach the most agreeable settlement that will least affect any affiliated family members. Unlike some other criminal scenarios, it is possible to negotiate with the U.S. District Attorney’s office when responding to a PPP loan fraud charge. An example would be negotiating to keep one house while the government takes your second home so your living situation is not completely compromised.

How to Mitigate PPP Loan Fraud Punishment

Based on the sentences that have already been given to people found guilty of fraud related to PPP loans, judges are trying to make a statement and send a message. They are not simply giving probationary sentences. Jail time is the norm. Many who have been charged are relatively wealthy and have the money to pay the loan back, but judges are calling for jail time regardless. Again, the ability to negotiate with a full understanding of the charge is key.

It is possible to resolve investigations without criminal charges being filed. A full review of the relevant documents might present opportunities to challenge the charges. Each circumstance is different and the prosecutors might not have all the details of the situation. If charges are filed, a strong lawyer can negotiate to find the most beneficial resolution or address the situation in court. For example, during the time the PPP loan program was in operation, some banks and bank employees were offered small kick-backs (a few thousand dollars), and that incentivized them to alter documents or falsify information in order for their “clients” to qualify for the loans.

In Texas, Prosperity Bank paid $18,673.50 to resolve allegations that it improperly processed a PPP loan on behalf of an ineligible customer. Some lenders who originated PPP loans were entitled to receive a fixed fee from the SBA that ranged from 1% to 5% depending on the size of the loan. In this case, Prosperity Bank received a 5% processing fee of $10,670 that was fraudulent. The client of the bank in the case admitted guilt, repaid the PPP loan and paid a fine. He avoided jail time.

Short of this, lenders are still required to follow existing U.S. Department of Treasury guidance with regards to reporting suspicious activity surrounding fraud, waste and abuse in COVID-19 relief programs. A good PPP loan fraud lawyer will examine in detail how the transaction was completed and if there was any hint of impropriety surrounding the process of granting the loan itself.

Anything out of the ordinary could result in charges dropped or a reduction in sentencing terms, because the government will want to know what was done on the banking side. What did the employee tell you? Were you lied to? Were you coerced?

Have you received an indictment for PPP fraud? Are you expecting to receive one? Contact Cantafio & Song to receive expert counsel and support at an affordable flat-free rate.