Federal Prosecutors Announce First PPP Loan Fraud Case

On Tuesday, May 5, 2020, the U.S. Department of Justice announced that
it has indicted two businessmen in the nation’s first fraud case
involving the SBA’s new Paycheck Protection Program (PPP).

According to the DOJ’s
press release, the two businessmen were charged in the District of Rhode Island for
fraudulently seeking CARES Act SBA Paycheck Protection loans. The defendants
are alleged to have sought over $500,000 in forgivable loans by filing
fraudulent bank loan applications.

Among the allegations in the criminal complaint, prosecutors claim the
defendants:

• Filed fraudulent loan requests to pay employees of businesses that were
  not operating prior to the coronavirus pandemic, and had no salaried employees.
• Filed fraudulent loan requests to pay employees at a business the loan
  applicant did not own;
• Discussed via e-mail the creation of fraudulent loan applications and supporting
  documentation;
• Used personal identifying information in real estate transactions;

Court documents state that during a phone call with an undercover FBI agent
posing as a bank compliance officer, one of the defendants claimed he
had seven full-time employees, including himself, on the payroll for one
of his companies. He falsely represented to the agent that he hired the
workers full-time on January 1, 2020, and laid them off at the end of
March, and would use PPP funds to pay them for their unpaid work during
the month of April.

The Rhode Island Department of Revenue and IRS confirmed there were no
records of employee wages having been paid in 2020 by the defendant or
his company.

The men were charged with aggravated identity theft and bank fraud, respectively.
Both were charged with conspiracy to make false statements to influence
the SBA, and conspiracy to commit bank fraud.

Feds Focus in on PPP Fraud

The Paycheck Protection Program, a product of the federal CARES Act law
enacted on March 29, 2020, allocated up to $349 billion in loans to small
businesses and organizations to cover payroll costs, mortgage interest,
rent, and utilities. The program forgives principal and interest if businesses
spend funds on these expenses within 8 weeks of receipt, and use at least
75% of the funds for payroll.

The availability of billions of dollars in stimulus funding has made law
enforcement officials keen on protecting the PPP against fraud and abuse,
and rooting out business owners and applicants alleged to have defrauded
or conspired to defraud the federal loan program. This includes federal
agencies such as the FBI, IRS-Criminal Investigation (IRS-CI), SBA-OIG,
and other law enforcement.

The case, the first of its type in the nation, is likely one of many to
come. As FBI officials note in the announcement:

“Today’s arrests should serve as a warning to others that the
FBI and our law enforcement partners will aggressively go after bad actors
like them who are utilizing the COVID-19 pandemic as an opportunity to
commit fraud.”

KBN is actively tracking
PPP fraud investigations and federal criminal indictments over alleged stimulus
fraud. If you or someone you love are the subject of a pending investigation,
or have been charged with a PPP loan-related fraud crime, our nationally
recognized defense attorneys are available to help. Contact us to speak
confidentially with an attorney.