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Federal Prosecutors Announce First PPP Loan Fraud Case

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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.