Paycheck Protection Program Fraud Charges

Fighting for the Rights of Small Business Owners

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security or CARES Act, giving many small business owners a necessary lifeline during the COVID-19 crisis. In addition to other stimulus measures, the CARES Act allocated $349 billion for forgivable small business loans, known as the Paycheck Protection Program (PPP).

Offered by the Small Business Administration (SBA) through community banks and lenders across the country, the PPP went into effect on April 3, 2020. However, the regulatory requirements governing this loan program have continued to shift and evolve – and many banks have reported that they are not prepared to implement the program yet. As more owners apply for PPP small business loans, regulators may come after those with legitimate claims and accuse them of committing fraud when they are forced to lay off more personnel later.

If you’re facing PPP fraud charges, our defense attorneys at Koffel Brininger Nesbitt are here to fight for your legal rights. Call (614) 675-4845 today for a consultation with our team.

Understanding the Requirements for PPP Loans

To cushion losses caused by the coronavirus pandemic, business owners with fewer than 500 employees can now apply for loans through the Paycheck Protection Program and receive up to 250% of their average payroll expenses. These loans will be forgivable as long as they are used to support payroll over the next 8 weeks.

However, there are many other strict requirements that PPP loan applicants must observe or risk prosecution for fraud:

  • At least 75% of the loan must be used to account for salary expenses.
  • Loans cannot cover more than $100k annualized per person.
  • Each small business loan is capped at only $10 million.

Because this legislation is still so new – and federal guidance is constantly evolving – it’s unclear what some of these requirements will mean for business owners in practice. For example, a loan may not be forgiven if it is used to cover payroll above $100,000 per person, and yet there is little guidance on whether this includes healthcare and other benefits too.

Banks and other SBA lenders are also struggling to make sense of the complex Paycheck Protection Program guidelines while meeting the demand for applications. In the week between March 27th and April 3rd, the sample loan application form was revised at least three times, adding to the confusion. Because of the unusually short implementation timeline, there is not enough information at the local level for banks or their customers.

Preparing for Potential Fraud Accusations

The Paycheck Protection Program is a much-needed stimulus program that stands to save thousands of business owners during the COVID-19 crisis. Unfortunately, many of those same struggling business owners may find themselves locked in a lengthy criminal investigation when financial regulators accuse them of defrauding the system. If the crisis continues until the end of May, small business owners may have no choice but to lay off more employees, raising the possibility of a fraud charge.

In these uncertain times, it’s important to have an experienced attorney in your corner. At Koffel Brininger Nesbitt, we can offer more than 17 years of criminal defense experience to help you fight back against charges of PPP fraud. Rated among the top three percent of lawyers in the United States, our Ohio fraud crime attorneys are committed to helping business owners navigate this crisis and defend their reputations.

UPDATE – May 5, 2020: Federal prosecutors have announced the first case of PPP fraud in the nation. According to a DOJ press release, two businessmen men in Rhode Island are alleged to have conspired to fraudulently defraud the federal relief program by lying on bank applications.

Prosecutors say the men sought over $500,000 in stimulus funding to pay workers at businesses that were fictitious, closed, or owned by someone else. One man was charged with aggravated identity theft, and the other with bank fraud. Both men were also indicted on federal conspiracy charges.

UPDATE - April 30, 2020: Less than a month after rolling out the PPP, the U.S. Department of Justice has already unearthed possible fraud among businesses seeking relief in the form of forgivable loans. According to the DOJ, its preliminary inquiry with the SBA and some of the largest loan processors has found red flags in both approved and rejected applications – including inflated payroll costs and employee numbers, and overstating the nature of a business.

The Justice Department is modeling its PPP investigations after those used by its health care fraud strike force, and tapping into its market integrity unit, the same unit responsible for prosecuting major Wall Street crime, to assist federal prosecutors, inspectors general, and other monitors.

With considerable sums of federal aid being dispersed, the federal government has a vested interest in rooting out waste, fraud, and abuse. Though there may be legal questions to come over the ambiguous guidelines for lenders processing borrower applications, there is no question federal authorities will be zealous in their investigations and prosecutions of suspected fraud.

For more information about how KBN can help you, contact us at (614) 675-4845 or submit our form online.