PPP Fraud Charges & Penalties by State

The $525 billion Paycheck Protection Program (PPP) enacted as part of the CARES Act in 2020 helped millions of small businesses weather the COVID-19 pandemic. However, it also provided ripe opportunities for fraud. The Department of Justice has filed dozens of charges alleging PPP fraud.

As of Oct. 7, 2020, DOJ has criminally charged 65 people with loan fraud connected to $225 million in PPP funds.

Below is more information about PPP and the fraud associated with the program.

What Is The Paycheck Protection Program?

The Paycheck Protection Program is a loan intended to offer a direct incentive during the COVID-19 pandemic to keep employees on the payroll. The Small Business Administration (SBA) will forgive the loans if all employee retention criteria are followed, and the funds are used correctly.

Features of PPP loans include:

• Interest rate of 1%.
• Before June 5, 2020, loans issued have a maturity of two years, while loans issued after June 5 have a maturity of five years.
• Loan payments are deferred for companies that apply for loan forgiveness. until the Small Business Administration remits the loan forgiveness amount to the lender.
• No collateral is required.
• The government and lenders are not charging businesses any fees.

What Is PPP Fraud?

While the PPP program has helped thousands of businesses, it has proven to be rife with fraud.

PPP loan fraud cases filed by the DOJ to date generally fall into two categories.

The first consists of individuals or small groups who lied on PPP loan applications about having real businesses or claimed they needed funds to pay their workers. Instead, they used taxpayer money to buy luxury cars, jewelry, pay for home renovations, and even go on gambling trips to Las Vegas.

SEE ALSO: Are People Going to Jail for PPP Loans?

The second category of PPP fraud cases involves organized crime rings. For instance, the DOJ recently filed federal charges against 11 people in Florida and Ohio, who applied for $25 million in PPP funding.

More criminal cases involving PPP fraud are probably going to happen. However, Acting Assistant Attorney General Briann Rabbitt recently warned that the DOJ would identify fraudsters and they will face severe legal consequences for ‘trying to exploit your fellow Americans’ suffering for your gain.”

PPP Fraud Statistics

Some key statistics regarding PPP fraud since the program started in the spring of 2020 are:

• It is illegal for a company to apply for more than one PPP loan, but this has been done at least 10,856 times so far, involving more than $1 billion in PPP funds.
• Many companies received loans that were debarred or not allowed to contract with the federal government. At least 610 loans of this type have been found involving $96 million.
• Many government contractors with performance and integrity problems received funds. It is estimated the SBA approved 350 loans worth $195 million that should not have received due to these issues.
• At least 11,000 borrowers received funds totaling $3 billion with application issues, such as an inconsistent business address, companies created after Feb. 15, 2020, and other information in the applications that do not match government data.
• Hundreds of loan applications were approved that did not identify the borrower’s name.

PPP Fraud Red Flags

Even though the Paycheck Protection Program was just started in March 2020, federal agents have already pinpointed several PPP fraud red flags. During audits and investigations, the US government looks for these red flags and will investigate further when they find them:

Lack of Documentation to Back Up Claims in Loan Application

During the application process, companies must prove several things:

• They have no more than 500 employees, which is the requirement to qualify as a small business under Section 3 of the Small Business Act.
• They are applying PPP because of cloudy economic conditions that make it necessary to ask for a loan to keep the business going.
• The program owners have not been convicted or pleaded guilty to a federal felony in the last 60 months.

Several PPP Loan Applications Submitted To Various Lenders

Companies only may receive one PPP loan from a lender at a time. Getting several PPP loans is against the law. If a company applies for several loans, they could be prosecuted for stacking PPP loans. Even if the company only gets one PPP loan, they can still be charged to get more than one.

Not Following PPP Compliance Policies and Procedures

The CARES Act sets up requirements for how businesses use and account for the use of PPP funds. So, after receiving PPP loans, companies must adopt procedures and policies that ensure PPP compliance. If the company has not documented policies and procedures governing the use of PPP funds, this is a red flag.

Separate PPP Loan Account Not Established

Companies only can use PPP funds for defined purposes. These purposes include making payroll and related costs, rent payment, and mortgage interest, paying insurance premiums, and paying company utility bills. Companies must deposit the funds into separate accounts.

Using Loan Funds for Personal Expenses

Using PPP funds for personal use is against the law. The Department of Justice has prosecuted several federal cases against people who converted PPP funds for personal use. Most of them are facing hefty fines and years in federal prison.

PPP Fraud Laws

The CARES Act, the program under which PPP was established, does not have provisions for criminal enforcement. It only states that companies that do not qualify for loan forgiveness must repay their loans at a 1% interest rate.

When pursuing PPP loan fraud cases, the DOJ is using preexisting federal statutes, including:

• Aggravated identity theft
• Bank fraud
• Conspiracy
• Making false statements to the SBA
• Making false statements to an FDIC-insured bank
• Making false statements to federal agents
• Wire fraud
• Tax evasion

Companies accused of PPP loan fraud also may be prosecuted under the False Claims Act. The DOJ often pursues civil and criminal cases under the False Claims Act for Medicare and Medicaid fraud. The government has indicated it will use the Act in the same way with PPP loan fraud.

Defenses to PPP Fraud

The most common defense to PPP fraud is that the accused committed fraud unintentionally. Sometimes a person can be charged with a white collar crime such as fraud, but they did not intend to defraud anyone or anything.

If you are charged with PPP fraud and believe you did not do so intentionally, you should speak with an experienced white collar crime defense attorney.

PPP Fraud Punishments

The penalties possible for PPP fraud convictions are steep. For instance, the federal bank fraud and wire fraud statutes have maximum fines of $1 million and 30 years in federal prison. For loan application fraud, a $1 million fine and 30 years in prison also are possible. For tax evasion, five years in prison and a fine of $100,000 is possible.

Under the civil enforcement portion of the False Claims Act, possible penalties are treble damages and fines up to $23,300 per false claim.

PPP Fraud Laws By State

PPP (Paycheck Protection Program) fraud involves knowingly misrepresenting information or submitting false claims to obtain funds under the federal PPP initiative, which was designed to provide financial assistance to businesses during the COVID-19 pandemic. The specifics and penalties for PPP fraud vary by state:

PPP Fraud in the News

Some recent examples of PPP fraud in the news include these examples:

• Seven Charged in COVID-Relief Fraud Scheme Involving 80 Applications Worth $60 Million: Seven people across two states were charged in a PPP fraud case. They attempted to obtain $16 million in fraudulent loans. All have been charged with conspiracy to commit wire and wire fraud.
• Porsche and Lamborghini Seized in $16 Million PPP Fraud Case: Five suspects in Houston have been charged with wire fraud and money laundering. They obtained $16 million in PPP loan funds to buy luxury items, including expensive cars and homes.
• Minnesota Man Accused of Receiving $560,000 in Bogus PPP Loans: Aditya Raj Sharma has been charged with wire fraud after submitting a fraudulent loan application seeking $560,000 in PPP loan funds. He stated he had 29 people on the payroll, although he pays no wages to any employees.
• Hicksville NY Family Charged in $13 Million PPP Fraud Conspiracy: Two people from Hicksville are among three family members hit with federal charges after trying to obtain millions in PPP relief funds by lying about how many workers they employed at their nail salons.
• Virginia Man Went on Las Vegas Trip With PPP Loan Money: A man from Norfolk used a fraudulently obtained $350,000 PPP loan for personal expenses, including a lavish trip to Las Vegas.
• Detroit Man Applied Nine Times for PPP Loan Relief, Obtaining $930,000 in Fraudulent Funds: The owner of several pizza parlors in Michigan applied for at least nine PPP loans that contained false and misleading information. Some of the misleading information included the number of employees he has and his payroll expenses.
• Four California Residents Indicted for Obtaining $5.6 Million in COVID-19 Relief Funds: Two men and two women were charged with bank fraud and wire fraud allegedly participating in a disaster relief loan fraud ring. They submitted 35 fraudulent applications to the PPP program, using false names and fictitious businesses.
• Little Rock Woman Pleads Guilty to $2 Million PPP Fraud Scheme: Ganell Tubbs, 4, pleaded guilty to bank fraud after obtaining almost $2 million in PPP loans. She claimed to own two businesses that were not in good standing.
• San Fernando Valley Man Pleads Guilty to COVID-19 Relief Fraud: Steven Goldstein, 36, pleaded guilty to a federal fraud charge for obtaining a $650,000 PPP loan by turning in fake tax documents and phony employee information.
• Ashburn VA Man Sent to Prison for PPP Loan Fraud: Tarik Jaafar, 43, conspired with his wife as they applied for 18 PPP loans in the names of four shell companies, securing almost $7 million in fraudulent loans.

References

• Paycheck Protection Program Overview. Accessed https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program
• 39 PPP Fraud Prosecutions So Far. Accessed a https://smallbiztrends.com/2020/08/ppp-fraud.html
• Justice Department Paycheck Protection Program Fraud Charges. Accessed at https://www.foxbusiness.com/economy/justice-department-paycheck-protection-program-fraud-charges
• Is Your Financial Institution Aware of These PPP Red Flags? Accessed at https://www.abrigo.com/blog/is-your-financial-institution-aware-of-these-ppp-red-flags/