PPP Loan Fraud: Understanding the Basics
The COVID-19 global pandemic has changed our lives in ways we had no way of anticipating, and the law is certainly no exception. The federal government’s CARES Act included a Paycheck Protection Program (PPP) that provided financial support to small businesses during the swift economic downturn precipitated by the pandemic. While the program allowed many small businesses to keep their doors open, there have also been fraud charges in relation to misuse. And because this governmental response was so abrupt, there are wrinkles to be ironed out along the way.
The Government Cracks Down
Reports related to fraud, waste, and abuse with the Paycheck Protection Program have led to federal crackdowns on recipients who are not on the up and up. If your small business is under investigation, do not panic – but do seek the professional legal counsel of an experienced criminal defense attorney.
The Three Categories of Fraud
Federal investigators are focusing on the following three forms of PPP fraud:
Application fraud
Misuse of loan funds
Forgiveness certification fraud
A violation in any of these categories can lead to civil or criminal penalties.
Application Fraud
Application fraud can take many forms. In order to qualify, small businesses must have experienced specific concerns related to small business ownership. Further, their applications must be truthfully based on genuine business concerns that were precipitated by the pandemic-related economic downturn.
Misuse of Loan Funds
Recipients of PPP loans must be used for approved purposes only, which include:
Meeting the business’s payroll requirements
Paying off the interest generated by pre-existing obligations
Paying insurance premiums
Covering utility costs
The funds issued by the PPP must be used in the furtherance of one’s business operations. When a business uses funds obtained through PPP for non-approved purposes, it can face fraud charges.
Forgiveness Certification Process
There are express certification requirements for seeking financial forgiveness, which include certification of all the following:
That the business actually incurred the kind and amount of expense for which forgiveness is sought
That the business reduced the amounts requested for forgiveness by any decrease in full-time employees or any decrease in hourly wages or salaries paid
That the amount requested for forgiveness includes no more than 25 percent of non-payroll costs
The Whirlwind Nature of the Program
COVID-19 came at us seemingly out of nowhere, and the PPP had to be created and implemented quickly in order to help support small businesses when they needed the help most. As a result, there has been plenty of room for ambiguity and missteps along the way. If you find yourself facing PPP-related fraud charges, the best course of action is to consult with an experienced criminal defense attorney as soon as possible.