PPP
Loan Fraud
On March 17th 2020, The 116th U.S.
Congress passed the CARES Act[1] (The Coronavirus Aid
Relief, and Economic Security Act) that was designed to help provide fast and
direct financial assistance to American workers, families, small businesses to
help preserve jobs for American industries feeling the economic hardships associated
with the Coronavirus pandemic. Congress initially allocated $349 Billion and
then added an additional $300 Billion in forgivable loans to small businesses. To
date, Congress has approved more than $2 Trillion with this economic relief
package. These loans, known as the Paycheck Protection Program, or “PPP loans”,
were supposed to be used by small businesses to retain employees, and to pay
certain business expenses like interest on mortgages, rent, and utilities. If the small business used the proceeds of
the loans for the required expenses, then the loan would be forgiven.
The program was put together rapidly to respond to the
economic hardships created by the pandemic.
There were several rules and regulations put into place in an attempt to
safeguard the process and, in theory, direct the money to small
businesses. According to the New York
Times there were 5.2 million PPP loans that totaled more than $525 Billion
dollars. Although PPP loan fraud is thought to be a small percentage of the
overall loan amounts distributed, the department of Justice brought its first
fraud case in May 2020, mere weeks after the program started.
How were these PPP Loans Defrauded?
PPP loan fraud, like all fraud, involves submitting materially
false applications (i.e.: documents designed to deceive) in return for banks approving,
and issuing, these loans. In some cases, applicants created small businesses
with supporting documents to look like they had a large number of employees. In
other cases, the applicant had a legitimate small business that was entitled to
a PPP loan, but instead of using the loan for the intended purposes like paying
payroll and rent, the owners diverted those funds for their own personal
use.
What is being done about this fraudulent
activity?
The DOJ has made it a priority to prosecute PPP loan
fraud having already brought charges against dozens of individuals, and
businesses, nationwide. According to the
New York Times[2],
those cases ranged in requested loan amount from as little as $30,000.00 to
over $24 Million! More recently, the DOJ
has investigated criminal organizations that have stolen large amounts of money
from the loan program. That appears to
be where the DOJ is currently focused.
Those accused of PPP loan fraud are often charged with
wire fraud, bank fraud and conspiracy to commit wire and bank fraud. It is also not difficult to imagine The DOJ
bringing money laundering charges as well.
Under the federal sentencing guidelines, the amount of actual or
intended loss can be used to determine a sentencing range. In other words, the more that someone steals
the longer their sentence is likely to be. These are serious charges that can carry
significantly long sentences. In
addition to prison time the Government has seized cars, jewelry, property and
will likely seek substantial fines in addition to restitution at sentencing. A large percentage of those funds may never
be recovered as in some cases people have spent the money on trips to Las
Vegas, speculative investing, and visits to a strip club.
What does all of this mean, and should I
be concerned?
