Fighting the Latest of Fraud Cases: SBA & PPP Loan Fraud

In March 2020, the Coronavirus Aids, Relief and Economic Security (CARES) Act was passed by Congress to provide stimulus to families and small businesses in the United States. A part of this stimulus is the Paycheck Protection Program (PPP), where qualified small businesses were allocated funds as forgivable small business loans.

There have been additional regulatory requirements put in place since the initial launch of the PPP program due to many business owners being confused about eligibility or how to allocate loan funds. Under these new regulations, many businesses who received PPP loans are at risk of federal investigation and legal penalties due to alleged fraud.

The Department of Justice began filing cases in most states, including New York, starting on May 18, 2020, and are still prosecuting individuals accused of PPP loan fraud. As of June 21, 2022, approximately 637 defendants’ have been found guilty of some or all of the crimes related to PPP loans, including falsifying payroll information in order to obtain PPP loans, using PPP loan funds to pay for personal expenses, attempting to obtain multiple PPP loans, and various other forms of PPP loan fraud. Within these categories, many business owners who are trying to comply with regulations can still face investigation and charges.

Types of SBA & PPP Fraud

Laws surrounding PPP fraud are still developing, but for now they can fall into three main categories:

1. Application Fraud: There are various acts relating to whether a business presents honest and accurate information when applying for a PPP loan. Only companies that qualify as having “small business concerns” under the Small Business Act are eligible for funds. The program also notes how applications must be based on need due to “the uncertainty of current economic conditions making necessary the loan request to support the ongoing operations of the eligible recipient.”
2. Fraudulent Use of Loan Funds: Money obtained through a PPP loan may only be used for a handful of specific expenses: payroll, interest and rent payments under pre-existing obligations, insurance premiums, and utility costs. Those using loan funds for purposes outside of those stated above may be investigated for fraud.
3. Loan Forgiveness Certification Fraud: There are instances where businesses can qualify to have repayment of their PPP loans forgiven. First, they must prove that they have complied with all the requirements of the program. If a company submits a false certification, including one with incomplete information, this could be considered PPP loan fraud.

SBA & PPP Loan Fraud Criminal Charges

Within each of the above categories, there are various charges business owners could face. The allegations listed below may seem similar but each comes with a different set of penalties.

• Aggravated Identity Theft: This is when a person is accused of using another company or individual’s information to obtain a PPP loan. They can face charges for identity theft, which typically coincides with an underlying fraud offense (i.e. bank fraud), and includes additional years of federal prison time served on top of fraud penalties if convicted.
• Bank Fraud: Individuals and companies that submit fraudulent loan applications also can face charges for bank fraud under 18 U.S.C. § 1344. Bank fraud is when a person knowingly defrauds or attempts to defraud a financial institution by means of false pretenses, representations, or promises. Penalties can include up to one million dollars in fines and 30 years of federal imprisonment.
• Conspiracy: Conspiring to commit PPP loan fraud also is considered a federal offense, under 18 U.S.C. § 371 and 18 U.S.C. § 1349. Penalties can be as large as the penalties for committing PPP loan fraud.
• False Claims Act: The False Claims Act prohibits submitting false claims for payment under a federal benefit program. A person can be charged with submitting false information in a PPP loan application or in a PPP loan forgiveness certification, and both carry the potential to lead to false claims charges.
• Making False Statements to the Small Business Administration (SBA): Under 18 U.S.C. § 1014, it’s a federal violation to knowingly make any false statements to the SBA,  as they are responsible for administering PPP loans.
• Wire Fraud: Fraudulent activity involving internet communication or activity over the internet can be charged as wire fraud under 18 U.S.C. § 1343. This is important, as many PPP applications are submitted online.

Facing SBA or PPP Loan Fraud Charges?

With the burden of proof on the federal government to show that you were acting in bad faith during the SBA and PPP application process, it’s in your best interest to hire an experienced defense attorney. With the intricate, ever-changing regulations surrounding SBA & PPP loan fraud, you’ll need a legal team with experience defending against criminal fraud in New York.

Those facing criminal fraud charges need the expertise of Adam Bolotin -a criminal defense attorney that knows the ins and outs of the criminal justice system. Adam Bolotin has many years of experience representing clients facing serious criminal charges. If you or a loved one are facing PPP Loan Fraud Charges, Call NY: (646) 368-8688 | CHI: (312) 626-2602  or click here to schedule a free consultation.