PPP Loan Fraud / CARES Act Fraud

Updated

PPP (Paycheck Protection Program) loan fraud is obtaining money by false pretenses through the CARES Act. As of April 2020, eligible small businesses can obtain up to $10 million to cover payroll, mortgages, rent, and utilities for eight weeks. And the government will forgive the debt if the money goes towards these "qualified expenses."

Only businesses affected by COVID-19 and with fewer than 500 full-time employees are eligible for CARES relief. Cheating the Small Business Administration (SBA) out of this stimulus money is a federal felony. It carries potential prison time, fines, and repayment of the loan.1

In this article, our Los Angeles criminal defense attorneys discuss:

Sign that says CARES Act. Fraudulently obtaining small business funds through this ACT is a federal felony.
PPP loan fraud is a felony under federal law. (Image ©️ DOT)

1. What is PPP loan fraud? (CARES Act Fraud?)

PPP loan fraud occurs when people intentionally obtain - or attempt to obtain - funds through the CARES Act that they are not entitled to. Five examples of PPP loan fraud include:

  1. Falsely claiming the company has fewer than 500 employees to qualify for the loan.
  2. Falsely claiming the coronavirus crisis hurt business to qualify for the loan.
  3. Inflating average monthly payroll costs to get more loan money. (Note that payroll costs cap at $100,000 per employee.)
  4. Falsely claiming all the loan money is going towards qualified expenses (payroll, rent, mortgage, utilities) in order to get the loan forgiven.
  5. Not disclosing if employees leave (thereby reducing payroll expenses) in order to get more of the loan forgiven.

The CARES Act created the Office of the Special Inspector General for Pandemic Recovery. Its purpose is to investigate fraud allegations. And the Department of Justice (DOJ) will prosecute any charges.2

2. What are the penalties?

PPP loan fraud is a federal crime under the Small Business Act. The sentence depends on the specific offense:

CARES Act crime

Federal punishments

Making false statements, or

Overvaluing securities

Felony:

Embezzlement

Felony:

  • $10,000 and/or
  • 5 years in prison3

Plus, the defendant will need to pay restitution.

3. What are common defenses?

People facing PPP loan fraud charges can argue that either:

  1. The defendant had no intent to defraud; or
  2. The SBA made a mistake

3.1. The defendant had no intent to defraud

Defendants are not criminally liable if they accidentally provided false information. Loan applications are complicated. And people - especially in a time of heightened stress - may inadvertently get things wrong.

Example: Tom owns a Las Vegas restaurant that closed because of COVID-19. He applies for a PPP loan. His average monthly payroll is $50,000. But by accident, he types an extra zero. He does not realize this mistake when he submits the application.

Here, Tom committed no crime because he had no intent to defraud. If the feds try to go after him, they would need to prove his guilt beyond a reasonable doubt. This is a very high bar. If he explains his mistake, the charges may be dropped.

3.2. The SBA made a mistake

Like all bureaucracies, the SBA gets things wrong. And during this time of increased activity, errors are inevitable. That is why business owners should keep all their records. Such as:

  • Email communications
  • Voicemails
  • Bank statements
  • Accounting notes
  • Receipts
  • Bills

These may serve as valuable proof of the defendant's innocence if the government levies a false accusation.

4. Can the record be sealed?

In most cases, federal criminal records are unsealable.

5. What are the immigration consequences?

Fraud involving more than $10,000 is an aggravated felony. Fraud is also a crime involving moral turpitude. Therefore, non-citizens convicted of CARES Act fraud are vulnerable to deportation.4

Aliens facing criminal charges are encouraged to consult with legal counsel as soon as possible. A criminal defense attorney may be able to get the charges dismissed. Or reduced to a non-deportable offense.

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Legal References

  1. Coronavirus Aid, Relief, and Economic Security Act, Senate Bill 3548 (March 27, 2020).
  2. Same.
  3. 15 U.S.C. § 645; also see False Claims Act 31 U.S.C. §§ 3729 - 3733.
  4. I.N.A. § 101(a)(45); INA 212(a)(2)(a)(i).

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