Feds Allege Big Increase in PPP Loan Fraud

The Federal Docket

November 10, 2020

The Wall Street Journal, citing government officials and public data, recently reported that the federal government has become “swamped with reports of potential fraud in the Paycheck Protection Program,” a government program created under the CARES Act and designed to provide forgivable loans to businesses during the COVID-19 pandemic. Our firm has kept up with the increasing number of PPP loan fraud investigations since the program was enacted.

The WSJ reports that the government believes that certain aspects of the program leave it vulnerable to fraud, such as the provisions allowing businesses to “self-certify” that the loans were necessary. According to a watchdog for the Small Business inspector general, tens of thousands of companies received PPP loans despite being ineligible, sometimes because they were too big or because they owed outstanding taxes. Of course, many business owners may have applied for loans genuinely believing they were eligible or may be unaware of the criteria for eligibility.

The article also describes certain types of activities that the government considers “suspicious,” such as multiple PPP loans going to a single account or where online vendors offer “how-to guides” for individuals seeking PPP loans. The FBI reports that nearly 500 suspects have been or are currently being investigated for PPP loan fraud, while 73 defendants have been charged as of last month.

The article also contains some hints as to potential defenses or struggles in prosecutions of PPP loan fraud, such as the loose standards Congress imposed for applicants, the considerable leeway given to businesses to determine whether PPP loans were “necessary,” and, as described above, the implications of allowing businesses to self-certify.

Another round of fraud investigations may begin as the SBA begins accepting PPP loan-forgiveness applications, which are generally approved if a company can show the money was spent on legitimate purposes, like payroll, and that they complied with the PPP’s requirements.

Click here to read the WSJ article.

Our firm has written about the steps you should take if you are the subject or target of a PPP loan fraud investigation.

Tom Church - Tom is a trial and appellate lawyer focusing on criminal defense and civil trials. Tom is the author of "The Federal Docket" and is a contributor to Mercer Law Review's Annual Survey in the areas of federal sentencing guidelines and criminal law. Tom graduated with honors from the University of Georgia Law School where he served as a research assistant to the faculty in the areas of constitutional law and civil rights litigation. Read Tom's reviews on AVVO. Follow Tom on Linkedin.

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