Government Charges Involving PPP Fraud Are Increasing

By: Joseph L. Gordon

Unsuspecting business owners are being targeted by federal prosecutors.  One of the first tasks many small and medium sized businesses undertook shortly after the onset of the Coronavirus pandemic was to determine whether the Paycheck Protection Program (“PPP”) could help them.  Now, nine months after the loans started being disbursed, prosecutors are filing criminal charges for various fraud and financial crimes.

The PPP was established as a vehicle to quickly get cash into the hands of businesses whose operations were being impacted by a rapidly deteriorating economy in March 2020.  Because speed was of critical importance, the Federal Government authorized banks to bypass typical diligence standards when disbursing PPP funds.  Meanwhile, small businesses were racing to obtain these funds because the loans had the potential to be fully forgiven if the funds were used for authorized purposes.  This confluence of factors led to approximately 5.2 million companies obtaining over half a trillion dollars in PPP loans.

As many feared, the prospect of “free money” caused some unintended results, which are now leading to criminal prosecutions across the country.  A few recent examples include:

  • Charges brought in the Western District of Washington against an individual for representing in a PPP application that the funds would be used to pay his company’s workers even though those workers worked for another company.
  • Charges brought in the Southern District of Florida against a former NFL player for using newly created documents as part of his business’s loan application and then subsequently using a sizeable portion of those funds on personal luxury expenses.
  • Charges brought in the Western District of Washington against a man who created a new company solely to obtain a PPP loan.
  • Charges brought in the Western District of New York against two brothers who applied for PPP loans by submitting bogus tax returns in an attempt to document historical employee wage expenses.

Businesses have now begun applying for PPP loan forgiveness since the period of time in which they had to spend the funds on qualifying expenses has expired or is about to expire.   As more and more businesses apply for forgiveness, investigations are likely to follow, requiring businesses to be very diligent in their representations to the government.

Our COVID Response practice group has been at the forefront of addressing pandemic-related issues, and will continue to monitor developments as we transition into the next (and hopefully final) phase of the pandemic.

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