I. About PPP Loans
Under the CARES Act, the Paycheck Protection Program (PPP) through the Small Business Administration (SBA), guaranteed loans to persons and businesses whose income declined due to the COVID-19 pandemic. Loans guaranteed under the Paycheck Protection Program (PPP) were guaranteed 100 percent by the SBA. There was also a loan forgiveness provision within the PPP for potential forgiveness.
The SBA relied on borrower statements to determine eligibility and loan proceeds. The SBA also relied on statements and borrower documents to determine the loan amount and the possibility of loan forgiveness.
II. General Loan Eligibility Requirements
You were eligible if you had 500 or fewer employees, the business resided in the United States, or certain type of industry and meet SBA employee size standards for the industry. The loans were to replace profits and cash flow of businesses, and individuals, who suffered from a decline in business during the COVID pandemic.
III. Fraud Investigated / Prosecuted
PPP loan fraud is investigated at the federal level because it is a federal program and is federally funded. Additionally, several federal criminal statutes exist that would naturally fit the allegations of PPP loan fraud. These include Bank Fraud, False Statements to a Financial Institution, and Government Program Fraud, found in Title 18 of the U.S. Code.
Several areas become of interest to federal prosecutors and federal agents when they are investigating a company or looking at a potential formal investigation of a person or company. These include:
- Number of employees appears to be fictitious or inconsistent with a company’s records of employees;
- The listed income of a company;
- Whether the subject company applying for a PPP loan is actually a viable business; and
- Whether the company or person is eligible to apply for a PPP loan.
IV. Common Fraud Allegations in Federal Prosecutions
There are several common basis’s for federal prosecutions of alleged false statements or false representations regarding obtain a PPP loan. These include:
- Misrepresentations about the number of company employees;
- Misrepresentations about an applicant company being a legitimate company;
- The amount of listed income that the company had and the amount of decline in revenue due to COVID;
- Misrepresentations regarding the nature of the company’s business; and
- Misrepresentations about being a United States company.
V. Loan Forgiveness
Under certain conditions, a PPP loan could be forgiven, meaning that the borrower is excused from paying the loan. Sometimes there are basis’s for prosecutions in borrowers’ requests for loan forgiveness. These prosecutions are often based upon:
- Misrepresentations about the ability to repay the loan;
- Misrepresentations about the historical income of the company;
- Misrepresentations that the government learns about the nature or legitimacy of the business that was initially not detected;
- Misrepresentations about the company being a United States company that was not originally detected; and
- Misrepresentations about the applicant company’s ability to qualify for a PPP loan that was not originally detected.
VI. Sentencing Guidelines Factors
Some factors that can affect the U.S. Sentencing Guidelines calculations that produce an imprisonment recommendation range for a person convicted, include:
- The dollar amounts of the fraud scheme;
- Whether the scheme involved more than minimal planning;
- If the misrepresentations include that the company itself does charity work;
- Monies funneled to violence or illegal groups; and
- If misrepresentations included representations that the company was affiliated with a government agency.
VII. If You Are Under Investigation
If you or your company are under criminal investigation, you need experienced federal counsel. Contact former federal prosecutor John Teakell. Mr. Teakell will lead you through the decisions facing you, and he will defend you through the investigation and any formal charges that are brought against you.
