Paycheck Protection Program Fraud: What We Know So Far About Enforcement

Unprecedented times call for unprecedented measures, one could argue; as a result of the national and international response to COVID-19, the U.S. economy took a severe dive and unemployment was expected to skyrocket. There was a severe downturn that all of us are trying to crawl back out of, but it would have surely been worse without the $2 trillion CARES Act that passed in late March.

For small business owners, the most attractive part of the CARES Act is the Paycheck Protection Program. The PPP offers potentially forgivable loans to small businesses in exchange for their keeping employees on payroll. This was a welcome development, but we are beginning to see the federal government cracking down on abuse and fraud related to PPP loans. This blog will explore how alleged PPP fraud is being investigated and what you should look out for as a small business owner.

How Federal Government Will Prosecute PPP Fraud

The CARES Act created the position of a special Inspector General to enforce the law’s provisions and help direct investigations of potential fraud. The special IG will, more specifically, analyze the sale and management of PPP loans to small businesses and help ensure the money is used for its intended purpose. The False Claims Act, which is often used to prosecute healthcare fraud, will likely come into play at some point as it relates to PPP fraud.

In the few high-profile cases of PPP fraud where charges have been brought, a common thread is that individuals who applied for loans misrepresented the amount of employees they had. One alleged fraudster applied for loans to pay non-existent employees and workers of a restaurant that didn’t even exist. Yet another spent his PPP money on jewelry and a luxury car. Whistleblowers were suspected to have a hand in alerting authorities to these alleged misdeeds, which resulted in multi-agency investigations.

What Will Pique the Interest of Federal Agents?

Chances are, the majority of violations related to PPP fraud will not be as blatant as the examples above. Generally, the following situations are likely to garner attention from federal law enforcement:

• Applying for or receiving loans nearing (or above) $2 million
• Loans disproportionate to the amount of employees a business actually has
• Loans disproportionate to the cost of living in the area around a business

As federal officials continue to provide guidelines for borrowers, we will learn more about the prosecution habits and tendencies of law enforcement concerning PPP fraud.

Conclusion

The team at Petkovich Law Firm understands how difficult it is for small businesses to stay afloat right now. As an entrepreneur, you are entitled to apply for any relief program you feel will benefit you and your employees. However, as with any large government program, federal officials will be on alert for anything remotely suspicious when it comes to loans under the Paycheck Protection Program.

If you are under the microscope of the Department of Justice or any other agency for alleged PPP fraud, reach out to Petkovich Law Firm at 305-358-8003 to discuss your options with a highly experienced white-collar defense attorney today.