What are the Charges for PPP Loan Fraud? - Federal Lawyer (2024)

PPP fraud, Criminal Law & Process

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If you’re facing an investigation for Paycheck Protection Program (PPP), here are the charges that could be on the table.

Federal authorities are aggressively targeting individuals and companies for PPP loan fraud. Launched in March 2020 in response to the economic uncertainty that was triggered by the recent COVID-19 pandemic, the PPP made hundreds of millions of taxpayer dollars in federal funding available as a way to provide emergency financial assistance to businesses struggling as a result of the pandemic. Loans issued under the PPP carry a 1% interest rate, but they are forgivable loans if certain conditions are met.

The low-cost (and potentially free) funds offered under the PPP have proven to be attractive not only to struggling businesses, but also to larger companies and scam artists. This has led to worry of widespread fraud (and a few highly-publicized cases of fraudulent PPP loan applications), and it has forced numerous federal agencies, including the Pandemic Response Accountability Committee (PRAC), to turn their attention to combatting PPP loan fraud.

Currently, the government officials of the U.S. Department of Justice (DOJ), Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), and U.S. Small Business Administration Office of Inspector General (SBA-OIG) are all actively conducting investigations under the PPP. These investigations are leading to a plethora of federal charges, corporate executives, company owners, and other individuals accused of PPP loan fraud are facing enormous fines and the potential for decades of federal imprisonment.

Understanding the Paycheck Protection Program Requirements and the Charges for PPP Loan Fraud

For individuals and companies that have applied for and received PPP loans, a key thing to understand is that the PPP itself does not include provisions for criminal enforcement. The PPP was established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, and the CARES Act is not a penal statute.

Instead, the DOJ is relying on the pre-existing federal laws that are used to prosecute fraud crimes generally in order to prosecute PPP fraud. This means that they have a multitude of tools at their disposal; and, as some of the early PPP loan fraud cases have shown, prosecutors are making full use of the tools they have available.

When Can the DOJ File Charges for PPP Loan Fraud?

Although the law around PPP loan fraud is still developing, there are already various acts and practices that have been identified as constituting fraud under the PPP. This includes acts and practices related to (i) PPP loan applications, (ii) the use of PPP loan funds, and (iii) certifications for PPP loan forgiveness.

1. PPP Loan Application Fraud

Although millions of small businesses were (and remain) eligible for PPP loans, not all businesses have the ability to obtain federal funds under the program. In particular, only businesses that qualify as “small business concerns” under the Small Business Act, 15 U.S.C. § 632, are eligible, and applications must be based on the need for funding due to, “the uncertainty of current economic conditions mak[ing] necessary the loan request to support the ongoing operations of the eligible recipient.”

2. Fraudulent Use of PPP Loan Funds

Funds gained under the PPP may only be used for the purposes authorized under the CARES Act. These include (i) payroll expenses, (ii) interest and rent payments under pre-existing obligations, (iii) insurance premiums, and (iv) utilities. Use of PPP loan funds for any other purpose has the potential to be characterized as PPP loan fraud.

3. PPP Loan Forgiveness Certification Fraud

To obtain forgiveness of the obligation to repay their PPP loans, companies must certify that they have complied with all of the requirements of the program. Submitting a false certification (including a certification made with incomplete knowledge) is also considered a form of PPP loan fraud. In fact, in certain respects, this may be the most serious form of PPP loan fraud because it results in non-repayment of the loan received.

What are the Possible Charges for PPP Loan Fraud?

There are many permutations of each of the forms of PPP loan fraud listed above, and companies, banks, and individuals all have the potential to face allegations of perpetrating or facilitating fraud under the PPP. As referenced above, these allegations can lead to a multitude of different charges at the federal level. This includes (but is not limited to) charges for:

• False Claims Act Violations (31 U.S.C. §§ 3729 – 3733) – The False Claims Act prohibits the submission of any “false or fraudulent” claim for payment under a federal benefit program. Submitting false information in a PPP loan application and submitting a fraudulent PPP loan forgiveness certification both have the potential to lead to charges under the False Claims Act.
• Making False Statements to the Small Business Administration (SBA) (18 U.S.C. § 1014) – Under 18 U.S.C. § 1014, it is a federal offense to, “knowingly makes any false statement or report . . . for the purpose of influencing in any way the action of the . . . Small Business Administration.” The SBA is the agency responsible for administering the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loans (EIDL). Violations of Section 1014 carry the potential for up to a $1 million fine and 30 years of federal imprisonment.
• Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014) – Section 1014 imposes the same penalties for making false statements to FDIC-insured banks and other financial institutions. Subsequently, individuals and companies that submitted false information in their PPP loan applications have the potential to face charges regardless of whether or not they are accused of submitting false information directly to the SBA.
• Bank Fraud (18 U.S.C. § 1344) – Along with 18 U.S.C. § 1014, individuals and companies that submitted fraudulent PPP loan applications or commit bank fraud can also face charges under 18 U.S.C. § 1344. This federal statute imposes penalties of up to a $1 million fine and 30 years of federal imprisonment for, “knowingly execut[ing], or attempt[ing] to execute, a scheme or artifice—(1) to defraud a financial institution; or (2) to obtain any of the moneys . . . under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.”
• Wire Fraud (18 U.S.C. § 1343) – Any fraudulent activity that involves Internet communication or that is conducted in whole or in part over the Internet can lead to wire fraud charges under 18 U.S.C. § 1343. Using the Internet to execute, “any scheme or artifice to defraud, or . . . obtain[] money or property by means of false or fraudulent pretenses, representations, or promises,” carries up to a $500,000 fine and 20 years of federal imprisonment under Section 1343.
• Aggravated Identity Theft (18 U.S.C. § 1028A) – Using another company’s or individual’s information in order to fraudulently get a PPP loan can be prosecuted as aggravated identity theft under 18 U.S.C. § 1028A. In addition to the penalties for the underlying offense (i.e. bank fraud), an individual charged with aggravated identity theft can face two more years of federal prison time, which must be served consecutively.
• Tax Evasion (26 U.S.C. § 7201) – A lot of companies and individuals that fraudulently obtained PPP loans will face charges for federal tax evasion as a result of their unlawful use of PPP loan funds. Claiming deductions for expenses paid with PPP loan funds can lead to federal tax evasion charges as well. Under 26 U.S.C. § 7201, federal tax evasion carries fines of up to $100,000 (for individuals) or $500,000 (for corporations) and up to five years of federal imprisonment.
• Making False Statements to Federal Agents (18 U.S.C. § 1001) – When facing an SBA audit or an SBA-OIG, DOJ, or FBI investigation targeting allegations of PPP loan fraud, individuals must be extremely careful to not make false statements (while also being extremely cautious not to unnecessarily share information that could lead to federal prosecution). Under 18 U.S.C. § 1001, making false statements to federal agents carries fines of up to $250,000 (for individuals) or $500,000 (for corporations) and up to five years of federal imprisonment.
• Conspiracy (18 U.S.C. § 371 and 18 U.S.C. § 1349) – Conspiring to commit PPP loan fraud is a federal offense that can lead to penalties up to and including the same penalties imposed for the “successful” commission of a PPP loan fraud offense. Multiple individuals, companies, and financial institutions can face charges of conspiracy investigations, and defending against conspiracy charges requires a carefully tailored defense strategy.
• Attempt (18 U.S.C. § 1349) – Submitting a fraudulent PPP loan application can lead to a charge for attempt as well, as can submitting a fraudulent certification in an effort to obtain PPP loan forgiveness. Engaging in money laundering such as conspiracy or attempt, carries the same penalties as the underlying substantive offense under 18 U.S.C. § 1349.

Speak with a Federal PPP Loan Fraud Defense Lawyer at Oberheiden P.C.

Our firm is representing individuals and companies nationwide in federal PPP loan fraud investigations throughout the coronavirus pandemic. If you are facing federal charges for potential fraud in a PPP loan, or if you have already been charged and are facing prosecution in federal district court, our team can help.

We also represent clients in need of qui tam and healthcare fraud defense, involved in federal investigations, facing federal criminal charges, and in other legal matters. We encourage you to call 888-680-1745 or contact us online immediately to arrange a free initial consultation.

Last Updated: 2024-03-05