PPP Loan and CARES Act Fraud

What Is the Paycheck Protection Program?

The Paycheck Protection Program is a government loan program established through the CARES Act for businesses who employ less than 500 people to gain assistance because of the impact of COVID-19. Small businesses are eligible for up to $10,000,000 to cover expenses such as payroll, mortgages, rent and utilities. The debt is forgivable if the money goes towards these “qualified expenses”.

What is PPP Loan Fraud or CARES Act Fraud?

Committing PPP loan fraud is to take advantage of the loan program and CARES Act by dishonestly obtaining money. You may face guilt of PPP loan fraud if you purposely obtain or attempt to obtain funds through the CARES Act.

What Are Examples of PPP Loan Fraud?

Claim the incorrect number of employees to qualify for the loan.
Wrongfully claiming that COVID-19 impacted your business.
Increasing payroll costs to get an increased amount of funding.
Using the funds for anything other than qualified expenses
Failure to identify an employee that left in order to continue receiving funds on their behalf.

How Can I Avoid Paycheck Protection Program Loan Fraud Charges

PPP loan fraud and CARES Act violations are serious crimes. They can have severe legal consequences. Given the importance of the PPP program and its role in supporting businesses during the COVID-19 pandemic, it is important to follow the program rules. However, if authorities accuse you of PPP loan fraud, it is important to contact professional legal counsel immediately to protect your rights.

Understand the terms and conditions of the program. This is the first step in avoiding violations. You should only use a PPP program loan for qualifying expenses. For example:

employee salaries
rent
utilities.

And other expenses that help keep the business afloat during a pandemic. Misuse of funds or providing false information to obtain a loan is considered fraud.

Filing errors. Often, potential fraud allegations arise not from malicious intent, but from simple reporting errors. For example, misstating the number of employees or overstating payroll costs can appear as fraud. It is important to carefully review all information on the filing form to avoid mistakes that could lead to charges.

Demonstrate good faith. If authorities accuse you of PPP loan fraud, presenting evidence of good faith may be key to your defense. For example, if you made mistakes inadvertently and without intent to defraud the program, this may provide grounds for acquittal. It is also important to preserve all documents and correspondence with financial institutions. Incorrect data in reports or bank statements can lead to suspicions of fraud.

What to do if you are accused of fraud. It is important to seek legal counsel immediately. The attorneys at KAASS LAW can help you understand complex legal issues and develop a defense strategy. Loan fraud charges can result in serious fines and jail time. Therefore, it is important to act quickly and effectively. The assistance of an attorney in such a situation can significantly affect the outcome of the case. An attorney can:

gather evidence
prepare all necessary documents
represent your interests in court

What Are the Penalties for PPP Loan Fraud?

Under the Small Business Act, PPP loan fraud is charged as a federal crime. If convicted for making false statements or overvaluing securities you face felony charges punishable by:

Fine up to $5,000 and/or
A 2 year sentence in a federal prison.

If a person faces embezzlement charges under PPP loan fraud, they may face:

A fine up to $10,000 and/or
A federal prison sentence of 5 years.

Defenses against a PPP loan fraud violation may include:

Intent is important. Defendants cannot be charged if they had no intent to defraud. For example, making a mistake on the complicated loan application could be a result of the violation. If you did not intend to defraud and simply made a mistake, the law does not charge you with fraud.
An SBA mistake in communications, bank statements, accounting notes, receipts and even bills could seem like there is fraud occurring under a PPP loan. It is important to keep all data as reference in case there is a mistake in one of the weeks.

The Office of the Special Inspector General for Pandemic Recovery is in charge of all PPP loan fraud investigations. All charges are prosecuted by the Department of Justice.

Remember that even if your intention was not to commit fraud, legal defense is necessary to minimize risks. If you need advice on PPP loan fraud, contact the attorneys at KAASS LAW. We will provide you with professional assistance and protection of your interests. You may call our office at (310) 943-1171 or by filling out the contact form below.