"While the Paycheck Protection Program (PPP) was intended as a lifeline for struggling businesses that were not able to pay their employees due to the economic impacts of the COVID-19 crisis, it ultimately proved to be a prime target for fraud. Of the hundreds of millions of dollars in forgivable, federally-backed loans issued under the program, it is suspected that a substantial portion went to ineligible companies and individuals. It is also widely suspected that many PPP loan recipients have used their loans for ineligible business and personal expenses. Due to these concerns, the U.S. Department of Justice (DOJ) is actively pursuing investigations seeking to uncover evidence of PPP loan fraud. When federal agents find evidence of fraud, the DOJ is issuing criminal complaints and pursuing charges for a broad range of federal offenses. Are You Facing a DOJ Investigation for PPP Loan Fraud? Here’s What You Need to Know Facing a U.S. Department of Justice investigation for PPP loan fraud is a serious matter that can have serious consequences for companies, their owners and executives, and others. If you or your company is being targeted in a PPP loan fraud investigation, here’s what you need to know:

Who handles PPP fraud?

The DOJ is Intent on Prosecuting Individuals and Companies for PPP Loan Fraud Due to the substantial cost of Paycheck Protection Program loan fraud as well as the widespread publicity of fraud targeting the PPP, the DOJ is aggressively targeting individuals and companies suspected of submitting fraudulent loan applications and making unauthorized use of PPP loan funds. The DOJ is also targeting individuals and companies suspected of submitting fraudulent certifications for PPP loan forgiveness. As quoted in a recent DOJ press release, “The Paycheck Protection Program was designed to help Americans struggling with financial hardship during the pandemic. Our office will be aggressive in targeting anyone who defrauds this critical program” The DOJ is Actively Pursuing Charges in Numerous PPP Loan Fraud Cases The risk of facing a DOJ PPP loan fraud investigation is not theoretical—the DOJ has already filed charges in numerous cases. It has charged individuals with creating shell companies and falsifying payroll information in order to obtain PPP loans, using PPP loan funds to pay for lavish personal expenses, attempting to obtain multiple PPP loans, and various other forms of PPP loan fraud. The DOJ is Working with Other Federal Law Enforcement Agencies to Target All Forms of PPP Loan Fraud The DOJ is not acting alone in its effort to combat fraud under the Paycheck Protection Program. In fact, it is working with multiple other federal agencies that are all equally committed to identifying and prosecuting individuals and companies that have unlawfully taken advantage of the federally-backed, forgivable loans offered under the PPP. The other federal agencies that are working with the DOJ to investigate and prosecute PPP loan fraud include the U.S. Small Business Administration Office of Inspector General (SBA-OIG), Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), Federal Bureau of Investigation (FBI), and Internal Revenue Service Criminal Investigations (IRS-CI). There are Many Potential Defenses that Individuals and Companies Can Assert During DOJ PPP Loan Fraud Investigations While the risks facing individuals and companies accused of PPP loan fraud by the DOJ are significant, there are also many potential defenses to allegations of PPP loan fraud. When representing clients accused of PPP loan fraud by the DOJ, our attorneys are relying on multiple defenses that are both specific to the Paycheck Protection Program and that apply based on the specific charges being put forward under the statutes listed above. For example, some of the types of defenses that individuals and companies can assert during DOJ PPP loan fraud investigations include: Paycheck Protection Program Compliance – The first line of defense for many individuals and companies will be to demonstrate compliance with the terms of the PPP. If your company lawfully obtained a PPP loan, established a segregated PPP loan account, and carefully documented the appropriate use of its PPP funds, then providing proof of compliance could lead to a fairly efficient resolution. However, when affirmatively providing information to the DOJ, companies need to be very careful. Once information has been volunteered, it cannot be taken back, and inadvertently disclosing incriminating information could enhance your (and your company’s) risk of prosecution for PPP loan fraud. Lack of Intent to Defraud – Generally speaking, criminal culpability at the federal level requires intent to defraud. If you inadvertently obtained a PPP loan despite being ineligible to do so, used PPP funds improperly, or submitted a fraudulent forgiveness certification, then your lack of intend could provide a defense to the charges listed above. However, unintentional fraud can still be prosecuted as a civil offense, and civil violations of the False Claims Act and other statutes can carry enormous fines, treble damages, loss of federal program eligibility, and other penalties.

How to prove PPP loan fraud?

Potential Charges in Federal PPP Loan Fraud Investigations Although the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which created the Paycheck Protection Program, does not contain penal provisions for PPP loan fraud, fraud under the program can trigger civil and criminal charges under numerous pre-existing federal statutes. Potential charges in federal PPP loan fraud investigations include (but are not limited to): Making False Statements to the Small Business Administration (SBA) (18 U.S.C. § 1014) Making false statements to the Small Business Administration (SBA) is a federal criminal offense under 18 U.S.C. § 1014. The statute imposes penalties for anyone who, “knowingly makes any false statement or report . . . for the purpose of influencing in any way the action of the . . . Small Business Administration.” This verbiage is broad enough to include statements made on companies’ PPP loan applications (including their Borrower Application Forms), as well as companies’ certifications for loan forgiveness. Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014) The prohibitions contained in 18 U.S.C. § 1014 also apply to false statements and reports submitted to financial institutions that are insured by the Federal Deposit Insurance Corporation (FDIC) and other banks. Therefore, companies and individuals can be prosecuted for submitting false information to the SBA, and they can also be prosecuted for submitting false information to their PPP lenders. Bank Fraud (18 U.S.C. § 1344) Along with prosecution for submitting false statements or reports to their PPP lenders under 18 U.S.C. § 1344, companies and individuals can also face prosecution for bank fraud under 18 U.S.C. § 1344. This federal statute makes it a criminal offense to, “knowingly execute[], or attempt[] to execute, a scheme or artifice—(1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or 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) The federal wire fraud statute, 18 U.S.C. § 1343, is a sharp tool for federal prosecutors since it allows them to seek substantial penalties under a broad range of circumstances. The U.S. Department of Justice (DOJ) has already filed wire fraud charges in several PPP-related cases, as the statute prohibits the use of the Internet in connection with, “any scheme or artifice to defraud, or . . . obtaining money or property by means of false or fraudulent pretenses, representations, or promises. . . .” Aggravated Identity Theft (18 U.S.C. § 1028A) The federal crime of aggravated identity theft is defined under 18 U.S.C. § 1028A as, “knowingly transfer[ring], possess[ing], or us[ing], without lawful authority, a means of identification of another person,” in connection with the commission of certain specified felony offenses. Bank and wire fraud are included amongst these offenses. The DOJ has already filed aggravated identity theft charges in numerous PPP loan fraud cases due to allegations that the individuals involved sought to fraudulently obtain loans on behalf of companies that they did not own. Tax Evasion (26 U.S.C. § 7201) Many individuals and companies accused of PPP loan fraud will face allegations of tax evasion as well. Under 26 U.S.C. § 7201, “[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by [the Internal Revenue Code],” can face criminal prosecution. This includes evading payroll tax (i.e. by unlawfully claiming deductions for payroll expenses covered with PPP loan funds) and evading income tax by failing to report income derived from business activities funded by PPP loans. Making False Statements to Federal Agents (18 U.S.C. § 1001) Along with facing prosecution for making false statements in PPP loan applications and forgiveness certifications, company owners, executives, and others can also face prosecution for making false statements to federal agents during a PPP loan fraud audit or investigation. Under 18 U.S.C. § 1001, the DOJ can prosecute anyone who, “(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry,” during a federal inquiry. Conspiracy (18 U.S.C. § 371 and 18 U.S.C. § 1349) The federal conspiracy statutes, 18 U.S.C. § 371 and 18 U.S.C. § 1349, allow for the prosecution of multiple individuals and/or businesses that are collectively involved in efforts to fraudulently obtain federal funds under the PPP. Importantly, these efforts do not actually have to result in the issuance of a PPP loan in order to support a criminal charge for conspiracy. Attempt (18 U.S.C. § 1349) The federal attempt statute also imposes criminal penalties for “unsuccessful” efforts to commit PPP loan fraud. The statute, 18 U.S.C. § 1349, states in pertinent part, “Any person who attempts . . . to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt . . . .” False Claims Act Violations (31 U.S.C. §§ 3729 – 3733) The federal False Claims Act imposes civil and criminal penalties for fraud targeting federal government programs. The DOJ can pursue civil charges in cases involving unintentional PPP loan application or forgiveness certification fraud, while intentional PPP loan fraud can lead to criminal prosecution. "