Paycheck Protection Program (PPP) Fraud During the COVID-19 Pandemic

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The federal Paycheck Protection Program (PPP) was created by Congress to help companies stay in business during the COVID-19 pandemic. Part of the Coronavirus Aid, Relief, and Economic Security, or CARES Act, the government authorized more than $750 million in payments to help cover payroll and other operating expenses.

This emergency financial assistance was distributed as forgivable PPP loans meant to cushion the economic impact of shutdowns caused by the pandemic in 2020. Many small businesses accepted PPP loans to keep workers employed, and borrowers had to show that they retained a certain percentage of employees on their payroll to qualify for loan forgiveness.

Businesses that accepted PPP loans agreed to follow strict requirements on how they would spend the funds they received. Accepted money was to be used for payroll costs, interest on mortgages, rent, and utilities. Unfortunately, some business owners misused the funds, prompting federal investigators to look into potential cases of fraud. PPP loan fraud occurs when an individual or business knowingly submits false information on an application for a PPP loan.

PPP Loan Fraud Case Against Josh Bellamy

The number of PPP loan fraud cases is rising nationwide. Former NFL player Josh Bellamy pleaded guilty to conspiracy to commit wire fraud for submitting false information to qualify for a $1.2 million PPP loan under the name of his company, Drip Entertainment LLC. Instead of spending the money he received on financial relief for his business, Bellamy allegedly purchased designer clothes and expensive jewelry and ran up tabs at hotels and casinos.

In December 2021, Bellamy was sentenced to 37 months in federal prison, followed by three years of supervised release, and ordered to pay more than $1.2 million in restitution.

Why Might a Business Face Federal Fraud Investigations?

During a PPP loan fraud investigation, federal investigators from the Department of Justice and the Small Business Administration, as well as other government agencies, attempt to determine whether charges should be brought against an individual for violating one or more of the requirements of the PPP loan program. When evidence of fraud is uncovered, agents seek to recover any money that may have been fraudulently received through COVID-19 relief programs.

Any business that received more than $2 million in loans is being audited, although smaller loan recipients have also been the targets of scrutiny by the federal government. Here are the Top Five Reasons that business owners may face investigation and prosecution:

  • Falsifying Information- Any business owner who knowingly submitted false information on a PPP loan application or provided false financial statements to obtain money may be at risk of investigation by the federal government for PPP loan fraud. As in the case of Josh Bellamy, individuals accused of falsifying information may be charged with wire fraud, bank fraud, providing false statements to a financial institution, or conspiracy to commit fraud.
  • Loan Stacking- Applying for and receiving PPP loan money from multiple lenders, a practice known as loan stacking, is another common reason for the investigation of loan recipients and their businesses.
  • Improper or Unapproved Use- In cases where loan funds have been used for purposes other than those agreed to upon receipt of the loan, prosecutors may seek fraud charges. Bellamy was accused of spending funds earmarked for payroll and business expenses on luxury items and entertainment.
  • False Certification for Loan Forgiveness- In some cases, a business owner submitted false or inflated information regarding the number of employees on a company’s payroll to obtain additional dollars. Submitting false information to secure loan forgiveness is also an example of fraud.
  • Lying to Federal Agents- Being untruthful to investigators during a PPP loan audit or investigation, or attempting to hide potential evidence is also grounds for prosecution.

An individual charged with PPP loan fraud could face serious criminal and civil charges. The government can seize his or her assets, including real estate holdings and luxury items. Criminal penalties for fraud can include up to 30 years in prison and a fine of up to $1 million.

What to Do When Being Investigated for Loan Fraud

One indication that the federal government may be investigating you for potential PPP loan fraud is if your accounts have been suddenly seized or frozen. Now is the time to seek the advice of an attorney. The attorneys at Berry Law have the knowledge and the experience to handle federal fraud cases and build a solid defense for clients against PPP loan fraud allegations.

Avoid speaking with federal investigators without having an attorney present. Incriminating statements made now could be used later in court proceedings. While it might be tempting to ignore the problem and hope that it will eventually go away, it’s better to actively work with your legal team to build a defense.

  • Reach out to company employees and encourage them to speak with management about any concerns they may have regarding the use of PPP loans. Encouraging open communication prevents suspicion within the organization.
  • Gather all financial records and make digital copies for personal use and that of the legal team. In the event that paperwork is seized, an accurate record is important to your defense.
  • Never throw away, shred or in any way destroy business records used to prepare a PPP loan application. This practice could lead to additional charges.

A criminal defense attorney experienced with federal cases can speak with fraud investigators to find out why a client is under investigation and help determine what evidence the federal government has against them. Using this information, an attorney will build a defense against these allegations.

They may also offer investigators evidence that has not yet been supplied to federal agents in support of their clients’ innocence. The ultimate goal is to help clients avoid criminal charges when possible, negotiate the best resolution, or defend them if the case does go to court.

Defending PPP Loan Fraud Cases

In some cases, a defense attorney may be able to turn a criminal case into a civil case. Rather than facing criminal charges and possible prison time, defendants might instead be found responsible for restitution of money and a fine.

Here are some common defenses that have been mounted in PPP loan fraud cases:

  • Lack of Intent- A defendant could argue that he or she didn’t intend to trick, defraud or deceive the government to obtain federal money. When PPP money became available, there was a perception by many business owners that there was a limited amount of time to act to receive PPP loans. In their haste, inaccuracies may have occurred. This defense argues that a client didn’t knowingly or intentionally misrepresent facts when applying for a PPP loan. Instead, he or she was simply wrong due to carelessness, negligence, or accident.
  • Fourth Amendment Violations- An attorney may attempt to prove that federal agents unlawfully searched a defendant’s property without a search warrant. In some cases, evidence is thrown out and the case is dropped entirely.
  • Full Disclosure- If a loan applicant was truthful on the application about what he or she planned to spend the money on, and the bank approved the loan anyway, the bank is responsible, regardless of whether the applicant’s planned use met federal criteria for PPP funding. This wasn’t uncommon, as many banks found themselves overwhelmed with applications.
  • Changed Circumstances- In some cases, the circumstances of a business might have changed between the time that a loan application was made and the time that it was approved. For example, a business may have been forced to close permanently or had employees who quit unexpectedly.
  • Legitimate Use- Establishing that PPP loans were actually used for approved and legitimate purposes can be a viable defense. In these cases, an attorney might argue that the government was simply mistaken about how the money was used.
  • Identity Theft- If the government cannot prove that a loan application was submitted by the defendant, but rather could have been the result of identity theft, charges may be dropped.

Retain Legal Counsel Right Away

PPP loan fraud allegations aren’t the time to go it alone. The stakes are too high, and the attorneys at Berry Law can guide you through the process of dealing with federal agencies and investigators. With a never-quit ethos, Berry Law will mount a defense on your behalf that seeks to protect you and your financial and personal interests. If you suspect you’re being investigated for PPP loan fraud, or if you’ve already been charged, call an experienced attorney at Berry Law today.

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