PPP Federal Loan Fraud Penalties

Any federal crime is likely to spark fears of serious consequences – and PPP loan fraud is no exception.

But this is no time to panic. If you are investigated or charged with fraud involving the Paycheck Protection Program (PPP) in Maine, a federal investigation may be launched against you that will involve organizations with virtually limitless resources.

The prospect of a lengthy jail sentence is real, so you need to be ready with skilled legal representation to help you fight the charges and avoid serious consequences for your future.

Let’s first understand a little more about PPP loan fraud and what penalties you could be facing if charged and prosecuted.

Table of Contents

1. What is the paycheck protection program?
2. What is PPP loan fraud?
3. What are the aggressive measures being taken to pursue PPP loan fraud?
4. What are the penalties for PPP loan fraud?
5. Are you at risk of a PPP loan fraud investigation?

What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a federal loan program established by the Small Business Administration in March 2020. It was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The program was intended to incentivize small business owners to keep their employees on the payroll during the COVID-19 pandemic, providing assistance for paying employees’ salaries and supporting certain aspects of business operations.

The loan amount is based on the number of employees and average payroll costs. The main requirements of the program were as follows:

• Recipients must retain their workforce and maintain employees’ salary levels,
• The funds must be used to cover payroll costs and certain other eligible expenses,
• At least 60 percent of the loan must be used for payroll, the other 40 percent may be used for interest on mortgages, rent and utilities.

Many organizations and individuals benefitted legitimately from this program. Small businesses everywhere in the U.S. scrambled to obtain PPP funds before disaster struck. Over $500 billion in loans was issued to almost five million businesses across the country.

However, the federal Pandemic Response Accountability Committee (PRAC) questioned the due diligence in implementing the program, pointing to weaknesses in the quick rollout and the overall structure, administration, and terms of the PPP. This, it was suggested, opened it up to the considerable risk of fraud.

What is PPP loan Fraud?

The claims of the PRAC have led to criminal prosecutions of PPP loan fraud by the federal government. These investigations are presently focused mainly on the following types of allegations:

1. Applicants who made false or misleading statements on PPP loan applications to fraudulently receive PPP funds,
2. Loan recipients who used PPP funds for unauthorized purposes, and
3. Loan recipients who made false or misleading statements on PPP loan forgiveness applications to qualify for loan forgiveness.

More specifically, the investigators are targeting the following types of actions:

• Underestimating the number of employees (to qualify as a small business)
• Misclassifying employees as “independent contractors” (to qualify as a small business)
• Making bad-faith claims on a PPP loan application or application for PPP loan forgiveness
• Firing or failing to rehire employees despite receiving PPP funds
• Cutting employee’s salaries despite receiving PPP funds
• Obtaining PPP funds from multiple lenders
• Inflating payroll costs to receive a larger loan
• Using PPP funds for personal expenses
• Misrepresenting or concealing information during a PPP audit/fraud investigation

What are the aggressive measures being taken to pursue PPP loan fraud?

The claims first highlighted by the PRAC are now being investigated aggressively by federal prosecutors pursuing cases of PPP loan fraud against individuals and organizations across the U.S.

The extensive scope of the program means that considerable federal resources are being mobilized for these investigations on behalf of the U.S. Department of Justice. Investigators from the IRS and FBI are involved in many of the cases.

As we speak, these investigations are ongoing and multiple individuals have already been charged and prosecuted for PPP loan fraud since May 2021.

Additionally, to identify potential abuse, the Small Business Administration has announced that businesses that received $2 million or more in PPP funds will automatically be subject to an audit.

PPP loan fraud penalties

The penalties you face for PPP loan fraud can be either civil or criminal in nature and range from fines to many years in jail.

Much depends on the nature of the alleged crime and the prosecution.

The provisions of the CARES Act do not cover fraud or criminal enforcement of the PPP regulations. The act merely states that loan recipients who do not satisfy the employee retention and qualified expenses criteria for loan forgiveness must repay the loans with one percent interest charged.

Therefore, pre-existing federal statutes have been used to prosecute individuals for loan fraud. The main statutes and the associated penalties are as follows:

• Bank fraud, which carries a maximum sentence of 30 years in prison and/or up to $1,000,000 in fines.
• Wire fraud, which usually carries a fine and/or a maximum prison term of 20 years.
• Mail fraud, which usually carries a fine and/or a maximum prison sentence of 20 years.
• Making false statements to the SBA or a financial institution, which carries a sentence of up to 30 years in prison and/or a fine of up to $1,000,000.
• Making false statements to federal agents, which usually carries a fine and/or a maximum sentence of five years in prison.
• Aggravated identity theft, which is subject to a prison term of two years (plus the penalty for the underlying felony offense).
• Conspiracy to defraud the government, which is subject to a fine and/or a prison term of up to five years.
• Tax evasion, which incurs a fine of up to $100,000 (individuals) or $500,000 (businesses) and/or a prison term of up to five years.

While these penalties vary greatly, they all carry the threat of prison time and hefty fines. Most commonly, charges of bank fraud, wire fraud and making false statements to a financial institution are filed (the latter carrying up to a 30-year sentence).

Even if you attempted to access PPP funds fraudulently but never received them, you can be charged under the federal attempt and conspiracy statute and be left with a criminal record.

The height of the COVID-9 pandemic was a confusing time for many and the PPP rules seemingly kept changing. The terms and conditions of the PPP program were often poorly understood, especially concerning what the funds could be spent on and the criteria that made the loans “forgivable”.

Amid the confusion, many small business owners mistakenly believed they were eligible for funds or loan forgiveness. They should not be penalized for making honest errors.

For that reason and because of the aggressive nature of federal prosecutions, if you are charged with PPP loan fraud, you should be ready to fight the charges with aggressive legal representation.

Are you at risk of a PPP loan fraud investigation?

The efforts from the federal government to root out Paycheck Protection Program fraud have spooked many small business owners in Maine.

If you are have received notice of an audit or investigation, do not ignore it. As we have seen already, criminal charges can result and that could mean jail time, a lifelong criminal record, and severe consequences for you and your family.

If you are facing charges related to PPP fraud, contact our firm directly online or call us at (207) 571-8146 to speak with an experienced Maine defense lawyer who can help you.