The Small Business Administration (SBA) is going after people who committed loan fraud when applying for or using Paycheck Protection Program (PPP) funds that were intended to keep our economy from collapsing during the dark, early months of the COVID-19 pandemic. Law enforcement estimates that hundreds of millions of dollars of PPP funds were obtained through fraud.
Hundreds of individuals now face criminal charges for PPP fraud, with many more expected. As with any massive criminal investigation, some innocent people might get caught in the law enforcement net because of honest mistakes. A Washington criminal defense attorney can protect your legal rights and answer questions, like what are the red flags for PPP loan fraud?
An Overview of the PPP Loan Fraud Situation
In fairness, 2020 and 2021 were chaotic times and the PPP loan rules were confusing. Some businesses were desperate enough to bend a few rules because they were afraid the pandemic would destroy their companies. Also, there were opportunists, like the SBA employee accused of accepting bribes for processing Economic Injury Disaster loan applications that contained fraudulent information.
PPP Red Flags
As the investigations progress, some common situations have emerged in fraudulent PPP loan applications and other paperwork. Here are some of the more frequent red flags that can alert lenders to the possibility of PPP loan fraud:
- Using the loan funds for improper purposes. A business was not allowed to use the PPP proceeds for whatever purpose it wanted. The PPP money was intended for only eligible expenses, like payroll, business utility bills, business rent or lease payments, and the payment of mortgage interest. Some recipients of PPP loans improperly used them for personal expenses or business expenses not authorized under the terms of the PPP loan program.
- Borrowers who did not meet the qualifications of the PPP loan program. Several large public corporations received millions of dollars in PPP loan proceeds, even though they were not in the economic dire straits required to qualify for the program. If a company had access to equity in the market, they were not supposed to apply for a PPP loan.
- Making false statements about their expenses and other data. Many companies claimed much higher payroll expenses than they actually incurred in an effort to secure more funding than they would otherwise get. Some businesses said they had more employees than they actually did or made false statements about the nature of their business in an attempt to qualify under the loan program guidelines.
- Some fraudsters committed individual or corporate identity theft; in other words, they applied for PPP loans in someone else’s name and kept the money for themselves. Another common tactic was creating fake identities and shell corporations to apply for multiple PPP loans.
- The PPP program had two phases: application and forgiveness. Both parts required supporting documentation to show eligibility for the funds and how the proceeds got used. Some individuals and companies did not submit adequate paperwork to support their application or use of the funds, while some other entities fabricated their documents.
These are just a few of the many indications of PPP fraud. If you made mistakes in any of these or other red flag areas, you might become the subject of a fraud investigation. You will want to talk to a Washington criminal defense attorney to prepare a defense strategy as soon as possible. Contact Jennifer today for an initial consultation.
DISCLAIMER: This post is intended to share my perspective, insights, and some general information on various aspects of criminal cases. It is not legal advice and is not intended to substitute for legal advice. You should consult an attorney to obtain legal advice for your individual situation and case.