The outbreak of the COVID-19 virus in the United States has been a disaster for most businesses. Thousands have closed their doors permanently and smaller businesses are still struggling to stay afloat, with 44% of them having only three months left in their cash reserves.

To cope with the crisis, the Small Business Administration (SBA) helped many small businesses and loan applicants through the Paycheck Protection Program (PPP).

However, the regulations and rules governing the PPP change frequently with the ongoing pandemic, and many people have taken advantage of the program for personal gain. Those accused of PPP fraud may face criminal prosecution, as the Justice Department investigates charges of PPP loan fraud.

What is a PPP Loan?

The Paycheck Protection Program (PPP), formed by the SBA in March 2020 under the Coronavirus Aid, Relief and Economic Security Act (CARES) Act, was a $670 billion federal loan program that gave business owners feeling economic consequences from the COVID-19 pandemic an incentive for keeping their employees on payroll and continuing business operations.

A condition of the Paycheck Protection Program was that people have to pay back their loans if they keep their employees, maintain their employees’ salaries, and use the cash to meet payroll bills and other business expenses.

The loan amount a business could receive was determined by the number of employees and their pay. At least 60% of the loan amount was mandated for payroll, but 40% could cover other expenses like utilities, mortgage, and rent for the business. Yet, the Paycheck Protection Program’s constantly changing loan application and forgiveness criteria have caused widespread confusion and legal challenges. The Associated General Contractors of America (AGC) sued the SBA to add more context when answering loan necessity questionnaires in December 2020.

The SBA has simplified funding for small businesses that have not received PPP loans compared to larger businesses as of July 2021. However, many loan applicants and borrowers may be worried about audits or investigations by the Justice Department after changes were made to the program. Some of the serious charges they could face are:

  • Attempt to qualify as a small business by under-counting the number of employees or misclassifying them as independent contractors
  • Layoffs or salary cuts despite being given PPP funds
  • Increased payroll costs to gain access to a larger loan
  • Bad faith certifications for PPP loan applications
  • Bad faith certifications on PPP loan forgiveness applications
  • Multiple sources of PPP funding from several lenders
  • Misuse of PPP loans for unauthorized purposes such as to cover personal expenses
  • Concealment or misrepresentation of information in a PPP audit or fraud investigation

What are the Charges and Penalties for PPP Loan Fraud

A federal investigation by the Justice Department can charge an alleged fraudulent act of a federal PPP loan with several criminal offenses and the penalties:

Aggravated Identity Theft (18 U.S.C. § 1028A)

It is unlawful to transfer, possess, or use someone else’s identification during or in relation to another criminal offense. If this occurs, you may face two years in prison.

Attempt and Conspiracy (18 U.S.C. § 1349)

If you plan an attempt or conspire in any fraud, including wire fraud, mail fraud, and other fraud offenses, this is also considered an offense. Your punishment will be the same as that for any fraud you are found guilty of attempting or conspiring to commit.

Conspiracy to Defraud the Government (18 USC § 371)

A plan to commit fraud against the government or to defraud it in some way by two or more people carries severe penalties. This applies even when one person plans to conspire or attempt fraud among the two people. It is punishable with fines and/or up-to five years in federal jail for conspiring to defraud the government.

False Statements to the SBA or Financial Institutions (18 U.S.C. § 1014)

Providing false information to the SBA or a financial institution can result in up to 30 years in prison and fines up to $1 million. Financial institutions include branches of a foreign bank, mortgage lending company, and institutions insured by the Federal Deposit Insured Corporation.

False Statements to Federal Agents (18 U.S.C. § 1001)

If you lie to the government with false documents and representation, you could face fines and imprisonment. A false statement to a federal agent can result in fines and up to five years in prison.

Tax Evasion (26 U.S.C. § 7201)

Any person who attempts to evade or defeat any taxes can be guilty of a felony. You may have to pay fines of up to $100,000 for individuals and $500,000 for businesses and/or face imprisonment for up to 5 years.

Bank Fraud (18 U.S.C § 1344)

If there is a plan or someone willingly committed bank fraud to obtain funds, they can also face severe fines and imprisonment. Bank fraud can result in up to 30 years of imprisonment and/or $1 million in fines.

Wire Fraud (18 U.S.C. § 1343)

Wire fraud carries up to 20 years in prison. You could face fines reaching $1 million and imprisonment up to 30 years if the violation was against financial institutions or when you receive benefits during major disasters and emergencies as declared by the president.

Mail Fraud (18 U.S.C. § 1341)

Mail fraud can include up to 30 years in prison and/or fines from $1 million if against financial institutions. This also applies upon receipt of benefits in declared major disasters and emergencies by the president.

Several charges result in prison sentences and fines with bank fraud, wire fraud, and mail fraud carrying the most serious penalties. A person charged with attempting to defraud the Paycheck Protection Program, or conspiring to commit the crime, can still be found guilty of those offenses.

How to Report PPP Loan Fraud

Having your identity stolen may also put you at risk of PPP loan fraud. Contact the lender right away if you believe someone has applied for a PPP loan using your Social Security Number (SSN) or Employer Identification Number (EIN). To report identity theft and get a recovery plan, you can visit the Federal Trade Commission’s identity theft website.

How to Protect Yourself from Being a Victim of PPP Loan Fraud

If you are concerned about your business being accused of PPP loan fraud or a victim of PPP loan fraud, you can ask a well-informed business advisor. An advisor who is familiar with the provisions of the CARES Act and the loan program can assist you in understanding your options and supporting your business operations.

To further prevent being a victim of identity theft, you need to review your personal and business credit reports. The SBA recommends using the Annual Credit Report website to monitor your personal credit report. You can also get a copy of your business credit report from credit bureaus such as Experian and Equifax.

The Law Offices of Mariya Melkonyan Can Help You

Whether you are concerned about being investigated for fraud or if you believe you are a victim of PP loan fraud, the Law Offices of Mariya Melkonyan can help you. You can ask questions and discuss your legal options and rights at a free consultation with experienced criminal defense attorney Mariya Melkonyan.

Contact The Law Offices of Mariya Melkonyan today to schedule your complimentary consultation so you can get your life and your business back on track.

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