PPP, or Paycheck Protection Program is provided under the CARES Act. This has made $659 billion in federal crisis aid available to small businesses hurt by the COVID-19 pandemic. PPP offers potentially forgivable loans to cover up to eight weeks of payroll in attempt to stem the rising tide of unemployment, allow small businesses to keep their employees and help them bounce back quickly when the state allows them to reopen. However, some people have taken advantage of these funds and obtained or used them fraudulently. The DOJ expects PPP fraud prosecutions to increase.
While most loan applications for PPP have been made in good faith, it’s important to remember that these are not ‘free money’. Federal law enforcement is monitoring carefully for any abuse of the Paycheck Protection Program.
Recently the first accusation of PPP loan fraud arose when two men were charged with conspiracy to commit bank fraud and other accusations. These men allegedly applied for a PP loan totaling $543, 881. According to the Department of Justice, the application stated that they “dozens of employees earning wages at four different business entities”. However, there were no employees working for any of the businesses. Furthermore, the DOJ alleges that the businesses were not operating prior to the start of the COVID-19 pandemic.
While there is much to be discovered through the investigation, the point is that any attempts at PPP fraud will be detected quickly and prosecuted.
Reality TV Star Charged
Soon after the first case, federal prosecutors in Georgia charged a well-known figure from reality tv with bank fraud. As the sole owner of Flame Trucking, a Georgia company, he applied for and received a PPP loan for the company on the basis that it has “107 employees and an average monthly payroll of $1,490,200.” He received a loan slightly more than $2 million. The federal prosecutors claim that within days, he “allegedly used more than $1.5 million of the PPP loan proceeds to purchase $85,000 in jewelry, including a Rolex Presidential watch, a diamond bracelet, a 5.73 carat diamond ring for himself, and to pay $40,000 for child support.”
While it seems obviously to most loan applicants, the DOJ has pointed out that these payments are not an authorized use of PPP funds. According to the DOJ, the TV star denied the allegations that he used PPP funds to pay his personal debts and expenses when he was interviewed by the federal agents. However, when agents executed a search and seized “approximately $80,000 in cash, including $9,400 that he had in his pockets, and the jewelry that he purchased with the PPP funds, and further discovered a 2019 Rolls Royce Wraith, which still had a temporary dealer tag on it.”
The DOJ has stated that it will investigate and charge anyone who inappropriately diverts these critical funds for their own personal gain.
[Related: White Collar Crimes]
Texas Man Charged
The DOJ announced another case on May 13 in which the sole proprietor of a business in Texas was charged with wire fraud, bank fraud, false statements to a financial institution and false statements to the SBA. The man allegedly sought “$10 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of $4 million.” Also, he allegedly ‘” sought approximately $3 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of approximately $1.2 million.” The federal investigators conducted a thorough investigation and according to the DOJ, the Texas Workforce Commission has no records of employee wages paid in 2020 by the accused man or his business.
While alleged, if these three cases are true, it is a blatant and intentional abuse of the Paycheck Protection Program. Typically, the DOJ has a clear approach for obvious instances of fraud. However, some believe that the approach to less obvious or borderline cases of PPP abuse may be different. The question of how criminal and civil enforcement authorities will handle these closer calls, including certifications made by companies regarding their need for PPP funds remains unclear.
PPP Fraud Northern Virginia
If you have been accused of PPP fraud you should consult an attorney immediately. The expert attorneys at King Campbell Poretz Mitchell are ready to represent you and ensure that your rights are protected. Contact us today to get started!