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What is PPP Loan Fraud?

PPP Loan Application
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COVID-19 and PPP Loans

The Paycheck Protection Program (PPP) was established in March of 2020 as part of the government’s response to the coronavirus pandemic. By the time the program closed on May 31, 2021, the Small Business Administration had approved approximately 11.8 million loans totaling nearly $800 billion.

Throughout the pandemic, millions of companies applied for this loan (which could be forgiven if spending and documentation requirements were met, but otherwise had to be repaid) after facing hardships caused by COVID-19. The goal was to provide businesses with money for payroll and other expenses.

What is PPP Fraud?

PPP Loan Fraud occurs when a business or person submits an application or certification for a loan under the federal Paycheck Protection Program that is false. In addition, if the business or individual does not abide by the guidelines on how to spend the funds or falsely applies for PPP loan forgiveness, they could also be investigated for PPP loan fraud. A company can be accused of PPP fraud if:

  • It made a false statement on the application
  • It applied for PPP loans from multiple lenders (known as “loan stacking”)
  • It used PPP loan money for an unapproved purpose
  • It submitted a false certification for PPP loan forgiveness

Businesses were able to apply for PPP loans through commercial banks and approved lenders, so long as they met certain criteria.

PPP Loan Criteria

In order to qualify for the first round, businesses must:

  • Have been operational before February 15, 2020
  • Still be open and operational at the time of their application
  • Have 500 employees or fewer
  • Have 500 employees or fewer at each location (this is for businesses with multiple locations)

For businesses applying for the second round of PPP loans, they had to meet most of the above criteria regarding operational dates, as well as a few revisions, such as:

  • Having fewer than 300 employees
  • Having fewer than 300 employees per location
  • Showing a 25% or greater reduction in gross revenue

Are there PPP Loan Program Rules?

After being granted a PPP loan, rules regarding how it could be spent were strict. A complete list can be found on the U.S. Small Business Administration’s website. As a broad overview, businesses were required to spend the loan on payroll expenses (salaries, tips, paid leave, and employee benefits), utilities, and bonuses (hazard pay and commissions).

What are the Penalties for PPP Loan Fraud?

Because of the nature of PPP loan fraud, several different federal criminal statutes can apply depending on the situation. These statutes include making false statements to a federal agency, making false statements to the SBA, making false statements on a loan application, and bank fraud. PPP loan fraud falls under the broader umbrella of white collar crime, and the federal government prosecutes it with the same intensity it applies to other financial crimes.

Penalties depend on which statute is charged:

  • False statements to a federal agency (18 U.S.C. § 1001) — up to 5 years in prison
  • False statements to a financial institution or the SBA (18 U.S.C. § 1014) — up to 30 years in prison and up to a $1,000,000 fine
  • Bank fraud (18 U.S.C. § 1344) — up to 30 years in prison and up to a $1,000,000 fine
  • Wire fraud (18 U.S.C. § 1343) — up to 20 years in prison (up to 30 years if the offense affects a financial institution)

How to Respond if You’re Under Investigation

If you’re under investigation for PPP loan fraud, it’s imperative that you contact an attorney before speaking with federal agents. If you lie when being questioned, you could face additional charges on top of fraud. Under the PPP and Bank Fraud Enforcement Harmonization Act of 2022, the statute of limitations for PPP fraud was extended from 5 to 10 years, meaning the government can still bring charges related to loans issued in 2020 and 2021.

Contact Law Office of Patrick J. McLain, PLLC today to schedule a consultation with an accomplished Dallas federal criminal defense lawyer. Our phones are answered at any time of day or night, so that our clients can get in touch with us 24/7 at (214) 238-9392.

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