Due to the COVID-19 pandemic, myriad businesses were affected. They began bearing financial hardships and millions of other businesses whether big or small needed support to cope. To support these struggling businesses and individuals, the CARES Act was passed by the Trump administration. Through this legislation, immediate help was designated to individuals, small businesses, healthcare workers, and many others in need.
This financial help included the Paycheck Protection Program (PPP), through which the help of $650 billion was given to small businesses. Unfortunately, PPP frauds had been seen when scammers tried to take advantage of the federal program.
From these scams, they wanted to take the financial gain which was initially designated against the hardship of the people of the United States during the tough time. Identifying these activities, the Justice Department in the United States began prosecuting and investigating people involved in the PPP fraud.
What is Paycheck Protection Program – PPP fraud?
To become eligible to obtain PPP support, every small business or individual has to prove that they are affected by the pandemic and can get PPP funds.
PPP fraud happens when individuals and businesses submit false documents or make illegal representations to receive money from the government. The main purpose of PPP fraud is to gain money and use it for illegal reasons.
The claims involved in PPP frauds but are not limited to:
- Obtaining or trying to obtain PPP funds using a fake or stolen identity.
- Providing false information knowingly to gain unauthorized PPP funds.
- Portraying a business to receive the funds when it does not exist.
- Potential misuse of the PPP funds in luxury items, bonuses for executives, personal expenses, or other purposes that are not approved.
Multiple investigations and prosecutions have been done by the Department of Justice against people who have been trying to fraudulently gain profit through PPP frauds. In the same context, the first civil investigation against the PPP fraud allegations was made in January.
When the defendant SlideBelt Inc. had to pay $100k against fraudulent identification. They paid back PPP funds of $350k which they received representing fake business damages.
It is vital to understand that technical and unintentional errors are not the part of the Justice Department to look for. Companies that intend to make true statements and seek financial assistance from the relief funds will not be dragged into court, nor will they be penalized if they make honest mistakes. This is because people are applying for pandemic funds for the first time and mistakes can occur.
Penalizing due to unintentional mistakes will discourage small businesses from looking for the monetary help they seek from the government.
False Claim Act and PPP Fraud
Businesses and individuals involved in the PPP fraud and managing fraudulent accounts to scam the government violate the False Claim Act. Under the False Claim Act, Americans are encouraged to inform the concerned departments against the PPP frauds, frauds by the bosses and employers.
People are encouraged to be whistleblowers as they can prevent these scams from happening and help government agencies to locate criminals. Plus, whistleblowers are entitled to be rewarded for such actions against crime.
When a person is sure that an individual or a business is intending to fraud with the government to gain the funds, he has to file a lawsuit to prove the claim.
This kind of lawsuit is known as a qui tam action. Through the qui tam action, the lawsuit enables the government to pursue the business or person alleged to reimburse the received payments.
But before submitting the qui tam lawsuit under the False Claim Act, it is important to know your rights and understand your options.
How to report PPP fraud and perform qui tam action?
PPP fraudsters stripe off the money from eligible small businesses and use it for themselves for illegal purposes. For this purpose, the Judicial Department has initiated a ‘see something, say something’ policy to help the agencies to identify the frauds. Under this policy, the whistleblowers are rewarded for sharing personal knowledge against frauds.
If you have doubts that someone has breached your privacy and used your information without your permission and knowledge to achieve the SBA’s COVID-19 (EIDL) Economic Injury Disaster Loan assistance, then you should write an identity theft letter.
The letter includes essential information about the protection of your personal information and protecting your financials from further harm. These steps include the following:
- Reporting to the federal government about identity theft at the Federal Trade Commission (FTC),
- Adding a fraud alert to your account,
- Freezing credits to your balance reports.
If you didn’t know about the fraud performed on your account through your personal information and on knowing you reported it according to the SBA’s February’s 2021 guidelines, you still have to adhere to the procedure given in the EIDL identity theft letter.
This is how you should report a PPP fraud:
If you doubt that someone has used your information for performing a PPP fraud, this is how you can report it:
- Contact the loan lender, find out the information used for the fraud, and inform the lender about the fraud.
- Visit the identity theft FTC (Federal Trade Commission) website and learn the steps you need to know for recovering the scammed amount.
- Check business and personal credit reports daily.
PPP loan forgiveness and frauds
However, SBA has stopped the PPP Paycheck Protection Programs applications this year in May 2021. Now businesses are seeking loan forgiveness procedures.
With various regulations and legal requirements, applying for loan forgiveness by businesses is getting difficult with every passing day.
Through the CARES Act, you can find the eligibility of the expenses that can be forgiven. If a business wants to pay back the loan, there would be some questions concerning the eligible expenses that can be waived off.
Initially, when you apply for loan forgiveness, be sure to ask about how the PPP funds can be utilized from your lender and the expenses that are eligible to perform (as the expenses permitted among lenders may vary).
It is also possible that an expense may not be eligible for loan forgiveness but is seen as a qualified cost under PPP rules. Therefore, knowing the eligibility for your expenses for loan forgiveness is suggested before applying.
How are PPP loan investigations performed?
Once someone is accused of PPP loan fraud, investigations are performed to determine whether one or more charges should be imposed against the accused. These charges are imposed once after knowing the number of violated PPP loan requirements.
Generally, prosecutors target individuals and businesses if they:
- Faked the documents on PPP loan application,
- Used the PPP loan funds for illegal or improper purposes that are not approved by the lender,
- Tried to apply for loans from more than one lender,
- Submitted false business certificates for loan forgiveness,
- Did not cooperate with agents during PPP loan investigation and audits.
A business or individual with the above accusations may face PPP Fraud penalties, and thus, face severe civil and criminal charges.
However, several possible criminal convictions can be directly involved in the PPP loan frauds. Some of the common charges are:
Wire Fraud – Section 1343 18 U.S.C.: Wire fraud charges are indicated when a person uses ‘wires’ (internet or telephone) to make false statements or perform fraudulent activities to steal money. Under this penalty, a person can be convicted for up to 20 years (based on the amount of cash stolen).
False statement – Section 1014 18 U.S.C.: False statements made to any financial institutions such as banks are regarded as illegal under this section. The section practically involves the statements made to the institutions to obtain loans or any type of federal funds. The possible penalties under the law can send the accused behind the bars for up to 30 years.
Similar is expected to the civil violations of Section 1344 18 U.S.C where a person would face 30 years’ conviction for making false statements to banks for obtaining federal loans.
Attempt and Conspiracy 18 U.S.C. Section 1349: According to attempt and conspiracy law, it is a federal crime to be involved in an agreement with the intent to violate federal criminal laws. Whether a person is just involved in the agreement and does not even get the money nor make false statements.
The possible criminal penalties that would be received by the person for conspiracy are the same as what he could get for a criminal offense.
Developments in the PPP fraud loans investigations
The Justice Department of the United States announced the list of 57 individuals and businesses that were charged after PPP loan investigations. These alleged individuals have represented 175-million-dollar fraud. Other investigations are still underway.
If you are unsure if your PPP loan expenses are spent on purposes other than the lender’s eligible list or think that your information has been used to bring out PPP funds illegally, then it’s high time that you should check your information and contact the lender to put a halt on further payments.
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