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The low-interest, forgivable loans available through the Paycheck Protection Program have been lifelines for millions of small and mid-sized businesses across the U.S. The statistics underscore that statement; more than five million PPP loans have been distributed since the program was established in late March 2020. The original funding quickly dried up, leading to multiple rounds of funding.
There’s no denying, however, that the program was rolled out uncharacteristically quickly for the federal government. One collateral consequence there is the potential for fraud. In the context of PPP, individuals and businesses were able to escape thorough vetting before applying for — and ultimately receiving — loans. There are signs the Treasury Department, Department of Justice, and other federal agencies are catching up and zeroing in on suspected fraudsters.
Some significant statistics related to alleged PPP fraud are as follows:
- A House of Representatives Select Subcommittee flagged $4 billion in dubious loans
- The DOJ has levied PPP fraud allegations against 80 individuals (and counting)
- Charges from the DOJ have implicated more than $120 million in PPP loans
- The Securities and Exchange Commission has more than 150 active investigations into PPP fraud
- Any PPP loans totaling at least $2 million will be automatically audited
These numbers might seem insignificant when compared to the 5.2 million loans handed out (for a total of $525 million), but they are certain to increase. Additionally, the new administration in D.C. might prioritize investigations into possible PPP fraud.
Requirements for Loan Forgiveness
The federal government has, a few times, altered the conditions borrowers need to meet to have their PPP loans forgiven. As it stands today, these are the general requirements:
- A minimum of 60 percent of the loan needs to be used for payroll expenses.
- You must, in good faith, maintain a similar level of employment and pay relative to pre-COVID conditions.
- Any remaining funds may be used for mortgage interest, rent, utilities, various operational costs, property damage from civil unrest, measures to protect your workers from COVID (like sneeze guards), and supplier costs on essential items and goods.
Can You Reduce the Odds of an Investigation?
At this point, many small business owners — including yourself, perhaps — have already applied for and received PPP loans. There’s no guarantee that your business will not be investigated, but there are some things you can control. The best thing you can do for your business is to make sure the funds you received from the program are separated from your company’s other financial accounts. That can make it easier to show you only used the loan for approved purposes. Besides that, it’s important to keep a copy of all relevant financial records and not leave room for any ambiguity on the documents.
Conclusion
There is still much we are finding out about how federal agencies are identifying and investigating PPP fraud. When these agencies put on aggressive postures, otherwise-innocent companies and entrepreneurs occasionally suffer their wrath. Whether you are being investigated, have been charged with fraud, or believe there’s a possibility of a future investigation, don’t wait to contact Weisberg Kainen Mark. Our legal team is made up of knowledgeable professionals with decades of experience defending clients against fraud charges.
Weisberg Kainen Mark, PL
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