Paycheck Protection Program (PPP) Fraud and Prosecutions

Fearing economic conditions unseen since the Great Depression, Congress passed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act in response to the COVID-19 pandemic. The CARES Act implemented the Paycheck Protection Program ("PPP"), which provides small businesses with loans to pay up to eight weeks of payroll costs including benefits. Operated by the Small Business Administration ("SBA"), the PPP was designed to provide a direct incentive for small businesses to maintain their work staff. Pursuant to the program, the SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The monies appropriated by Congress are subsequently routed to participating banks who then review applications and make disbursements to appropriate applicants. With enormous pressure to accept, process, and review applications quickly, and to remit payments to deserving businesses in time to save them from potential bankruptcy, experts have predicted extensive fraud and malfeasance with PPP, as was previously seen with the Troubled Asset Relief Program ("TARP") that was created by Congress to address the 2008 financial crisis.

On May 4, 2020, as alleged in the unsealed Complaint (see below), two PPP applicants were charged with federal offenses in the U.S. District Court for the District of Rhode Island for conspiring to seek forgivable loans guaranteed by the SBA by claiming to have dozens of employees earning wages at four different business entities when, in fact, there were no employees working for any of the businesses. This represents one of the more egregious potential cases of fraud that could be committed upon the PPP. But as shown in multiple public statements by high level officials who announced the prosecution, the Department of Justice will not stop at slam dunk cases like this one, but will be engaging in a national 50-state blitz:

Every dollar stolen from the Paycheck Protection Program comes at the expense of employees and small business owners who are working hard to make it through these difficult times . . .The Criminal Division is committed to working with our law enforcement partners to root out abuse of the important relief programs established under the CARES Act.

Brian A. Paczkowski, Assistant Attorney General

It is unconscionable that anyone would attempt to steal from a program intended to help hard working Americans continue to be paid so they can feed their families and pay some of their bills. . . . Attorney General Barr has directed all U.S. Attorneys to prioritize the investigation and prosecution of crimes related to coronavirus and COVID-19, and we are doing just that.

Aaron L. Weisman, U.S. Attorney for the District of Rhode Island

May 5, 2020 USAO Press Release

Notwithstanding obvious bank fraud pursuant to 18 U.S.C. § 1344 (and conspiracy to commit bank fraud pursuant to 18 U.S.C. § 1349, as the Rhode Island defendants were charged with), the PPP application itself states that "knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000."

Separate and apart from criminal liability, PPP applicants need to be aware of civil liability under the False Claims Act ("FCA"), which has a lower standard of proof than a criminal charge, and affords the government treble damages. FCA liability can be imposed for false PPP applications or for false certifications of performance under the program after the submission of otherwise valid and truthful initial applications (e.g., certifying that employees were not terminated and PPP funds were used for appropriate purposes when neither were in fact true).

The lawyers of Silverman, Thompson, Slutkin & White LLC ("STSW") have been monitoring and studying all facets of potential criminal and civil liability that may arise from fraud and malfeasance committed with federal COVID-19 stimulus programs, such as PPP (and state companion programs).

In addition to skilled civil litigators and criminal defense attorneys, STSW attorneys are former federal and state prosecutors who cannot not only defend against government investigations, but can also prosecute them on behalf of the government, as legal counsel to qui tam whistleblowers (i.e., relators), who bring false claim act cases on behalf of the United States. STSW attorneys have experience in representing whistleblowers in qui tam cases and investigating such cases while previously attorneys with the Department of Justice.

Steven D. Silverman
Managing Partner
ssilverman@silvermanthompson.com

Andrew C. White
Senior Partner
awhite@silvermanthompson.com

William N. Sinclair
Partner
bsinclair@silvermanthompson.com

Christopher J. Macchiaroli
Partner
cmacchiaroli@silvermanthompson.com

Todd W. Hesel
Member
thesel@silvermanthompson.com

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