Corporate Investigations & PPP Loan Fraud

Dr. Nick Oberheiden is a nationally recognized expert on PPP loan laws
and has been seen on Forbes, CNBC and Fox Business.
Speak with Dr. Oberheiden today for a free consultation at 888-680-1745.

Is your company at risk for PPP loan fraud allegations in the event of a federal audit or investigation? Our corporate investigations lawyers can help you assess your company’s risk and build a defense strategy if necessary.

The Paycheck Protection Program (PPP) provided a much-needed lifeline for many businesses, but concerns about widespread fraud under the program have led to aggressive oversight of companies that received PPP loans. The Small Business Administration (SBA) is auditing all companies that received loans of $2 million or greater, and the SBA’s Office of Inspector General (OIG), Federal Bureau of Investigation (FBI), Internal Revenue Service (IRS), U.S. Department of Justice (DOJ), and other agencies are coordinating investigations targeting allegations of PPP loan fraud.

With this in mind, companies that received PPP loans need to be taking adequate measures to ensure that they will not face liability exposure in the event of a federal inquiry.

At Oberheiden P.C., we are actively representing companies nationwide with regard to PPP loan matters and other issues related specifically to the COVID-19 crisis. This includes representing companies in internal corporate investigations focused on assessing risk exposure pertaining to possible allegations of PPP loan fraud. In addition to our federal compliance and defense attorneys, many of whom are former federal prosecutors, we also utilize the services of former federal investigative agents who previously held senior posts at the FBI, IRS, DOJ, and other agencies.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

John W. Sellers
John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena
Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (OIG)

Gamal Abdel-Hafiz
Gamal Abdel-Hafiz

Former Supervisory Special Agent (FBI)

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan
Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

5 Reasons Why Companies Need to Conduct Internal Corporate Investigations Pertaining to Their PPP Loans

While the Paycheck Protection Program offered financial relief to businesses, the loans issued under the program came with a number of potential risks. Corporate entities that received PPP loans need to determine if they are at risk; and, if they are, they need to respond appropriately. Here are five specific reasons why companies should conduct internal corporate investigations pertaining to their PPP loans:

Reason #1: Initially, the PPP Loan Eligibility Criteria Were Not Clearly Defined

As was widely reported by the news media, when the first round of funding under the PPP opened, banks were flooded with applications that effectively exhausted the program’s allocation of taxpayer funds within a matter of minutes. Companies rushed to get their applications in quickly; and, in doing so, many relied on the federal guidance that was available at the time.

However, when the initial round of funding opened, the eligibility criteria for obtaining PPP loans were not clearly defined. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided the framework, but it left many questions unanswered. Subsequently, the SBA issued a series of FAQs that further delineated the PPP’s requirements; but, for some companies that had already applied, this guidance proved to be too little too late.

Reason #2: PPP Lenders Only Had Limited Insight Into Applicants’ Qualifications

While the DOJ has begun subpoenaing PPP lenders, at this point it appears as though these subpoenas are largely intended to secure information about PPP loan applicants, not the lenders themselves. Although there is a possibility that some banks could face federal allegations for facilitating fraudulent PPP loan applications, these banks ultimately were forced to process an extraordinary volume of applications in a very short timeframe, and they had to do so based solely on the information that applicants affirmatively disclosed.

As a result, the fact that a bank issued your company a loan is not necessarily indicative of your company satisfying the PPP loan eligibility criteria. If your company’s PPP loan application contained inaccuracies, if its application contained affirmative misrepresentations or obfuscations, or if your company submitted PPP loan applications to multiple lenders (obtaining PPP loans from multiple banks was prohibited), your company could very well be at risk in the event of an SBA audit or a federal PPP loan fraud investigation.

Reason #3: Your Company Must Submit an Affirmative Certification in Order to Secure PPP Loan Forgiveness

All loans issued under the Paycheck Protection Program are eligible for forgiveness provided that the loan recipient adheres to the requirements pertaining to the use of PPP funds. Specifically, but without limitation, in order to receive forgiveness companies can only use their PPP loans for: (i) payroll costs, (ii) insurance premiums, (iii) interest and rent payments under pre-existing obligations, and (iv) utilities.

When submitting their requests for loan forgiveness, companies must submit an affirmative certification that they have complied with the terms of the PPP. Making this certification requires affirmative knowledge (in other words, the individual who signs the certification on the company’s behalf cannot rely on assumptions or “willful ignorance”), and submitting a fraudulent certification can result in penalties far in excess of the value of the loan itself.

Reason #4: Making Improper Use of PPP Loan Funds and Failing to Account for the Proper Use of PPP Loan Funds Can Support Fraud Allegations

Companies that make improper use of PPP loan funds can also face fraud allegations regardless of whether they ultimately apply for forgiveness. The same is true of companies that fail to account for the proper use of PPP loan funds. Funds received under the program must be segregated in a separate account, and companies must be able to fully account for all disbursements from their PPP loans. In the event of a federal audit or investigation, lack of documentation of compliance will be considered paramount to the improper use of funds, and companies will face an uphill battle defending against allegations of federal fraud.

Reason #5: The Penalties for PPP Loan Fraud Can Be Substantial

If accused of fraud under the Paycheck Protection Program, corporate entities can face substantial penalties. Individual company owners, executives, and board members can potentially be at risk for civil or criminal prosecution as well.

In the PPP loan fraud prosecutions initiated to date, the DOJ has filed several different charges against corporate entities and individuals. This includes criminal charges in many cases. In addition to civil and criminal fraud allegations under the False Claims Act (FCA), companies and individuals have also been accused of offenses including:

  • Wire fraud
  • Tax evasion
  • Making false statements to the federal government
  • Conspiracy to commit wire fraud
  • Conspiracy to make false statements to the federal government

In civil cases, the penalties for PPP loan fraud can include fines, treble damages, attorneys’ fees, and exclusion from participation in federal government programs. In criminal cases, company owners, executives, and board members can face fines and federal imprisonment.

What is Involved in Conducting an Internal Corporate PPP Loan Fraud Investigation?

When conducting an internal corporate investigation, the focus should not be on achieving a particular result (i.e. confirming compliance with the CARES Act), but instead on gaining a clear and accurate understanding of the facts as they exist. Due to the risk of uncovering information that could potentially be indicative of federal statutory non-compliance, companies must also rely on legal counsel to oversee the investigation in order to preserve the attorney-client privilege.

With these considerations in mind, some of the key components of an effective internal corporate investigation include:

  • Prompt Initiation – If there are any issues that need to be remedied, it will be important to identify these issues and take responsive as soon as possible.
  • Strategic Planning – When conducting an internal investigation, it is imperative to follow a strategy that is tailored to the company’s operations and the specific issues being investigated.
  • Selection of Personnel – In order to assemble the investigation team, it will be necessary to select personnel who have appropriate subject-matter expertise but who also do not have the potential to be implicated in any potential wrongdoing.
  • Document Review – All pertinent documentation will need to be collected and reviewed in order to fully assess whether and to what extent any exposure may exist.
  • Employee Interviews – Depending on the circumstances involved, it may be necessary to interview select employees in order to uncover additional information.
  • Compilation of Information – Once all pertinent documents have been reviewed and all necessary interviews are complete, the information must be compiled so that it can be thoroughly assessed by the company’s legal counsel.
  • Application of the Law – When reviewing the compiled information, your company’s legal counsel will examine your company’s PPP loan application, use of PPP loan funds, and forgiveness certification (if applicable) within the context of the CARES Act’s requirements.
  • Risk Assessment – After applying the law to the facts as they exist, your company’s counsel will conduct a risk assessment focused not only on potential violations of the CARES Act, but also any potential violations of the FCA and other applicable federal statutes.
  • Remedial Action – If the risk assessment reveals that remedial action is required, it will be necessary to promptly develop and execute a plan to quickly address all pertinent concerns.
  • Defense Preparedness – Finally, if it appears that your company could be at risk in the event of a federal audit or investigation, your company’s in-house counsel and leadership team will need to work with outside counsel to develop a proactive defense strategy.

Discuss Your Company’s Legal Needs with a Federal Compliance and Defense Lawyer

If your company received a PPP loan and you would like more information about our firm’s representation for internal corporate investigations, we encourage you to contact us promptly. For a free and confidential consultation, call 888-680-1745 or get in touch online now. ‘

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