The Justice Department is Investigating Paycheck Protection Program Fraud—Is Your Business Safe?
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Thousands of businesses across the country have taken advantage of the Paycheck Protection Program (PPP) and relied on the funds it provides to keep operations afloat and employees paid. Under the PPP, businesses are eligible for a PPP loan if the business has less than 500 employees and without the injection of capital from the loan, the business will be forced to cease operations and lay off its employees. Due to the coronavirus epidemic and the restrictions it caused, most small businesses are feeling the economic effects on their bottom lines. Under the right circumstances as detailed in the PPP legislation, businesses are encouraged to apply for PPP loans – but what exactly are these right “circumstances?” Business owners need to be aware that falling profits and liquidity concerns are not necessarily the only pre-requisites for receiving a PPP loan. If a business wrongfully receives a PPP loan, the executives of that business could face potential criminal charges. Business owners should carefully review the circumstances under which their business received a PPP loan and take the appropriate measures to ensure they do not face future PPP fraud charges.
A major difficulty businesses are facing with regard to eligibility of PPP loans is that the criteria for receiving these loans is constantly changing. And this eligibility criteria equally applies to all business sectors, including restaurants and food services, retail, manufacturing, healthcare, and professional services. As a first and most important step business owners should take is engaging outside law firms to review the business’s corporate compliance to ensure PPP eligibility was met. As is stands now, the federal government has given businesses until May 14, 2020 as a safe harbor period to return received PPP loans if it was determined the business was not an eligible recipient. Engaging an outside law firm to review your business’s compliance with PPP criteria is not only necessary for withstanding federal scrutiny but also for simply keeping your business afloat. May 14th is rapidly approaching and effectively running a business while simultaneously reviewing corporate compliance is not an easy task. Experienced corporate compliance lawyers can do a thorough check of your business’s compliance with PPP criteria while allowing you to focus your efforts on running your business effectively. Once the compliance check is completed, your attorney can properly advise you on whether your business met the criteria for receiving a PPP loan and whether or not the PPP loan should be repaid to the federal government.
To prepare for a compliance check, or if your business is just starting the application process for a PPP loan, you need to ensure that documentation is created and kept that details the efforts you undertook to ensure compliance with PPP criteria. Again, as stated above, declining profits since the start of the coronavirus epidemic do not automatically qualify your business for a PPP loan. You need to read all guidance promulgated by the federal government discussing PPP loans and eligibility and document (with specific reasons) that your business complies with this eligibility. The guidance given by the federal government is very nuanced and is clouded in legal language. Having an attorney who is experienced with federal compliance is critical to ensuring oversight and proper understanding off all relevant federal regulations.
Most businesses apply for and certify their need for a PPP loan in good faith, meaning they are not deliberately or intentionally trying to defraud the government. Even if a business’s application for a PPP loan was in good faith, that business can still face recoupment of the loan proceeds by the federal government. It does not matter if your business submitted its PPP loan application in good faith, if your business received money it was not entitled to you can still face repercussions. If the government thinks your business was not entitled to PPP funds, the only way it can decipher whether your business intentionally defrauded the PPP or simply did not understand PPP criteria, is through an audit or investigation. Undergoing a government investigation is a time consuming and costly process. Engaging an attorney to review your PPP application and eligibility now will be significantly less costly than undergoing a government investigation. Worst case scenario for proactively reviewing your business’s PPP eligibility now is having to return to the government the dispersed PPP funds your business received. Although returning the PPP funds (again, not a given outcome) will likely be detrimental to your current business operations, it will not be nearly as detrimental as keeping the funds if your business was not entitled to them in the first place.
The federal government does not treat federally funded program fraud lightly. Recently, two individuals were criminally charged for attempting to seek $500,000 in PPP loans for which they were not entitled. As this PPP legislation is new, this charging of the two individuals likely is not an isolated event and the government will charge more individuals as investigations ramp up and more fraud is discovered. If charged criminally in federal court, you not only risk substantial fines associated with the charge but also the possibility of significant prison time. Currently, the investigation of potentially fraudulent PPP loans is one of the Justice Department’s and the IRS’s top priorities. Taking proactive measures now to ensure compliance with the PPP can save you and your business significant costs in the future should your business come under investigation for PPP fraud.
Dr. Nick Oberheiden, founder of Oberheiden P.C., focuses his litigation practice on white-collar criminal defense, government investigations, SEC & FCPA enforcement, and commercial litigation.