United States: PPP fraud: first quarter update on DOJ activity
Our prior CARES police alerts foretold an influx of Justice Department (“DOJ”) cases involving COVID-related fraud. loans made by way of the Paycheck Protection Program (“PPP”). The application was swift and easy. MJ announcement at the closing of February 2021 he prosecuted more than 100 defendants in more than 70 criminal trials and confiscated more than 60 million dollars in cash from fraudulently procured PPP funds in addition to a variety of luxurious and real estate products purchased using PPP funds. Loans pop over to this website will also still be available for new applicants with fewer than 500 employees.
The PPP grants loans with a grace period for small businesses to pay their costs during the COVID-19 shut down. As with other federal programs The P3 requires a number of certificates to be eligible for federal assistance. False certifications could expose small companies to civil liabilities as a result of the False Claims Act (“FCA”) and the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”) as well as criminal legal liability under ( among other aspects) in the laws governing fraud.
This alert focuses on what we believe are the most current DOJ actions in relation to PPP loans and what companies should know about avoiding civil and criminal responsibility. For additional information on how to establish an internal compliance program that is in line with DOJ requirements to stop and stop fraudulent conduct read this alert previously. here.
Criminal and civil fraud cases regarding PPP loans to 2021
The majority of PPP fraud cases that have been brought until now have been criminal in nature but the DOJ will also be using civil enforcement tools, such as FCA or FIRREA. In a recent statement to the public, Brian Boynton, Acting Assistant Attorney General, spoke of the DOJ’s plan to employ the FCA to fight any claims of “misrepresentation about the eligibility of the program, misappropriation of funds, or false certificates related to loans being cancelled”. The Acting Assistant Attorney General also stated that DOJ’s Civil Division is working closely with other agencies to look into possible violations, and that these “collaborative initiatives” can be “expected. “[ed]” to result in massive cases and recovery. “
In January in January, The DOJ made its announcement of its very first FCA as well as FIRREA settlement on the basis of the PPP fraud that involved SlideBelts, Inc., an California online retailer and the bankrupt debtor. In the settlement the Company as well as its President and Chief Executive Officer acknowledged that they had fabricate false statements that claimed the company was not bankrupt to secure the PPP loan. DOJ claimed penalties and damages totalling approximately 4.1 million. SlideBelts finally accepted to settle for $ 100k in order to settle FIRREA and FCA allegations. FCA and FIRREA accusations and was also ordered to pay back the $350,000 loan it had obtained.
SlideBelts further explains that PPP loans of any size can become subject to FCA action, thereby limit the “safe safe” for loans less than 2 million. Even though there is no guarantee that a loan will be deemed safe, the Treasury Department has previously announced in an interim rule announced in the Small Business Administration Interim Rule Four it is only PPP loans of more than two million dollars are subject to an “full audit” to verify that they are economic genuine before they are removed and the certificates for the entire amount of the loan amounts can be scrutinized and be a source of FCA responsibility.
In relation to FIRREA’s liability SlideBelts also proves that any false representation of a bank may expose a company to liability under the law. This permits DOJ to seek civil penalties for electronic or mail fraud. This applies to an insured federally-insured financial institution. The requirement of FIRREA that perpetrated fraud or error “affects” the financial institution is, in reality, never been a major issue for DOJ. If the issue is linked to an application for a loan and the condition is fulfilled. The government also has to demonstrate that a FIRREA claim with an overwhelming majority of evidence, which means that any FCA case that involves PPP fraud could be a case of FIRREA penalties, just as happened in the case of SlideBelts. Furthermore, similar to FCA, FIRREA also provides a financial incentive to whistleblowers. FCA, FIRREA provides a financial incentive to whistleblowers to inform the government of violations.
In addition among eight criminal federal cases relating with COVID relief fraud, which were indicted during February 2021, six of the cases focused on fraudulent claims on loan applications concerning salaries of employees. Particularly, the indictments claim that the loan applications contained misleading and false information about how many employees, or the monthly average salary expense for the business’s operations. The defendants also have supplied false documents as proof of their fraudulent claims including fraudulent taxes on federal earnings. False W-2s for employees that were not employees of the business
Secure your company
Due to the huge resources dedicated in the investigation and prosecution of COVID relief fraud and the establishment of the special inspector general for Pandemic Recovery (“SIGPR”) and the SIGPR, we are likely to see instances related to PPP scams in coming years. Therefore, companies should be mindful to defend their eligibility requirements as well as the information provided in PPP loans, and be aware of all communication with lenders in particular, as these messages are crucial and easy to prove that a borrower has knowingly submitted fraudulent requests. When PPP loans are secured businesses must carefully document the use of these loans in accordance with the terms of the loan. Records of the company must contain evidence of admissibility, for the assertions made as part of the application, and for any decision taken by the business in an area of regulatory uncertainty regarding the loan, as well as for the correct use of money obtained.
If an error is discovered after the submission of an application or receiving the loan, speak with an attorney about the best method to make any corrections that are required.