Nearly four months since the passage of the CARES Act and the establishment of the Paycheck Protection Program (“PPP”), we are already seeing the early returns on the government’s promise to vigorously prosecute fraud under the program.
There have already been several criminal prosecutions, and there is no doubt that civil investigations are underway. Ethan Davis, the second-in-command at the Department of Justice’s Civil Division, gave recent remarks in which he emphasized that the government will be prioritizing the use of the False Claims Act to fight PPP fraud but “will be careful not to discourage businesses, health care providers, and other companies from accessing in good faith the important resources that Congress made available in the CARES Act.” A review of the prosecutions to date shows that even smaller loan amounts may give rise to an investigation, and that, as predicted, there appear to be a number of people who took advantage of the program for their personal benefit.
The loan amounts leading to prosecutions have not all been large.
While the government announced that it would automatically audit any loans over $2 million, and that borrowers who received less than $2 million will be “deemed to have made the required certification concerning the necessity of the loan request in good faith,” see our prior article, that did not give those who borrowed amounts below this threshold a free pass. For example, prosecutors have filed charges against individuals from Massachusetts and Rhode Island, New York, Washington, D.C., and Illinois for fraudulently obtaining PPP loans in the range of approximately $400,000 to $600,000.
The charges are generally consistent across the prosecutions.
The charges thus far are not surprising, and generally have followed the same pattern in each matter. Thus far, prosecutors have filed charges for wire fraud, bank fraud, false statements to a financial institution, money laundering, and false statements to the SBA. See, e.g., charges filed against individuals from Massachusetts, Texas (including this case, and this case), California, Washington, Virginia, Arkansas, and Georgia.
What to expect going forward?
These cases are the tip of the iceberg, and this does not even include the FCA investigations arising from PPP applications. The prosecutions described above involve blatant fraud such as falsifying tax returns and/or hiding the fact that the individuals had prior criminal prosecutions. There likely will be many cases in which the fraudulent schemes are more complex.
Prosecutors are working with financial institutions as well as the public to continue their efforts in ferreting out fraud, and many companies and individuals will face federal investigations into their applications in the coming months. Accordingly, as we have advised in past posts, for anyone who took out a PPP loan, it is essential to continue maintaining good records going forward, as the time for investigations will continue well into the future.
For more information regarding government investigations, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Ellen London
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