What is Payroll Protection Program Fraud?

The Payroll Protection Program was included in the CARES Act to provide small businesses with funds to pay employees when the Covid-19 pandemic hit. Like almost any government assistance program in history, there have been instances of fraud related to PPP loans. The Department of Justice and Office of The United States Attorneys have been on the lookout for businesses and people who fraudulently obtained PPP funds. If you have been contacted by law enforcement about your PPP funds, do not make any statements to law enforcement and call an experienced Federal Fraud Lawyer at the Barone Defense Firm immediately.

What are the qualifications to be eligible for the PPP?

The first requirement to be eligible for the PPP is that the business must be a small business as defined by the U.S. Small Business Administration (SBA). Your business must not have more than 500 employees or must meet the size standards set by the SBA. The SBA sets size standards in terms of revenue dollars and number of employees. For example, if you own a brewery, you’re considered a small business by the SBA if you have 1,250 employees or less

If you own a sole proprietorship, you are eligible for the PPP if:

  1. Your business was operating prior to February 15, 2020
  2. Your main residence is the United States, and
  3. You filed a 1040C form for federal taxes.

How much can I borrow and how can I use the PPP funds?

To determine how much a qualifying small business can borrow, the CARES Act set out a calculation based on factors including number of employees, net profit, gross wages and tips paid to employees, and employee benefits paid by the company.

PPP payments can be used by small business to pay employees’ regular wages, employee benefits, rent, utilities, and interest on mortgages. Remember, at least 60% of PPP funds must be used on payroll expenses.

What happens if I don’t follow the rules of the PPP?

An honest mistake as to how funds were used once they borrowed legitimately is one thing. Obtaining PPP funds fraudulently is another matter altogether. The Department of Justice brought federal felony charges against a Michigan man who fraudulently obtained the PPP. In the case, the US Attorney for the Eastern District of Michigan alleges that the man knowingly provided false information about a company on the PPP application. Allegedly, the company had not been in operation since 2015. Remember, to be eligible for the PPP, a business must have been operational as of February 15, 2020.

The Michigan man in the case above was charged with one count of wire fraud in the US District Court for the Eastern District of Michigan. Wire fraud is a federal felony that carries up to 20 years in prison and up to $250,000 in fines.

Nationally, the federal government continues to prosecute cases of PPP fraud. The first fraud charge related to the PPP was announced in May, not long after the program began. In September, the Department of Justice announced charges against 57 individuals for fraud related to PPP loans.

Sometimes honest mistakes lead to wrongful criminal charges. If you’re dealing with a federal charge, it’s important to hire an attorney licensed in federal court and experienced with federal fraud charges because both the law and court procedures differ in some respects relative to state charges. Regardless, if you are dealing with a fraud charge related to a PPP loan, it’s in your best interest to immediately consult with the experienced fraud attorneys at the Barone Defense Firm.

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