PPP Loan Fraud

The Paycheck Protection Program (PPP) was established by the U.S. government in 2020 as part of the CARES Act, which was meant to provide financial relief to small businesses affected by the COVID-19 pandemic. While the program was intended to assist businesses during the pandemic by helping them keep employees and continue operating, it also opened the door to the possibility of widespread fraudulent activity.


PPP loan fraud is a concern to lenders and law enforcement agencies. Here's what you need to know about PPP loan fraud, how to avoid it, and its consequences.

What Is PPP Loan Fraud?
PPP loan fraud happens when individuals or businesses falsify information to receive loans from the Paycheck Protection Program. These loans were intended for businesses struggling due to COVID-19, providing forgivable loans when at least 60% was used for payroll expenses, with the remainder put toward eligible costs like utilities, rent, and mortgage interest.

During this time, some businesses falsified applications by inflating the number of employees, exaggerating payroll costs, or even misrepresenting the business's operational status. In some cases, fake companies were created solely to apply for loans, while others spent the loan funds on personal luxury items, investments, or vacations.


Types of PPP Loan Fraud
Several types of fraud are associated with the PPP loan. Any of these actions can result in severe legal consequences that require attorneys experienced with PPP fraud defense.

• Application Fraud: The most common type of PPP loan fraud occurs when applicants submit false information to qualify for a loan. This can involve inflating employee counts and payroll costs or even applying using a made-up business.


• Misappropriation of Funds: When a loan has been approved, borrowers must use the funds for specific expenses, primarily payroll. Using funds for personal gain, including purchasing luxury items, real estate, and other non-eligible expenses, is misappropriation.


• Multiple Loan Fraud: This is when a business or individual fraudulently applies for more than one PPP loan by creating multiple shell companies and using different banks to apply to avoid detection.


• Identity Theft: Using stolen personal information to apply for PPP loans with someone else's name, which results in the victim of the identity theft being held accountable for loans they never applied for.

Each of these instances of PPP loan fraud can result in lengthy prison time and significant fines.

Avoiding PPP Loan Fraud
For business owners applying for PPP loans, ensuring compliance with the rules is crucial. Here are steps you can take to help avoid involvement in fraudulent activities:

• Accurate Reporting: Be sure all information provided on the loan application is correct and truthful. Double-check employee numbers, payroll costs, and business revenue.


• Document Everything: Keep accurate records of how the loan money is spent. This includes maintaining payroll records, keeping receipts for rent and utilities, and documenting other qualifying expenses.


• Use the Funds Appropriately: Follow the guidelines dictating that at least 60% of the loan will be used for payroll expenses, with the remainder used for other eligible operational costs like rent, mortgage interest, or utilities.


• Avoid Multiple Applications: Only apply for one loan per business. Multiple applications under different entities or banks can raise red flags and result in an investigation.


• Seek Legal Help: If you're charged with PPP loan fraud, consult an expert defense attorney familiar with PPP loan requirements to help you through the challenges faced with PPP loan fraud charges.

Legal Ramifications of PPP Loan Fraud
PPP loan fraud is a federal crime with significant consequences. The extent of legal action you face depends on the severity of the charges. Penalties can include substantial fines, repayment of loans, and even time in prison. The Department of Justice (DOJ) has continued to investigate and prosecute cases of PPP fraud, with high-profile cases leading to lengthy prison sentences and millions in restitution.


In addition to the legal issues, being found guilty of fraud can severely damage a business's reputation, making it difficult to rebuild trust with clients, customers, and financial institutions.

There's no need to face the challenges of PPP loan fraud charges alone. At Donet, McMillan & Trontz, P.A., our attorneys have the knowledge and experience to help navigate the sometimes confusing circumstances of PPP loan fraud and the consequences that come with it.

Call Donet, McMillan & Trontz at (305) 444-0030 if you need PPP loan fraud attorneys. We're here 24/7 to answer questions and provide an effective PPP loan fraud defense strategy.