In recent blog posts, we have written about the risk of government scrutiny that comes with receipt of paycheck protection program (PPP) funds under the CARES Act. For example, on April 7, we wrote about the creation of the Special Inspector General for Pandemic Relief (“SIGPR”), which is tasked with auditing and investigating potential fraud, waste, and abuse related to funds distributed under the CARES Act. On April 30, we wrote about the various post-hoc requirements that the Treasury Department and Small Business Administration had imposed on PPP fund recipients, including a very vague and ambiguous “necessity” certification.
On May 5, the Department of Justice (“DOJ”) announced its first prosecution for PPP loan fraud, turning these potential risks into a reality. To be fair, based on the allegations contained in the DOJ’s press release, the prosecution does not seem to be based on a determination that the defendants violated some vague and ambiguous certification, but instead the DOJ alleges that these defendants committed blatant and unambiguous fraud.
According to the DOJ, the defendants, from Massachusetts and Rhode Island, allegedly claimed to have dozens of employees earning wages at four different businesses when, in fact, there were no employees working for any of the businesses. Specifically, one of the defendants is alleged to have submitted PPP loan applications requesting over $400,000, and claiming that he had dozens of employees at three restaurants he owned. However, the government alleges that, after an investigation, it was determined that two of the restaurants had closed down prior to the COVID pandemic for unrelated reasons, and that the defendant did not have any ownership in the third. The other defendant allegedly submitted a PPP loan application for over $100,000 for an unincorporated entity that never had any employees.
The press release details some of the investigative steps taken by the FBI, including an undercover FBI agent posing as a bank compliance officer during a phone call with one of the defendants, during which conversation the defendant allegedly provided false information to support his loan application.
The defendants were charged by way of criminal complaint, including charges of conspiracy to make false statements, conspiracy to commit bank fraud, and aggravated identity theft. These charges are very serious felonies that could lead to a multi-year prison sentence.
The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with government investigations, including fraud investigations and prosecutions. If you need assistance with such a matter, please contact us today.