US Department of Justice Expanding Prosecution of Individuals and Companies for Payroll Protection Program Fraud

In May 2022, the US Department of Justice (US DOJ) filed its first civil complaint for Payroll Protection Program (PPP) fraud under the federal False Claims Act (FCA) in a Florida federal court. The government alleged that the business owner falsely certified to the Small Business Administration (SBA) that he would not receive more than one PPP loan in 2020 when in fact he received two PPP loans in 2020. The business owner settled the case with the US DOJ and agreed to pay the federal government $229,915.31.

In October 2022, the US DOJ filed its second civil complaint for PPP fraud under the FCA in a New York federal court. The government alleged that a non-profit corporation overstated its payroll costs in an application, receipt, and forgiveness of a PPP loan. The non-profit corporation settled the case with the US DOJ and agreed to pay $86,676 to the lender and $86,676 to the government to resolve the FCA case.

These first two FCA cases will pave the way for many more federal civil investigations and prosecutions against individuals and companies alike for allegations of PPP fraud. An avalanche of FCA cases for PPP fraud against individuals and companies is expected in 2023 and beyond.

Payroll Protection Program

In March 2020, the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act designed to provide emergency financial assistance to the millions of Americans suffering the economic effects caused by the COVID-19 pandemic. The CARES Act created the PPP administered by the SBA to help businesses keep their workforce employed during the COVID-19 crisis. The PPP provides funding to qualified businesses through PPP loans for payroll costs, interest on mortgages, rent and utilities. The PPP allows the interest and principal on loans to be forgiven if the business spends proceeds on certain expense items within a designated time and uses a certain percentage of the loan on payroll expenses.

Federal Prosecutions for PPP Fraud

The US DOJ has created the COVID-19 Fraud Enforcement Task Force to investigate and prosecute PPP fraud. The federal government can pursue criminal, civil, or administrative actions against anyone who commits PPP fraud. As of Sept. 14, 2022, US DOJ has criminally charged more than 1,500 individuals for alleged COVID-19 relief fund fraud exceeding $1.1 billion. US DOJ has seized over $1.2 billion in relief funds. Further US DOJ has conducted civil investigations into more than 1,800 individuals and entities for alleged COVID-19 relief fund fraud exceeding $6 billion.

Beginning in 2021, US DOJ began to criminally investigate and prosecute individuals and companies who defrauded the PPP. Now, US DOJ is expanding its enforcement actions to include civil prosecutions under the FCA. If a federal court finds an individual personally liable for fraud, the FCA authorizes the federal court to enter a civil judgment 3 times the amount of the PPP funds and assess civil penalties against that individual personally.

Federal Investigations for PPP Fraud

How does the government decide to investigate an individual or company for PPP fraud? The government receives referrals from many different sources which can trigger a federal investigation including the following:

1. Divorce
2. Probate
3. Bank Loan Application
4. Personal Injury Lawsuit
5. Employee Background Check
6. Competitor
7. Consultant
8. Bankruptcy
9. Tax Audit
10. Sale or Purchase of Company
11. Employee Application
12. Employment Discrimination Lawsuit
13. Former Employee
14. Data Mining

Based on a referral, the federal government may investigate or prosecute current or former business owners, corporate officers, or managers under the FCA for alleged PPP fraud. These individuals should consult with an accountant and attorney to review their company’s PPP loan application, spending, and forgiveness for compliance with the federal PPP rules. Taking proactive steps now may help these individuals and companies better prepare for a potential government investigation or prosecution.

Clark Hill is ready to assist individuals and companies in complying with the federal PPP rules and as necessary, prepare for and defend against government investigations or prosecutions.

The views and opinions expressed in the article represent the view of the author and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is it intended to be a substitute for professional legal advice.

For further information, please contact the author, Jose Vela Jr. at jvela@clarkhill.com.