As most people know, in an attempt to keep the economy and businesses viable during the COVID-19 pandemic, Congress passed the CARES Act. This bill included the Wage Protection Program (PPP), in which small businesses could receive government-funded loans to cover certain wage costs to help employees’ finances during the shutdown the country experienced in 2020.
This federally funded program also came with anti-fraud requirements, policies, procedures and tools that resulted in investigations and enforcement actions by the US government. The CARES Act created a special Inspector General and the Department of Justice (DOJ) established a “CARES Act Working Group” which audited, investigated and, where appropriate, prosecuted PPP beneficiaries who broke the rules. . Understanding what you’ve “signed up for” and being prepared to comply and meet PPP obligations are essential to protecting your business and, as an owner or officer, your freedom and finances.
PPP loans – Some basics and context
The PPP loans came in two installments (the first and second draws). One of the keys to the program was that eligible borrowing employers could get loan forgiveness, meaning that if the employer qualified, they wouldn’t need to repay the loan. This loan forgiveness was conditional, among other things, on the employer’s compliance with the following obligations during the period of 8 to 24 weeks following each loan disbursement:
- The employer’s employee and pay levels should be maintained;
- These loan proceeds were to be spent on personnel costs and other eligible expenses;
- At least 60 percent of the income was to be spent on personnel costs; and
- A request for loan forgiveness had to be made in a timely manner.
As those working in the public procurement world know, the receipt or requisition for financial products from the federal government includes various certifications from the applicant / recipient. From the outset, applicants requesting the product signed and certified in their loan application to, among others:
I read the declarations included in this form, including the declarations required by law and decrees, and I understand them.
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the The applicant is eligible to receive a loan according to the rules in force at the time of the filing of this request that have been issued.
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All loan proceeds will be used only for business purposes as specified in the loan application and in accordance with the rules of the Paycheck Protection Program. including a ban on using the loan proceeds for lobbying activities and expenses. If the applicant is a news organization that has become eligible for a loan under section 317 of the Law on Economic Assistance to Small Businesses, Nonprofits and Hard-Affected Sites, the proceeds of the loan will be used to cover the expenses of the component of the business that produces or distributes local or emergency information. If the applicant is an Internet-only news or periodical publisher who has become eligible for a loan under Section 5001 of the American Rescue Plan Act of 2021, the loan proceeds will be used to cover the expenses of the part of the business or organization that supports local or regional news.
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I have further certifythat the information provided in this request and the information provided in all supporting documents and forms
is true and correct in all material respects. I understand that knowingly making a false statement to obtain an SBA secured loan is punishable under the law, including 18 USC 1001 and 3571, with up to five years imprisonment and / or a fine of up to five years. go up to $ 250,000; less than 15 USC 645 to a jail term of not more than two years and / or a fine of not more than $ 5,000; and, if subjected to a federally insured institution, under 18 USC 1014 by imprisonment for not more than thirty years and / or a fine not exceeding $ 1,000,000.
Likewise, as part of the loan forgiveness request, the applicant / beneficiary has certified, among others:
The Borrower’s authorized representative certifies all of the following by initialing next to each of them.
The dollar amount for which the discount is requested (which does not exceed the principal amount of the PPP loan):
- has been used to pay for business expenses that are eligible for the rebate (salary costs to retain employees; commercial mortgage interest payments; commercial rent or lease payments; commercial utility payments; covered operating expenses; covered property damage costs; covered supplier costs; or expenses worker protection covered);
- includes all applicable reductions due to the decrease in the number of full-time equivalent employees and wage / hourly wage reductions;
- understand social charges equal to at least 60% of the amount of the discount;
- for any owner-employee (with a participation of 5% or more) or self-employed / general partner, does not exceed 2.5 months of compensation received during the year used to calculate the PPP loan amount, capped at 20,833 $ per individual in total across all businesses.
I understand that if funds have been knowingly used for unauthorized purposes, the federal government may pursue recovery of loan amounts and / or charges of civil or criminal fraud.
The Borrower has accurately verified the payments for eligible salary and non-salary costs for which the Borrower is requesting exemption.
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the the information provided in this application and the information provided in all supporting documents and forms is true and correct in all material respects. I understand that knowingly making a false statement to obtain forgiveness of an SBA guaranteed loan is punishable under the law, including 18 USC 1001 and 3571, with up to five years’ imprisonment and / or a fine of up to $ 250,000; less than 15 USC 645 to a jail term of not more than two years and / or a fine of not more than $ 5,000; and, if subjected to a federally insured institution, under 18 USC 1014 by imprisonment for not more than thirty years and / or a fine not exceeding $ 1,000,000.
The foregoing language creates a unique exposure, derived from the federal government, for applicants and recipients of P3 funds (and for that matter others). An initial understanding of these risks is essential for planning and mitigating liability and exposure. Reading the “fine print” and knowing what you are getting into is essential not only to understand what you are “getting into”, but also allows planning and documentation to avoid such risks.
RECOGNITION OF EXPOSURE AND POTENTIAL RISKS
So you might be asking, what’s the problem? Applying for and receiving federally funded funds, especially given the types of certifications above, may subject the applicant to both civil and criminal false claims laws (FCAs). In summary, a violation of the FCAs may expose the applicant to criminal and civil (financial and administrative) penalties, including prison terms and the possibility of suspension or exclusion preventing the employer and its signatories and officers from continuing to operate. have access to government contracts.
Although the P3 program has been widely reported as having been successful in helping employers and employees, not to mention the economy, one concern that remains is the traditional situation where “free money” is being offered and the criminal elements coming out. of the ordinary for purse these products. PPP is no different. In pursuing the “lifeline” of the P3 program, many employers either did not fully read the fine print or read it and ignored it when signing their applications. Stories are starting to emerge about fraudsters taking advantage of PPP when they are not eligible.
CURRENT TITLES – Extreme examples
While the PPP funds came out in mid-to late 2020, in March 2021, just a year after the passage of the CARES law (but before the PPP funds were distributed), the DOJ had announced. that he had investigated more than half a billion dollars in fraud and charged 474 people with crimes related to the theft of money. Many of these people were beneficiaries of PPP funds. Since then, other cases have been pursued. The Justice Department announced on November 29 the case of Lee Price III, who pleaded guilty to electronic fraud and money laundering charges arising from his submission of two fraudulent PPP loan applications for three entities, in which :
The price misrepresented the number of employees and the payroll costs in each of the PPP loan applications. To support fraudulent PPP loan applications, Price also submitted fraudulent tax records and other documents. As an example, regarding the loan application from 713 Construction LLC, Price applied on behalf of a deceased person shortly before the application was submitted. After receiving the PPP loan funds, Price spent the money, among other purchases, on a Lamborghini Urus, a Ford F-350 truck, a Rolex watch, and to pay off a loan on a residential property. The Department of Justice, along with law enforcement partners, seized more than $ 700,000 of funds Price obtained fraudulently.
While this may be an extreme case, the DOJ’s COVID-19 Anti-Fraud Task Force and relevant officials are making significant efforts to investigate and prosecute hawkers like Mr. Price. . There is a plethora of other cases that have been sued or argued, and no doubt there are many more to come.
Although the PPP program has expired and should have already been spent by the beneficiaries, this is not the end of the program or the exhibition. Recipients should ensure that they have made proper and accurate certifications, requested forgiveness in a timely manner and that their expenses and supporting documents are correct and accurate.
Equally important, it is a good reminder that the responsibility of the FCA is not limited to the PPP program alone, but to any situation in which a request for payment is made and / or federal monies received under false or false circumstances. fraudulent. Any concerns that a beneficiary may have should be investigated and given legal advice now, so that action or mitigation efforts can be taken now, and not when the government knocks on the door. .
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.