PPP enforcement actions gain momentum | Bass, Berry & Sims APIs

The Paycheck Protection Program (PPP) was intended to provide a rapid influx of relief to small businesses during the economic shock created by the COVID-19 pandemic. The speed with which the loans were distributed to businesses nationwide was striking, as was the speed with which the Department of Justice (DOJ) began to prosecute those who abused the program. Reports of companies and individuals seeking to take advantage of the PPP have prompted a vigorous law enforcement response that has widened its reach in recent months. As we pointed out last yearthe DOJ has taken aggressive action to prosecute those who engaged in misconduct involving the PPP and other CARES Act stimulus programs.

At first, cases linked to COVID-19 stimulus programs – charges of crimes such as bank fraud, misrepresentation to a financial institution and money laundering – involved brazen conduct, including misuse of proceeds of money. a loan to buy things like fancy cars, houses, or jewelry. Today, we are seeing a significant increase in civil law enforcement actions related to the program. This increase signals a new phase of enforcement for the DOJ, and all organizations that have benefited from the program should pay close attention.

Paycheck Protection Program

Congress enacted the PPP on March 29, 2020, as part of the CARES Act, to provide emergency financial support to millions of Americans suffering from the economic effects caused by the COVID-19 pandemic. Under the PPP, eligible businesses could obtain loans backed by the Small Business Administration (SBA). Businesses were required to spend loan proceeds on employee compensation, rent or mortgage, and other specified expenses. Depending on their use of the loan proceeds, businesses could qualify for loan forgiveness, up to the full amount of the loan. The program was intended to dispense cash quickly, so more typical hurdles like verification or substantial documentation in advance were not necessary. Instead, the program relied on self-certification by participating individuals and organizations.

Recent PPP regulations

The past year has seen growing evidence of the DOJ awarding civil liability under the False Claims Act (FCA) under the PPP program. False certifications, failure to make reasonable efforts to ensure the accuracy of certifications, or submission of false information may expose organizations that have received PPP loans to treble damages and civil monetary penalties under the FCA. In February of this year, the DOJ announced that a New Jersey construction company had admitted breaching the FCA by taking a PPP loan to which she was not entitled. The company falsely certified in its PPP application that no individual holding more than 20% of the company faced criminal charges, when in fact one of the owners faced criminal charges. a criminal indictment. Similarly, in April, the DOJ announced a $24.5 million settlement with a significant group of doctors, which included liability for misrepresentations in its PPP application. This company falsely declared to the SBA that it was not engaged in illegal activity, while the DOJ discovered that it had charged false declarations for unnecessary tests and medical services.

The embezzlement of funds received under the PPP is another area ripe for increased scrutiny by law enforcement. The DOJ announced in March 2022 that a government contractor had agreed to pay nearly $3 million in restitution and penalties for misappropriating the proceeds of a PPP loan. The contractor and his owners falsely stated that the loan proceeds were used for payroll and other eligible expenses to qualify for loan forgiveness, when in fact the entire loan amount was transferred to a personal account. Notably, two owners and officers of the company agreed to pay an additional penalty out of their own funds as part of this settlement. In August 2021, the DOJ announced a similar settlement with the airline owner who misappropriated the PPP loan proceeds. In this case, the United States alleged that within a day of receiving the PPP loan proceeds, the owner misappropriated a significant portion of the funds to pay for personal expenses.

More PPP Enforcement Measures Coming Soon

In March of this year, the DOJ announced the appointment of a COVID-19 Fraud Enforcement Director, Associate Deputy Attorney General Kevin Chambers, to lead the department’s criminal and civil enforcement efforts to combat fraud related to COVID-19. At that time, Attorney General Merrick B. Garland said, “The Department of Justice remains committed to using all available federal tools, including criminal, civil, and administrative actions, to combat and prevent COVID-related fraud. 19.

There is every indication that many more P3-related enforcement actions will continue to emerge across the country.

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