Warning: anyone who has committed fraud involving PPP loans has a judgment day ahead, lawyer says

The paycheck protection program brought the promise of funds and forgiveness. It was too tempting to pass up some companies that really should have let it pass.

Thomas L. Hofstetter, a banking attorney at a Florham Park-based law firm, said enforcement agencies in the country’s Treasury Department and Small Business Administration promise something else: there will be a hefty price tag to pay for those who have obtained PPP funds. and forgiveness fraudulently.

Schenck Associate Price Smith & King LLP said last year’s COVID-19 humanitarian aid was dedicated to selecting eligible businesses for purposes such as paying employee pay and rent. Fraud investigations are underway against borrowers who missed the memo.

“Fraud happens when someone got this money and didn’t use it for their intended purpose, or was not entitled to receive one of these loans in the first place,” he said. he declares. “It is coming to a critical point now, for it is in the aspect of forgiveness that the fraud is going to be discovered.”

Hoping for a SECURE passage

Lending to what New Jersey considers a legitimate business should no longer be a crime, said John McWeeney Jr. of the New Jersey Bankers Association.

To be more precise: the CEO and chairman of the state’s commercial banking organization is rooting (again) for the SAFE Banking Act, which would allow financial services organizations to work with legal cannabis companies if they do. wish.

The banks were not able to have this kind of safe harbor because cannabis was labeled as an illegal substance at the federal level. McWeeney said it was a challenge for banks and cannabis companies.

The prospect of changing this is contained in the wording of the SAFE Banking Act, which was passed by the US House of Representatives in April with strong bipartisan support.

“With this act, which was passed in the last Congress but died in the Senate after it never went anywhere, there is reason to be optimistic that something will happen due to the new makeup of Congress. “, did he declare. “It is something that we support and that we are monitoring closely.”

At present, only a handful of banks have been willing to risk getting involved in relationships with cannabis companies, McWeeney said.

The head of the local banking association expects this to be a growing industry from which many other banks stand to benefit.

“And I don’t know if all the banks are going to get started,” he added, “but we want our businesses to be able to be in this industry if they want to, without risking breaking federal law.”

Whether or not these loans will be fully canceled is a top issue for many companies, said Hofstetter. According to him, it is also during this part of the government loan program that one of the many possible cases of fraud can have consequences for a business:

  • If they have made any false claims on PPP loan applications.
  • If they have applied for PPP loans from multiple providers for the same purpose.
  • If they made a false certification for the loan cancellation or funds that were not used for a proper purpose, like buying a yacht for yourself.

In the best-case scenario, ineligibility for a loan or loan forgiveness is discovered and all that happens is the money must be paid back in full.

The worst case is, well, much worse – namely, breaking a number of laws.

This could include the False Claims Act, which imposes financial penalties equal to three times the amount of falsely earned funds, as well as additional fines. There is also the Financial Institutions Reform, Collection and Enforcement Act of 1989, or FIRREA, which carries penalties of up to $ 1.1 million per violation.

In January, the US Department of Justice announced its first civil settlement involving alleged violations of these two statutes. According to a press release from the agency, this was a case involving SlideBelts Inc., a California-based online retailer that went bankrupt despite claiming not to have received approval for the application from PPP loan.

The company’s $ 350,000 loan resulted in damages and penalties of $ 4.1 million. In his civil settlement, he agreed to pay a total of $ 100,000 in damages to resolve the alleged violations.

“This is an example of the serious consequences on a civil basis, but there are also various criminal penalties that can be imposed: wire fraud, bank fraud, conspiracy and financial statement fraud,” said Hofstetter. “So you can be sentenced to criminal charges as well as civil penalties.”

The banks that made these loans – they are largely off the hook.

“Basically the government finds these banks harmless for any embezzlement and fraud by borrowers,” he said. “The banks were not expected to do their usual due diligence in making these loans. They didn’t have to go the extra mile because Congress wanted to get this money fast. “

Hofstetter left a caveat: While banks may not be responsible for potential fraud by borrowers, they could be called into question if they withhold information about the fraud.

“So the banks are under pressure to report this to these investigative agencies and these regulators,” he said.


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