Attention all Paycheck Protection Program (“PPP”) loan borrowers, the Federal Bureau of Investigation is combing through PPP loan records to identify borrowers who committed fraud related to the program, and they are not alone. The U.S. Small Business Administration (the “SBA”) is auditing all PPP loans of $2 million or more, and the Department of Justice (the “DOJ”) is investigating and prosecuting a number of fraud cases related to the misuse of PPP funds.
How Did We Get Here?
Many of us will recall how the PPP saved millions of small businesses from financial ruin. The program was a cornerstone of the CARES Act, which provided $2.2 trillion in economic aid in the face of the COVID-19 pandemic. The program was designed to provide a financial life raft to employers trying to survive the pandemic.
One of the few requirements of PPP was a minimum of 60% of each loan needed to be used for payroll expenses, with the balance being used for certain other related business expenses. Now we are learning the program was wrought with fraud. It appears to be one of the greatest victims of frauds ever perpetrated on the federal government with billions of dollars being improperly used.
In fact, the SBA estimates of the 11.8 million PPP loans totaling $800 billion there was in excess of $64 billion in fraud across 17% of the loans. This has led to thousands of investigations with the DOJ bringing charges against hundreds of individuals with many more cases pending.
Just the Beginning
The SBA estimates there will be thousands more investigations and related prosecutions. This issue has gotten so much attention that Congress has increased the statute of limitations for prosecuting cases of fraud related to PPP borrowing to ten (10) years. Also, the government is investigating these cases even though the loan has been forgiven.
Closing Thoughts
If you’re wondering if you should worry, the answer is it depends. If you are part of that urban legend of someone who took out the loan, and used the proceeds to buy a Ferrari while closing down your business, you should be worried. If you are part of the approximate 80% who followed the rules, you should be fine. If you question where you stand, call competent counsel so you can sleep peacefully at night. Our hope is the investigations will be fair, abusers get caught and the well-intentioned are fine, but only time will tell.
Brody and Associates regularly advises management on complying with the latest local, state, and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
