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Prosecuting PPP Fraud May Be Harder Than It Seems
For anyone following developments in the massive small business stimulus program known as the Payroll Protection Program (PPP), May 14 was an important date. That was the deadline imposed by the Treasury Department and Small Business Administration (SBA) for arguably undeserving recipients of PPP loans to return the funds "no questions asked." According to Treasury Secretary Steven Mnuchin, the IRS and SBA will be auditing all loans in excess of $2 million and will be prosecuting instances of fraud.
The government will no doubt seek to make examples of undeserving PPP loan recipients. The government has a number of tools in its arsenal for doing so. Indeed, the first criminal fraud charges stemming from the PPP program have already been brought in the District of Rhode Island in U.S. v. Staveley, 1:20MJ34LDA (D. RI). That appears to have been a clear case of fraud involving phantom employees for several businesses, at least one of which the defendants did not even own. The more difficult, and likely more common, case arises from those borrowers who otherwise would be eligible under the PPP but whose economic need for the loan may be questionable.
This article discusses what tools the government has for pursuing seemingly undeserving PPP borrowers, the obstacles to bringing such cases, and the factors that may influence the government's decision in pursuing criminal or civil cases.
The PPP
The current situation should come as no surprise given the circumstances in which the PPP was passed. The PPP is part of the CARES Act, which was signed into law on March 27, 2020, two weeks to the day after President Trump declared the coronavirus pandemic a national emergency, with states across the country issuing shelter in place orders. With the need to get stimulus funds into the hands of business owners immediately, corners were cut and restrictions were relaxed. Congress dispensed with the public comment period under the Administrative Procedures Act. Vetting requirements associated with the loan applications were relaxed. Most significantly, the PPP declared that the requirement contained in the Small Business Act that borrowers attempt to "obtain credit elsewhere" prior to seeking an SBA loan was inapplicable to PPP loans. See 15 U.S.C. §636(a)(36)(I).
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