May 18

Dallas Criminal Defense Lawyer John Helms Explains - Paycheck Protection Program (PPP) Fraud

WHAT DEFENSES ARE THERE TO CHARGES OF FRAUD IN CONNECTION WITH THE PPP PROGRAM



Dallas Criminal Defense Attorney John Helms is an experienced federal criminal defense attorney. https://johnhelms.attorney/john-m-helms/

The Paycheck Protection Program (“PPP”) is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES”).  It is designed to help small businesses continue to pay employees despite the massive economic disruption from the novel Coronavirus that causes COVID-19.  

PPP is a $669 billion program.  It provides loans to eligible small businesses on favorable terms that may, in the future, be forgiven.  The amount of the loan is about 2.5 times the business’ average monthly payroll costs.  

WHAT KINDS OF PPP FRAUD ARE POSSIBLE?

As with any large government benefit program, there is a substantial potential for fraud by loan applicants.  Broadly speaking, the possibilities for applicant fraud fall into three categories:  (1) eligibility; (2) loan amount; and (3) necessity.  

Eligibility:  The PPP has a number of eligibility criteria.  They include, among other things:

-Being in business as of February 15, 2020;

-Not having so many employees or so much net worth that the business is not a “small business”;

-Not being owned, in whole or in part, by an undocumented alien;

-No owner of 20% or more of the business may be incarcerated, on probation, on parole, subject to a criminal charge, or convicted of a felony in the last five years.

A person who falsely certifies in the application that the business meets a criterion that it does not meet can be subject to federal criminal charges.  For example, if the business was created in order to take advantage of the loan program and did not exist before February 15, 2020, but an owner certifies that it was, this type of false statement could result in criminal prosecution.

Loan Amount:  The PPP ties the loan amount to average monthly payroll costs.  The loan amount is supposed to be 2.5 times the business’ average monthly payroll.  The purpose of this formula is so that the business can pay employees for about two and a half months while trying to recover from the financial effects of the novel Coronavirus shutdowns.  

Some might be tempted to overstate payroll costs in order to get a bigger loan than they are entitled to receive.  False statements that are designed to obtain a larger loan than the business should receive could result in criminal prosecution.

The United States Attorney’s Office for the District of Rhode Island has already charged two men for allegedly filing fraudulent loan applications claiming to have four businesses with numerous employees when, in fact, no employees actually worked for any of the businesses.   

Necessity:  In order to apply for a PPP loan, an applicant must certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

A false statement of necessity for the loan could potentially result in criminal prosecution.  The Small Business Administration has indicated that public companies with ready access to capital will probably not be able to meet the necessity test.  A business that uses the loan simply to line the pockets of the owner, rather than to support ongoing business operations, could also face possible criminal charges for falsely certifying necessity.

WHAT KINDS OF CRIMINAL CHARGES ARE POSSIBLE FOR PPP FRAUD:   

A variety of federal criminal fraud statutes potentially apply to fraud in connection with the PPP program.  They include:

-Misrepresentations to the Small Business Association under 15 U.S.C. § 645(d).

-False statements to a federal executive branch agency under 18 U.S.C. § 1001.

-Making a false federal claim under 18 U.S.C. § 287 (false claims).

-Bank fraud under 18 U.S.C. § 1344.

-Mail fraud under 18 U.S.C. §1341.

-Wire fraud under 18 U.S.C. §1343.

A violation of any of these statutes is a federal felony offense that is punishable by federal prison time.

WHAT DEFENSES ARE THERE TO CHARGES OF FRAUD IN CONNECTION WITH THE PPP PROGRAM?

Any federal fraud case will turn on its specific facts.  However, there are some common defenses that apply to fraud cases, including alleged PPP fraud.

-Truth:  It may be possible to show that the allegedly false statement was not, in fact, false.  For example, if federal prosecutors claim that a business did not have a real necessity for a PPP loan, it may be possible to show that there are facts of which federal agents were not aware that created a need for the loan.

-Good faith or innocent mistake:  In order to prove a criminal violation of fraud or false statement statute, the Government must show that the accused had the necessary criminal intent to make a false statement or to deceive.  An innocent mistake, or one made in good faith, such as in good faith reliance on the advice of an accountant, is an effective defense.

-Materiality:  The Government must show that any alleged false statement was “material.”  This means that it was significant enough to have the capacity or a natural tendency to influence the determination required to be made. See United States v. Lueben, 838 F.2d 751, 754 (5th Cir. 1988).  A false statement that is not significant enough will not support a criminal charge.

CONCLUSION:

Federal investigative agencies will be on the lookout for any potential fraud in connection with the PPP program.  Any federal criminal fraud allegation is a serious matter and can result in prison time.  If you are being investigated, or if you have been charged, concerning fraud in connection with the PPP program, you should consult an experienced federal criminal defense attorney as soon as possible.  Acting quickly can help you get out in front of the investigation or the charges and can make the difference between a positive outcome and a disaster.  

About John Helms Dallas Criminal Defense Lawyer 






Source: John Helms
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