In May 2022, the US Department of Justice (US DOJ) filed its first civil action under the federal False Claims Act (FCA) for Payroll Protection Program (PPP) fraud in a federal court in Florida.
Small Business Administration (SBA)
The government said that the business owner falsely attested to the Small Business Administration (SBA) that he would not receive more than one PPP loan in 2020, despite the fact that he obtained two PPP loans in 2020. The business owner reached a settlement with the US Department of Justice and agreed to pay $229,915.31 to the federal government.
In October 2022, the US Department of Justice filed its second civil action for PPP fraud under the FCA in a federal court in New York. The government argued that a non-profit misrepresented its payroll costs in its PPP loan application, receipt, and cancellation. The non-profit organization resolved the FCA issue with the US Department of Justice by agreeing to pay $86,676 to the lender and $86,676 to the government.
These first two FCA cases will pave the way for a myriad of other federal civil investigations and prosecutions against both individuals and organizations for alleged PPP fraud. These investigations and charges can be brought under the False Claims Act. A deluge of FCA cases for PPP fraud against individuals and organizations is projected to be filed beginning in 2023 and continuing beyond that year.
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PPP (Payroll Protection Program)
In March of 2020, the United States Congress passed the Corona Virus Assistance, Relief, and Economic Security (CARES) Act. The purpose of this act was to provide emergency financial assistance to the millions of Americans who were suffering from the economic repercussions of the COVID-19 pandemic. CARES was an acronym for the following: coronavirus assistance, relief, and economic security.
During the COVID-19 crisis, the CARES Act established the PPP, which is now run by the SBA, to aid businesses in sustaining their workforces. Payroll expenses, mortgage interest, rent, and utility bills are all eligible for PPP loans, which are made available to qualified businesses through the PPP. The PPP grants businesses the ability to have their loan principal and interest forgiven if the business spends the loan proceeds on certain expenses within a certain time frame and uses a certain percentage of the loan for payroll expenses.
Federal Actions Against PPP Fraud
The United States Department of Justice created the COVID-19 Fraud Enforcement Task Force with the intention of investigating and prosecuting those responsible for PPP fraud. If somebody commits fraud related to the PPP, the federal government may punish them in one of three ways: criminally, civilly, or administratively. As of September 14, 2022, the United States Department of Justice has brought criminal charges against more than 1,500 individuals for the alleged theft of more than $1.1 billion from the COVID-19 relief fund.
The United States Department of Justice has taken control of nearly $1.2 billion in funds designated for disaster relief. In addition, the United States Department of Justice has opened up civil investigations into more than 1,800 different people and organizations for the possible misuse of more than $6 billion in COVID-19 relief fund money.
Beginning in 2021, the US Department of Justice initiated criminal investigations and prosecutions of people and businesses who cheated the PPP. Today, the US Department of Justice is broadening its enforcement activities to include FCA civil charges. If a federal court deems an individual personally accountable for fraud, the FCA permits the court to enter a civil judgment equal to three times the amount of the PPP money and assess civil penalties against the accused.
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Inquiries by the Federal Government into PPP Fraud
How does the government determine whether or not to investigate a person or business for possible PPP fraud? The government receives referrals from a wide variety of sources, any one of which may set off an investigation by the federal government. Some of these sources are as follows:
Divorce
Probate
Bank Loan Application
Personal injury lawsuit
Employee Background Check
Competitor
Consultant
Bankruptcy
Tax Audit
Sale or Purchase of Company
Employee Application
Employment Discrimination Lawsuit
Former Employee
Data Mining
According to the FCA, the federal government has the authority to investigate and bring criminal charges against current or former business owners, corporate leaders, and managers for alleged PPP fraud. A referral might be used as the starting point for these investigations and prosecutions.
These individuals should consult with both an accountant and an attorney in order to ensure that their company’s PPP loan application, expenditure, and forgiveness are in conformity with the regulations that have been established by the federal government in reference to PPP loans. If these companies and people take precautionary actions right now, it may help them better prepare for the prospect of the government conducting an investigation or bringing charges against them.
In the event that it becomes required, Clark Hill is ready to assist both private individuals and commercial enterprises in meeting the requirements of the federal PPP legislation and in preparing for and defending themselves against investigations or charges filed against them by the government.
For more articles NFL Player Josh Bellamy charged for involvement in $24M PPP Loan Scam
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