The chase of PPP fraud is on

When the federal government raced to release more than $2.2 trillion in coronavirus aid earlier this year, it did so knowing that some of that money would go to fraudulent claims.

With the money needed immediately by struggling businesses and workers, the government could not efficiently control fraud on the front end, so it was willing to pay invalid claims knowing it will chase the money through aggressive civil and criminal enforcement actions, a practice called “pay and chase.”

While the federal government chasing fraud is nothing new, never has the chase involved so much money, paid out to so many, in such a short period of time. And complicating matters is that PPP recipients by their nature, are small businesses, not the highly-regulated industries used to receiving federal aid.

Government officials believe a significant portion of the $2.2 Trillion was obtained through fraud and are acting accordingly. We are starting to see the first Paycheck Protection Program prosecutions, and the Department of Justice is gearing up for enforcement actions. Attorney General Barr has directed every United States Attorney’s Office to focus on detecting, investigating, and prosecuting all criminal activity related to the COVID-19 pandemic. Here in South Carolina, U.S. Attorney Peter McCoy has created a multi-agency task force to root out PPP fraud.

Although impossible to predict the exact contours of the coming enforcement actions, we are beginning to see patterns in the charging decisions:

• There is a complex statutory and regulatory framework directly applicable to SBA Fraud. Knowingly submitting a false claim to the Small Business Administration, which administered PPP carries up to 2 years in prison and a $5,000 fine. Prosecutors also can charge for making a false statement to the government or to a financial institution, which carry up to 5 years and 30 years respectively.
• The government can go after cases in which no money actually changed hands. Even conspiracy to defraud charges carry the risk of significant prison time. The primary driver for sentencing in these PPP fraud cases, absent extreme circumstances, will be the amount of money applied for in the fraudulent loans.
• Criminal liability will be around for a long time. Due to the fact that PPP fraud will almost always involve a financial institution, federal prosecutors can charge crimes with 10-year statutes of limitation. This means PPP criminal liability will be out there until 2030.

People or businesses that find themselves a subject or target of a PPP or Cares Act fraud investigation should immediately retain a criminal defense attorney who focuses on white-collar crimes. Not only should the attorney be well-versed with the complex legal framework for PPP fraud cases, but it will also help if the attorney understands how the government intends to enforce it.