Reporting Paycheck Protection Program (PPP) Fraud

The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was passed to deal with the unprecedented impact of the novel Coronavirus (COVID-19). The Paycheck Protection Program (PPP) is one of the most important provisions of the CARES Act, providing much-needed support to small businesses across the country in the form of extremely favorable loans that can even be forgiven based on compliance with the Program.

At the time of this writing, the Small Business Administration (SBA) has distributed billions of dollars in PPP funds to millions of businesses in just a matter of months. However, the necessity to distribute so much money so quickly has led some unscrupulous individuals to attempt to take advantage of the situation and perpetuate fraud.

What Can Constitute PPP Fraud?

The Department of Justice (DOJ) has already commenced pursuing criminal charges against the most egregious cases of PPP fraud, including:

  • Fraudulent Applications: Two Rhode Island businessmen were the first in the nation to be charged for PPP fraud after applying for nearly half a million dollars in loans for a business that had closed before COVID-19 as well as another business that they did not even own.
  • Misuse of Funds: A reality TV star was arrested on fraud charges after using more than $1.5 million in PPP funds on personal expenses including jewelry, child support payments, and even a Rolls-Royce.

Not all cases of PPP fraud will be this blatant. Situations involving smaller amounts or more sophisticated wrongdoers will likely be both more commonplace and more difficult to combat. Further, PPP fraud is likely to be far from a rarity—officials in the banking industry have estimated that fraud rates in the $660 billion program could be as high as 10% to 12%.

In more difficult cases, the False Claims Act (FCA) represents an important tool for the Government to combat fraud and recover misappropriated funds. Unlike the criminal charges brought in the cases above, the primary purpose of the FCA is to recover damages from those who have defrauded the Government.

Notably, the FCA contains a qui tam provision allowing “relators” (more commonly referred to as “whistleblowers”) to file claims on behalf of the Government and potentially receive a portion of the damages recovered from the wrongdoers. This portion can range from 15% to 30% of damages recovered based on the whistleblower’s case. The FCA also protects whistleblowers from potential retaliation by their employers.

Whistleblowers bringing FCA claims will be important for stopping various forms of PPP fraud, such as:

  • “Stacking”: This occurs when a single business applies for multiple PPP loans and receives more funds than it is actually eligible for.
  • Fraudulent Applications: This refers not only to providing incorrect information on applications but also failing to make the required certifications in good faith. Applying businesses must certify that they have fewer than 500 employees, that the PPP loan proceeds will be used for payroll and other permissible business purposes, and that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.” These certifications must be taken seriously to ensure that the limited funds are reaching businesses impacted by COVID-19 the most.
  • Misuse of Funds: PPP funds are required to be used for payroll and other permissible business purposes, the latter of which includes items like payment of mortgage interest, rent payments on lease agreements, or utility payments under agreements made before COVID-19. Use of PPP funds on other items (like large bonuses or Rolls-Royce automobiles) or mortgage/lease/utility agreements made after February 2020 would be fraudulent uses of PPP funds.
  • Fraudulently Seeking Loan Forgiveness: The SBA will forgive loans that comply with the PPP regulations. Businesses that do not fully meet the forgiveness requirements will be eligible for partial loan forgiveness and the balance converted to a loan on favorable terms. To receive loan forgiveness, however, employers must use 60% of their PPP funds for payroll expenses, maintain employee headcount and salaries, rehire any furloughed employees, and use no more than $100,000 of annual pay per employee.

While the SBA has announced plans to audit all PPP loans greater than $2 million, two important facts remain noteworthy. First, most PPP loans fall far short of that mark, with the average PPP loan standing at $112,562 at the time of writing. Second, the limited audit capacity of the SBA means it will take time to discover even large-scale fraud in some situations.

In either case, if you know that your company is using PPP funds in a fraudulent manner, your input as a whistleblower could be vital. Because these funds are limited and only available on a first-come, first-served basis, the information you provide could be necessary to recover funds for a business truly in need in this ongoing crisis.

How We Can Help

If you have witnessed your employer commit PPP fraud and wish to pursue a whistleblower claim, contact Montgomery Ponder, LLC. You may be entitled to recover a significant monetary reward for your claim. Our attorneys will help you meet the requirements set by the FCA for receiving such an award and protection from potential retaliation by your employer in the future.

Contact our Birmingham insurance denials attorneys at (205) 377-5004 for a free consultation and review of your insurance policy whistleblower claim.

1 https://www.justice.gov/opa/pr/two-charged-rhode-island-stimulus-fraud

2 https://www.justice.gov/opa/pr/reality-tv-personality-charged-bank-fraud

3 https://www.americanbanker.com/news/bankers-fear-massive-borrower-fraud-in-ppp

4 https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program