Enforcement by the DOJ Related to PPP Loans
It didn’t take long for the Department of Justice (DOJ) to file its first charges for abuse of the Payroll Protection Program (PPP) under the CARES Act. Two New England businessmen were charged on May 5, 2020, with conspiracy to make false statements to influence the Small Business Administration (SBA) and conspiracy to commit bank fraud. The men allegedly submitted fraudulent PPP borrower applications, claiming to “have dozens of employees earning wages at four different business entities when, in fact, there were no employees working for any of the businesses,” the Justice Department said.1 The men applied for over $500,000 in PPP funding but were stopped short of obtaining PPP loans thanks, in part, to a tip from local police.
While this example appears to be a flagrant attempt to defraud a government program, it should serve as a warning to others that the DOJ is aggressively investigating and prosecuting crimes related to the relief programs established under the CARES Act. See SBA Part Eight for additional information on enforcement risks.
All businesses who have applied for a PPP loan should take steps to ensure that the certifications and representations in those applications are truthful and that the funds are “necessary to support the ongoing operations of the applicant.” The SBA and the Treasury Department have provided guidance and clarifications as to the meaning of this standard. See SBA Part Nine and Part Ten.
Understanding what this guidance means for your business is critical because if the SBA determines a company did not certify eligibility in good faith, the company could be charged criminally under the federal False Claims Act (FCA)2 or False Statements Act.3 Criminal liability for fraud requires proof of the wrongdoer’s specific intent. However under the civil FCA,4 which allows for the recovery of civil penalties and treble damages, there is no specific intent requirement. The FCA imposes liability on those who “knowingly” submit false claims or statements. “Knowingly” includes actual knowledge, an act in deliberate ignorance of the truth, or an act in reckless disregard of the truth.5 This means that a person has knowledge sufficient for FCA liability if they knew or should have known the truth.
The risks associated with the provision of false or misleading information to the government should be taken seriously, and in turn companies should ensure that the information they have provided was made in good faith and can be substantiated.
For best practices in avoiding these risks see SBA Part Ten and contact a member of our SBA Task Force at SBATaskForce@taftlaw.com, or your Taft relationship attorney to obtain help with this review and fact sensitive analysis.
If your company determines that it should not have applied for or received funding under the PPP, the government’s safe harbor period has been extended to May 14, 2020. See SBA Part Ten.
Please visit our COVID-19 Toolkit for all of Taft’s updates on the coronavirus.
218 U.S.C. § 1031. Fraud against the United States, including the receipt of money from the government under false or fraudulent representations, is punishable by fine, imprisonment of up to ten years, or both.
318 U.S.C. § 1001. False statements may be punished by fines, imprisonment for no more than five years, or both.
431 U.S.C. § 3729.
5Id. at § 3729(b) (emphasis added)
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