According to court documents, the defendants submitted or aided in submitting lend applications on behalf of a twelve or more businesses that sought funding worth $ 800,000 each .
The charge individuals certified that the businesses were in operation as of February 15, 2020 ; that they had employees on their payroll ; that they had paid the want payroll taxes ; that the fund would go towards maintaining the payroll, retaining employees, making lease or mortgage pastime payments, and paying for utilities ; that the information provided in their applications was true. As it turns out, it was not .
What constitutes PPP loan imposter ? What is the penalty ? How can you report it ? here ’ second everything you need to know.
What Is the Paycheck Protection Program
The PPP is a loanword program born out of the Coronavirus Aid, Relief, and Economic Security ( CARES ) Act. Initially worth $ 350 billion, CARES was intended to provide cash flow aid to american businesses for eight weeks. In April 2020, the Paycheck Protection Program and Health Care Enactment Act expanded the course of study, injecting an extra $ 310 billion worth of financing .
The PPP Flexibility Act was former enacted to make some critical amendments to the original legislation. It gave individuals and businesses more time to spend the funds and made it easier to get the loans forgiven .
In December 2020, Congress enacted a moment stimulation package that added $ 285 billion worth of fund to the PPP. Businesses that had exhausted funds from the initial Paycheck Protection Program loan they had obtained or experienced a decrease in gross amounting to 25 % or more could besides apply for another cycle of fund .
On May 4, 2021, the Small Business Administration ( SBA ) stopped accepting PPP loan applications. however, any lender designated as a Community Financial Institution ( CFI ) may calm access fund .
Loan Eligibility Criteria
Unlike SBA economic injury catastrophe loans, PPP loans are far-reaching. modest businesses, independent contractors, sole proprietorships, and freelance individuals can all apply for financing .
- Independent contractors are required to fill and submit Form 1099-MISC alongside Schedule C from their tax return showing their net earnings
- Sole proprietors also need to fill and submit Schedule C
- Self-employed individuals need to submit their payroll tax filings as reported to the IRS
Businesses need to show a gross reduction of 25 % or more to qualify for the second round of PPP fund. To demonstrate this, you would need to compare the tax income earned in any quarter in 2020 against the gross earned during a similar period in the previous year .
What PPP Loans Can Be Used For
According to the federal guidelines, 60 % of the loanword must fund payroll costs and employee benefits .
Under the PPP, payroll costs include:
- Salaries, wages, bonuses, tips, and commissions, capped at $100,000 per annum per employee
- Employee allowances including sick leave, medical, family, parental, and vacation pay
- Insurance premiums and retirement benefits
- Local and state taxes assessed on compensation
- For sole proprietors or independent contractors, net earnings, income, commissions, or wages capped at $100,000 per annum per employee
Here’s what’s not covered:
- Payments to independent contractors
- Payments to C-corporation and S-corporation owners who are not on the payroll, such as payments to shareholders
The remaining 40% of the PPP loan can be spent on:
- Lease and rent payments
- Mortgage interest payments
- Operational expenditure such as accounting and software requirements
- Property damage not covered by insurance resulting from public disturbances
- Supplier costs
- Utility payments
- Worker protection expenditure related to COVID compliance
Adhering to these guidelines allows businesses to have the full respect of the PPP loanword forgive, basically transforming it into a tax-exempt grant. As contribution of the application summons, applicants are asked to certify that they will spend the funds appropriately for their mean purposes. The embezzlement of these funds is equivalent to PPP loan fraud .
The Loan Application Process
Keep in beware that the SBA itself doesn ’ metric ton lend businesses the money they need. They merely back the loanword provided by the lender .
Part of the PPP loan application process requires businesses and individuals to verify the following:
- That the existing economic uncertainty makes it necessary to acquire a loan to support the business’ ongoing operations
- That the funds will go towards maintaining the payroll, retaining workers, or making lease, mortgage interest, and utility payments
- Documentation that indicates the number of full-time salaried staff or equivalent working in the business, payroll costs in dollar amounts, covered rent or lease payments, covered mortgage interest payments, and covered utilities for the 24 weeks after obtaining the loan
- An acknowledgment that the lender will calculate the loan amount the business qualifies for using the tax documentation submitted along with the application
- An affirmation that the tax documents submitted along with the application are identical to those submitted to the IRS
- That the business or individual has used up all the funds they received in the first PPP loan if they’re applying for a second round of funding
Businesses or individuals are required to provide bookkeeping/payroll records in confirm of the payroll expenses listed. That could include payroll tax filings, processor records, tax forms ( Forms 940, 941, and W-3 ) from 2019 or 2020, Schedule C for sole proprietorships, and Form 1099-MISC records .
What Is PPP Loan Fraud
so far, we ’ ve looked at the PPP loan requirements, the software documentation required, and guidelines on what the loan can be used for. If a business or individual submits false or inaccurate information or documentation in their application or certification, it constitutes PPP loan fraud. even if a clientele meets the eligibility criteria but fails to abide by the predefined limits and requirements on how it can use those funds, it is besides considered lend fraud .
A PPP loanword fraud investigation will ultimately determine whether an person will be charged with violating one or more of the guidelines provided in the platform .
A violation includes, but is not limited to:
- Applying for loan forgiveness by submitting a false certification
- Being deceitful to agents during a PPP loan investigation or audit
- Loan stacking – applying for multiple PPP loans from different lenders
- Making false statements on the loan application
- Using the loan funds for unauthorized or improper use
PPP Loan Fraud Penalty
An individual charge with PPP loanword fraud faces serious civil and criminal penalties. While a single loan fraud case may involve several criminal laws, a brief overview of the most common charges and their respective penalties is below.
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This invokes 18 USC Sec. 1343 and involves using the telephone or internet to defraud another party by making faithlessly promises or statements. The punishment depends on the total steal money and could be up to 20 years behind bars .
This invokes 18 USC Sec. 1344 and is similar to wire fraud, lone that in this case, it involves making delusive statements to a fiscal institution such as a deposit. An individual found guilty of depository financial institution fraud could face a imprison term of up to 30 years .
False Statements to a Financial Institution
This invokes 18 USC Sec. 1014 and makes it a federal crime to lie to a fiscal institution such as a savings bank. This involves providing false statements on a lend application form or falsify documents submitted to a bank to qualify for a loan. Any individual found guilty of violating this law faces up to 30 years behind bars .
Conspiracy to Commit Fraud
This invokes 18 USC Sec. 1349. The law makes it a criminal crime to collude with others in violating or attempting to violate federal fraud laws, whether or not the individual in interview actually obtains money, falsifies documents, or makes any false affirmation .
The penalty depends on the fraud crime the individual conspired to commit. For case, a conviction for conspiracy to commit electrify fraud carries a jail sentence of up to 20 years, while conspiracy to commit depository financial institution imposter carries a maximum jail terminus of 30 years .
How to Report PPP Loan Fraud
A business or an individual that engages in PPP lend fraud is in irreverence of the 1863 False Claims Act. The law was created to deter individuals from committing acts of imposter against the politics and encourage people to report said deceitful activities. The Act incentivizes individual citizens to report instances of imposter committed against the government in what is popularly known as “ qui tam ” action .
The doctrine allows a False Claims Act whistle blower with evidence of imposter to bring a civil become against an organization or individual and receive a share of the recovery amount. The precise sum that they can recover depends on whether the politics intervenes in the suit .
The provisions of the Financial Institutions Reform, Recovery, and Enforcement Act allow the Attorney General to sue for fraud in cases that involve federally insured fiscal institutions. A FIRREA whistle blower can receive up to $ 1.6 million for information on PPP violations that result in the successful recovery of steal funds .
Whistleblower protection laws besides protect employees who report PPP loan imposter against retaliatory action by their employers. This means they can not be terminated, demoted, or harassed for PPP whistleblowing to expose their employer ’ sulfur deceitful undertakings against the government .
PPP fraud denies eligible little enterprises of the fund they need to keep their businesses afloat. With that in thinker, the US Department of Justice ( DOJ ) has instituted a policy dubbed “ See something, say something ” to help them identify instances of PPP imposter .
To report PPP loan fraud and economic injury disaster loan fraud, you can:
- Call the National Center for Disaster Fraud Hotline: 1-866-720-5721
- Fill the web complaint form on the DOJ website
- File a complaint with the SBA Inspector General Office
PPP Loan Fraud Red Flags
If you ’ re a company circuit board extremity, executive, or owner, you will be personally liable if your caller is found guilty of flouting any of the PPP rules and restrictions. To avoid the stiff penalties that come with a PPP loanword rape, below are five red flags to keep an eye out for during an inner complaisance audit .
1. Insufficient Documentation Substantiating the Loan Application
federal investigators don ’ t just assess the lend recipient role ’ s eligibility ; they besides check that the representations made in the lotion can be substantiated. For example, under the PPP terms, a company should :
- Apply for the loan because it is “necessary” given the precarious economic climate
- Be eligible to participate in SBA programs, meaning no single shareholder has more than 20% interest, nor have they been convicted of a federal felony in the last five years
- Have less than 500 employees to qualify as a small business
2. Multiple Loan Applications to Different Lenders
The CARES Act only allows companies to obtain a single PPP lend from a single lender at a clock. Obtaining or attempting to obtain multiple loans is illegal. even if the company received only one lend, the fact that they submitted multiple applications could lead to criminal pursuance .
3. No Documented PPP Compliance Policies and Procedures
not having documented policies and procedures to ensure ongoing complaisance to PPP requirements is a red masthead in imposter investigations and audits. Companies need to adhere to the CARES Act guidelines on how to use the funds and be able to account for expenditures .
4. Insufficient Documentation of Loan Expenditure
Like the complaisance course of study, companies need to have solid software documentation that demonstrates they used the PPP loanword for authorize purposes entirely. More frequently than not, this goes beyond simply keeping a record of transactions. Doing then makes it difficult to defend against PPP loanword fraud allegations .
5. Use of Loan Proceeds for Personal Expenses
The CARES Act explicitly prohibits the use of PPP lend funds for personal expenses. The credit line between business and personal expenditures can frequently get blurred. This opens you up to the risk of pursuance.
For exemplify, in cases where home-office expenses, vehicles, and travel-related consumption, are involved, there needs to be a clear-cut line between the two .
Do you know anyone who may be committing PPP lend fraud ? Chat online with a Laws101 lawyer now .