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The Most Common Pitfalls That Result in Fraud Charges for PPP and SBA Loan Applicants

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There have been a number of fraud prosecutions connected to the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), which was designed to provide relief to businesses suffering during the pandemic, including here in New York, and evidence indicates that the Department of Justice and federal prosecutors are getting ready to bring more. The purpose of the program was to help small businesses keep employees on the payroll, as well as cover other expenses, such as utilities.

However, making what is considered to be a false statement on the application form can subject applicants to significant federal criminal liability, such as:

  • Five years’ imprisonment and/or a $250,000 fine for making a false statement
  • Two years’ imprisonment and/or a $5,000 fine for making a false statement to the SBA, specifically
  • 30 years’ imprisonment and/or a $1,000,000 fine for making false statements to a federally insured institution (i.e. most-all banks)
  • 20 years’ imprisonment and a $250,000 fine for mail and wire fraud and 30 years’ imprisonment and a $250,000 fine for bank fraud for making false statements in a PPP application

As a result, working with an attorney in order to ensure that you are protected from criminal and civil liability during the application process is highly advisable, as it can help any business that comes under scrutiny to declare that any mistakes made on their application were made in good faith after engaging in due diligence as opposed to purposely misrepresenting any facts. Below, we discuss some of the most common areas where federal prosecutors have taken issue with these applications, and why:

Ownership

Note that you must disclose any entity that has 20 percent or more equity in the business and businesses located in foreign countries are not eligible to apply. In addition, although there has been significant public backlash over this issue, the program requires that certain past and present criminal histories for any owners must be disclosed, as convictions for certain crimes can end up disqualifying the business for a loan.

Size of Business

Businesses must also be careful in how they report the total number of employees on the application. This includes how they have chosen to classify their employees in reporting these numbers (for example, in deciding not to count certain individuals because they are classified as “independent contractors” instead of “employees”). Also note that all applicants must qualify under section 3 of the Small Business Act and employees of any and all affiliates must be included in reporting the business’ size, as well as those who work part-time and on a temporary basis.

Certification

Before submitting the application, applicants must certify that the loan they are applying for it is necessary in order to “support ongoing operations.” There isn’t a lot of detail provided as to what exactly this means, however, in order to engage in due diligence, it is advisable for the business to run both the application and the company’s financials by the board of directors so that the full weight of the company’s support is behind the application in this regard.

If You Have Questions About Avoiding Fraud Charges, Contact Us Today

If you have any questions about criminal liability when it comes to fraud or other financial white collar federal crimes, including questions related to the PPP and SBA loan program, contact experienced New York criminal defense attorney Phillip J. Murphy for a free consultation.

 

Resource:

nbcnewyork.com/news/local/crime-and-courts/nyc-man-busted-for-20m-scheme-to-obtain-loans-meant-to-help-small-businesses-feds/2426987/

https://www.phillipmurphylawyer.com/the-permanent-collateral-consequences-of-having-a-criminal-record-in-new-york/

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Phillip J. Murphy,
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Phillip J. Murphy, Attorney At Law is located in New City, New York and serves clients in and around New York, New Jersey & Connecticut. Contact our experienced criminal defense law firm.
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