Prosecuting PPP Fraud May Be Harder Than It Seems

By Christopher M. Ferguson
Law.com
May 12, 2020 

Once the May 14 deadline for arguably undeserving recipients of PPP loans to return the funds "no questions asked" has passed, the government will no doubt seek to make examples of undeserving PPP loan recipients.

For anyone following developments in the massive small business stimulus program known as the Payroll Protection Program (PPP), May 14 is an important date. That is the deadline imposed by the Treasury Department and Small Business Administration (SBA) for arguably undeserving recipients of PPP loans to return the funds “no questions asked.” According to Treasury Secretary Mnuchin, the IRS and SBA will be auditing all loans in excess of $2 million and will be prosecuting instances of fraud. Secretary Mnuchin has also indicated that further guidance will be forthcoming to clarify, and likely limit, the criteria the government will use to determine who is deserving (and not deserving) of the loans.

Once the May 14 deadline has passed, the government will no doubt seek to make examples of undeserving PPP loan recipients. The government has a number of tools in its arsenal for doing so. Indeed, the first criminal fraud charges stemming from the PPP program have already been brought in the District of Rhode Island in U.S. v. Staveley, 1:20MJ34LDA (D. RI). That appears to have been a clear case of fraud involving phantom employees for several businesses, at least one of which the defendants did not even own. The more difficult, and likely more common, case arises from those borrowers who otherwise would be eligible under the PPP but whose economic need for the loan may be questionable. This article discusses what tools the government has for pursuing seemingly undeserving PPP borrowers, the obstacles to bringing such cases, and the factors that may influence the government’s decision in pursuing criminal or civil cases.

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