Federal Defense

PPP Loan Fraud in South Carolina

The federal government has prioritized aggressively investigating and prosecuting activities related to the Paycheck Protection Plan (PPP) and the money it made available to businesses.

With the emergence of the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was created to help people and businesses affected by the pandemic. A significant part of the CARES Act was the Paycheck Protection Program (PPP). This Program provides financial relief, that is, money, to small businesses that have not received their regular business revenue due to the COVID-19 pandemic and the resulting slowdown of business many experienced. 

Given the drastic slowdown in business the COVID-19 pandemic created, and the need businesses had for immediate relief, the government gave out funds liberally. Any time a federal program, like the PPP, offers money there are concerns about fraud and individuals either obtaining money when they are not entitled to it or misusing the money once they get it. This has been especially true of PPP funds. In response to valid concerns about the risk of fraudulent activity related to PPP, the United States Department of Justice launched a comprehensive federal task force designed to identify PPP loan fraud and pursue criminal charges against anyone defrauding the program. That task force has been in full operation since 2019 and continues today, with a task force operating in South Carolina.

As a result, PPP loan fraud investigations and prosecutions are common across the United States and South Carolina. Federal prosecutors and law enforcement from various federal agencies actively investigate potential PPP loan fraud in South Carolina and other CARES Act violations. This task force is aggressive and well-coordinated, and any individual or business that the task force is investigating needs the help of experienced counsel.  

PPP Loan Fraud Investigations

PPP loan fraud occurs when a person or business submits false statements or information on an application for a PPP loan or misuses the PPP funds once they are obtained. As noted above, the PPP was created to help companies stay in business during the coronavirus pandemic. The program gave them forgivable loans to cover their payroll and operating expenses. A business may apply for a PPP loan through a commercial bank as long as they are eligible. If a company is approved and acquires a PPP loan, it must follow specific guidelines on how it can spend the funds it just received from the government.

Whenever the government offers money, fraudulent activity usually follows. Federal investigators have diligently reviewed PPP loans, applications for the loans, and how PPP money was used once businesses and individuals obtained it. The purpose of an initial PPP loan fraud investigation is to determine whether any false statements were made in a PPP loan application, if the funds were used appropriately and, based on this, whether criminal charges should be pursued for violations of the requirements of the Paycheck Protection Program.

Typically, federal prosecutors and agents will target a person or business that violated the terms and conditions of the PPP program by doing any of the following:

• submitting false or fraudulent information on a PPP loan application,

• making applications for a PPP loan from several lenders (loan stacking),

• submitting fraudulent loan certification,

• using PPP funds for an unapproved purpose (such as their personal use instead of business use),

• lying to federal agents during a PPP loan fraud audit.

PPP Loan Application Fraud

One of the most common places PPP fraud occurs is in the application for PPP funds. Individuals and businesses must be honest in filling out any PPP loan application, and misrepresentations or lies in the application can result in criminal charges. 

Common misrepresentations on PPP loan applications include the following: 

• number of employees;

• misclassification of employees as independent contractors;

• misrepresenting that they met the small business eligibility standard;

• misrepresenting the company's payroll cost to increase the loan.

Federal Statues Used to Prosecute PPP Loan Fraud

Anyone who is charged with loan fraud could face criminal and civil penalties. While there is not a specific federal statute for PPP loan fraud, several federal statutes address the use of false statements to obtain something of value. The most commonly used federal states are

• 18 USC 1343, Wire Fraud. Wire Fraud occurs when an individual or business has the scheme to obtain money or other things of value through false statements, and the method includes electronic wire transactions. Electronic wire transactions include the internet, email, or cell phones so that they will cover all PPP loans. 

• 18 USC 1344, Bank Fraud. This occurs when material, false statements are made to a bank to obtain money. Since PPP loans involve banks, this statute often applies to PPP fraud cases.  

• 18 USC 1014, False Statements. This law makes it a crime for any person to knowingly make a false or misleading statement on any federally backed or provided loan program and applies to PPP loans.

• 18 USC 1349, Conspiracy. This statute makes it a federal crime to agree with others to violate federal law, including the above statutes. It is a standard charge where more than one person has a scheme to commit PPP loan fraud. 

Responding to a PPP Loan Fraud Investigation

Individuals being investigated for PPP fraud often do not find out about the investigation until it is well underway (if at all). The first indication that an investigation is being conducted is a request for an interview by federal investigators. Anyone a federal investigator contacts to discuss a PPP loan should be cautious and speak to an experienced attorney. Making a false statement to a federal agent can result in federal obstruction or false statement charges. Individuals also need to be prepared if they do choose to talk to investigators. Even those who have nothing to hide can give incomplete statements that lead to confusion and the impression that the individual has something to hide. Investigators will also often request documents, and an individual or business can fully prepare these documents, and for any likely issues that investigators will discuss, by consulting and preparing with an experienced attorney who knows what investigators are usually looking for. While the agents may be friendly and cooperative, and an individual’s instinct will be to help, it is essential to be thorough at this point and consult with an experienced attorney before meeting with investigators. 

An experienced attorney can help an individual or business deal with other potential aspects of a federal PPP loan fraud investigation. This can include having bank accounts frozen, seeking to negotiate with any affected bank, collecting documents and information needed to be fully responsive to any federal investigation request, and advising business employees of what the investigation may include in case investigators contact them. 

How Our Office Works for the Best Outcome

Once you hire the Law Offices of Nathan S. Williams, we will contact the federal law enforcement investigators or the prosecutor assigned to your case. We will gather all the crucial information, such as all the evidence the government has against you, along with your relevant documentation to review whether you have a strong defense against the fraud accusations. We can then negotiate with the federal prosecutor or agents and may be able to provide them with useful unknown information that can help you.

In many cases, we might be able to work out a resolution that doesn't involve filing formal criminal charges. Negotiation is still possible if charges have already been filed against you and we are prepared to fight the case in court. If you were contacted about a PPP loan fraud investigation, we could help you, but first, we need to review your case’s details. Critical factors in PPP fraud cases include whether:

• You had a good faith belief that you were entitled to the PPP loan

• You used the PPP loan proceeds for legitimate business purposes

• You did not make any false statements when applying for the PPP loan

• The government can prove that you intended to defraud them

• You used the PPP loan funds by guidelines set forth by the government

• The PPP loan application was filed by someone else without your knowledge or consent

PPP fraud charges can result in significant penalties, including up to 30 years in prison and a fine of up to $1 million. PPP fraud charges are severe and can have a lasting impact on your life, so do not hesitate to seek legal help if you face these allegations. Nathan S. Williams is a former federal prosecutor who supervised PPP Loan Fraud cases in South Carolina. He also prosecuted them, and since leaving the federal government and starting his boutique law firm, has represented individuals being investigated for PPP loan fraud by the FBI and Department of Justice. If you are in a similar situation, contact Nathan for a free consultation at (843) 473-7000.