SBA-OIG Investigations Relating to PPP Loan Fraud

Small Business Administration Office of Inspector General and PPP Scrutiny

As the Small Business Administration Office of Inspector General (SBA-OIG) targets companies accused of fraud in the Paycheck Protection Program (PPP), some recipients wonder if the scrutiny outweighs the benefits of the loans. Recipients hoping for loan forgiveness must respond to inquiries from the federal government to defend against loan fraud.

Investigative Measures of the SBA-OIG

Two investigative arms of the SBA-OIG currently target company officers, owners, and board members with intrusive questioning. While the Investigations Division focuses on identifying and prosecuting anyone suspected of obtaining PPP taxpayer funds fraudulently, the Auditing Division conducts audits of recipients of $2 million or more.

Understanding the Intent of the SBA-OIG

The SBA-OIG Investigations Division’s review of companies’ loan applications focuses on detecting signs of fraud in eligibility misrepresentations, the use of funds, and loan forgiveness certifications under the CARES Act. If your company becomes a target, the Investigation Division can identify certain acts, misrepresentations, and omissions as indicators of PPP loan fraud. In addition, the Department of Justice (DOJ) may use SBA-OIG evidence as a basis for other charges.

Knowing What to Expect

Allegations that companies may face due to the SBA-OIG PPP fraudulent loan investigations include eight areas of interest.

1. Fraudulent Loan Application

An error on the Borrower Application Form can invite scrutiny by the SBA-OIG. The form requires an affirmation that a company qualifies as a small business under the Small Business Act and meets specific standards.

2. Illegal or Unauthorized Use of Funds

PPP terms require limiting funds to payroll, interest, and rent according to previously established conditions. In addition, a statement from the Treasury Department indicates that the fraudulent use of PPP loan proceeds can allow the government to pursue criminal charges.

3. Fraudulent Certification of PPP Loan Forgiveness

The forgiveness of a PPP loan requires a company to certify the use of funds for authorized purposes. When the SBA determines that a company did not meet the PPP requirement, it can seek repayment of the outstanding loan balance and notify lenders that a borrower has no eligibility for loan forgiveness.

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4. Federal Bank Fraud

Since private lenders provided funds for PPP loans, companies can face the risk of facing prosecution for bank fraud. A combination of penalties may require as much as $1,000,000, imprisonment of up to 30 years, or both.

5. Wire Fraud

The alleged improper use or receipt of PPP loan funds has produced charges of wire fraud by the DOJ, a federal crime that can carry statutory fines and federal imprisonment of up to 20 years.

6. False or Misleading Information

Penalties for misrepresenting information to the SBA-OIG can require company officers, owners, board members, and others to face a fine of $250,000 and up to five years in prison. Further, the DOJ may pursue charges as well.

7. Tax Evasion/Fraud

Allegations of tax fraud and evasion may result from payroll misrepresentations that companies used to establish loan eligibility. The Internal Revenue Service imposes restrictions on expenses that qualify as deductions. Evidence of tax fraud or evasion may provide a basis for examination by IRS Criminal Investigations.

8. Federal Identity Theft

Fraudulent claims of company ownership may require individuals to face charges of federal identity theft. Anyone claiming ownership of a company that filed PPP loan applications may need to provide proof if an investigation occurs.

Using Caution in Asserting Defenses

Companies and individuals targeted by the SBA-OIG may need to exercise care in asserting a defense that protects against liability for fraud. The exposure may lead to prosecution for conspiracy. Both federal crimes impose significant fines and imprisonment. The SBA-OIG relies on PPP lender response to subpoenas, input from whistleblowers, and loan recipients.

Anticipating the Need for Loan Fraud Defense

Any evidence indicating your company participated in any fraud related to the PPP increases the likelihood that SBA-OIG or another federal agency may start an investigation.

Contact Spodek

At Spodek, our federal defense attorneys represent companies across the country. We bring you more than a hundred years of combined experience in solving problems. If you have concerns about PPP loan fraud audits or investigations, call us at 888-966-9338 or go online to schedule a free consultation.