As Feds Ramp Up CARES Act/PPP Fraud Investigation, Physicians and Healthcare Professionals Need to Be Prepared

Large Ring Binders of medicaid audit defense laws that Chapman Law Group health care fraud defense attorneys reference.

To survive in the wake of COVID-19, many small businesses, including healthcare practices, relied on paycheck protection program loans (PPP). These emergency loans, for which up to $10 million could be borrowed, were relatively easy to apply for and receive.

What many business owners across the U.S.  did not realize, however, is that there are significant government strings attached to those dollars, and violations of the PPP conditions could land you in the crosshairs of federal prosecutors. Federal agencies are training and preparing for a wave of PPP cases, with Attorney General Barr issuing a directive to U.S. Attorneys to make PPP fraud a priority.

Here at Chapman Law Group, our White Collar and Government Investigations attorneys have assisted hundreds of small business owners facing investigation for PPP fraud, financial fraud, healthcare fraud, wire fraud, and money laundering. We are ready to put our national experience to work for you to advise you and defend you from PPP fraud allegations.

These are what you need to know about PPP fraud, the means that the government is using to prosecute it, and what you can do to makes sure your practice is safe.

What is the Paycheck Protection Program?

The CARES Act, which was signed into law on March 27, 2020, provided over $2 trillion to assist businesses and workers during COVID-19. Part of that act was authorization for the PPP to begin funneling funds to U.S. businesses to quickly provide the funding necessary to continue business operations and keep workforces employed as the pandemic widened.

The PPP program closed as of August 8, 2020.

PPP loans have an interest rate of 1%, and loans issued prior to June 5, 2020, have a maturity date of 2 years.

The plan included a safe harbor, which requires a loan under $2 million and good faith certification that the business seeking the loan was harmed in some way.

PPP loans are particularly enticing because the loans will be forgiven if the employer retains or rehires employees, and neither the federal government nor the lenders will charge the business any fees for closing the loan.

However, with this promise of forgiveness comes an additional compliance hurdle for small business: failure to confirm could lead to prosecution and fines. 

What is PPP Fraud?

The government defines fraud as “deception intended to result in financial or personal gain.” Thus, PPP fraud is deception in obtaining a loan or forgiveness of a PPP loan that results in gain for the business or personal gain. This could occur through a false statement on an application; failure to abide by the Small Business Administration (SBA) rules and regulations applicable to PPP loans; false statement in seeking PPP forgiveness; or misappropriation of PPP funds.

The Department of Justice (DOJ) has made it a priority to investigate and prosecute PPP fraud. On March 16, 2020, Attorney General William Barr directed all of his 94 U.S. Attorney’s offices to swiftly investigate and prosecute PPP loan fraud cases. In the first three months, the DOJ initiated the first wave of civil and criminal investigations aimed at recovering PPP funds lost to suspected fraud.

PPP borrowers must be prepared for audits, investigations, and civil or criminal action by the DOJ to recover PPP funds. 

What Statutes are Used to Enforce PPP Fraud?

These cases may be prosecuted under the following statutes:

Who is Overseeing PPP Enforcement?

Nearly all federal enforcement actions originate from a federal agency investigation. However, PPP enforcement will likely be much different.

Investigators from various government agencies, including the FBI, IRS, FTC and DOJ, are reviewing PPP loan applications and forgiveness applications for suspected false statements. The SBA has created a hotline to report suspected PPP fraud.

Moreover, Qui Tam attorneys are already heavily advertising to PPP whistleblowers in order to file suit against companies suspected of fraud on behalf of the government. The SBA Office of Inspector General is also heavily involved in investigation PPP applications and PPP compliance. And the DOJ has provided special training to prosecutors across the country in order to teach them how to investigate and charge PPP fraud.

While initial indictments have related to the more obvious cases of PPP fraud, once the financial stress of COVID-19 wanes, the government will begin deeper investigations of fringe cases of PPP fraud. 

What are Some Examples of PPP Fraud?

  • Improper Use of PPP funds: The SBA specifically prohibits non-business use of PPP funds and those improperly using PPP funds can be prosecuted. Some examples include using the PPP program to enrich yourself and improper expenditures such as luxury items, stock trading, and non-business expenditures.
  • False PPP Loan applications: Making a false statement on a PPP loan application is a false statement to a financial institution which is a federal felony.
  • PPP Loan Stacking: Loan stacking is the act of filing for multiple PPP loans from multiple lenders. This is quite easy to detect and likely to result in prosecution.
  • False Submission of Payroll Tax Documents: PPP requires the submission of payroll tax records. Many businesses and individuals prosecuted for PPP fraud have submitted false payroll records to appear as a larger company to receive more PPP funds.
  • False Statement on PPP Loan Forgiveness Applications: The PPP requires businesses to comply with certain conditions to receive forgiveness of a PPP loan. Falsely representing compliance with any of those conditions is a federal felony and could be met with prosecution.
  • False Loan Certification: Businesses seeking PPP loans are required to verify that economic uncertainty makes the loan necessary; that the loan will be used to retain workers and maintain payroll; that the company has not received any other loan under the PPP; and that all statements and supporting documents are true and accurate. If any of these certifications are false, it would constitute a false statement in support of a loan application, and you could be subject to prosecution.
  • Creation of False Companies: Some have created false companies or pretended to be independent contractors seeking PPP. This is certainly a violation of PPP requirements and could be subject to prosecution. 

I’m Worried About PPP Fraud. What Can I Do?

If you have been indicted for bank fraud, wire fraud, or other crimes related to PPP fraud, you need the experience PPP fraud attorneys on your side. Our White Collar and Government Investigations attorneys have significant experience defending small businesses and large businesses accused of fraud across the country. We handle complex criminal matters, and our team of experts are ready to aggressively litigate your case.

If you have yet to be audited or indicted for PPP fraud, it isn’t too late to achieve compliance and prevent an indictment. The DOJ in 2020 issued guidance to all federal prosecutors regarding the principles of prosecution for businesses suspected of criminal activity in the U.S.

The manual emphasizes that entities that have a robust compliance program but make mistakes are less culpable and less likely to be indicted for criminal activity. The guide also emphasizes that entities that do not have a compliance program and make mistakes are more culpable and more likely to face criminal charges.

The upshot? Get a compliance plan as fast as possible, identify and remedy deficiencies in the business financial structure, and become less of a target to federal prosecutors.

This is the approach we at Chapman Law Group take where there is suspected non-compliance with government programs such as PPP, healthcare fraud, financial fraud, and wire fraud.

Our white-collar defense lawyers are also compliance attorneys. We can review your financial compliance along with our CPA financial experts to provide you the right advice to avoid federal prosecution or civil suit.

What is the Punishment for PPP Fraud?

By choosing an experienced PPP compliance firm early, you can greatly reduce your chances of punishment. Bank fraud and wire fraud carry potential maximum sentence of 20 years in prison. However, the “maximum” is reserved for the most serious offenses. Judges determine how great a sentence should be by utilizing the U.S. Sentencing Guidelines. The guidelines use many factors to determine the severity of the offense and advise the judge of a potential sentence range.

Federal fraud guidelines are based on the “intended loss.” Intended loss is the amount the business or individual intended to cause to the victim (the government, in this case). Significant losses, such as over $5 million, would subject the defendant to a high sentence near the maximum; lower losses below $500,000 would subject the defendant to a lower sentence.

Federal guidelines are complex, and your attorney will spend the bulk of their time preparing to defend you and analyzing your guidelines to determine if a trial is the right strategy for you.

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Jonathan Meltz

Senior Attorney

Healthcare-Based Criminal Law, Healthcare Fraud

Miami Office
701 Waterford Way, Suite 340
Miami, FL 33126

Phone: (305) 712-7177

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