In Extremis — PPP Money Is Not “Free” So Applicants & Recipients Need To Beware – Government, Public Sector

As most of the population knows, Congress passed the CARES bill to try to keep the economy and businesses viable during the COVID-19 pandemic. That bill included the Payroll Protection Program (PPP), which allowed small businesses to obtain government-funded loans to cover certain wage bills to help staff finances during the country’s 2020 shutdown.

With this government-funded program came anti-fraud requirements, policies, procedures and tools that have led to investigations and enforcement actions by the US government. The CARES Act created a special Inspector General and the Justice Department (DOJ) set up a CARES Act Task Force to review, investigate and, if necessary, prosecute PPP recipients who have violated the rules. Understanding what you have “signed up for” and being ready to adhere to and fulfill the obligations of the PPP are of the utmost importance to protecting your business and, as an owner or officer, your freedom and finances.

The PPP Loans – Some Basics and Backgrounds

PPP loans were granted in two installments (first and second drawing). One key to the program was that eligible borrowing employers could obtain loan waiver, which means that once the employer qualified, they would not have to repay the loan. This loan waiver was made dependent, among other things, on the employer fulfilling the following obligations during the 8 to 24 weeks after each loan disbursement:

1. The employer’s employee and remuneration levels had to be maintained;
2. These loan proceeds had to be used for payroll and other eligible expenses;
3. At least 60 percent of the proceeds had to be used for wage costs; and
4. An application for waiver of the loan had to be submitted in good time.

As will be known to those in the universe of government contracts, the receipt or application for federal government finance receipts contains various attestations from the applicant / recipient. In advance, the applicants have signed the proceeds in their loan application and certified it to:

I have read I understand the statements made on this form, including statements required by law and regulations.

* * *

the Applicant is eligible to obtain a loan according to the rules in force at the time of application, which were issued ..

* * *

All loan proceeds will only be used for business purposes as specified in the loan application and in accordance with the rules of the Paycheck Protection Program including a ban on using loan proceeds for lobbying activities and expenditures. If the applicant is a news organization eligible for a loan under Section 317 of the Economic Aid to Hard-hit Small Businesses, Nonprofits, and Venues Act, the proceeds from the loan will be used to cover expenses for the component of the business operation that produces or disseminates locally focused or emergency information. If the applicant is an internet news or magazine only publisher and is eligible for a loan under Section 5001 of the American Rescue Plan Act of 2021, the proceeds of the loan will be used to cover expenses in the component of the business or organization uses that supports local or regional news.

* * *

I continue confirm
that the information in this application and the information in all documents and forms
is true and accurate in all essentials. I understand that Knowingly providing false information in order to obtain a guaranteed loan from SBA is punishable by law, including a prison term of no more than five years and / or a fine of up to $ 250,000 under 18 USC 1001 and 3571; under 15 USC 645 with a prison sentence not exceeding two years and / or a fine not exceeding $ 5,000; and, when presented to a federally insured institution, subject to 18 USC 1014, with a prison sentence of no more than thirty years and / or a fine of no more than $ 1,000,000.

The applicant / recipient also certifies, among other things, within the framework of the loan waiver application:

The Authorized Representative of the Borrower shall certify all of the following by badges next to each ..

The dollar amount that is being asked for forgiveness (which does not exceed the par value of the PPP loan):

• was used to pay reimbursable business expenses (Salary costs to retain employees; mortgage interest payments for companies; rental or lease payments for companies; operating cost payments; covered operating expenses; covered costs for property damage; covered supplier costs; or covered expenses for employee protection);
• includes all applicable reductions due to reductions in the number of full-time equivalent employees and salary / hourly wage reductions;
• contains Labor costs of at least 60% of the award amount;
• for any employee (owned 5% or more) or self-employed individual / general partner who does not exceed 2.5 months of annual compensation used to calculate the PPP loan amount, capped at $ 20,833 per person in total across all companies.

I understand that If the funds were knowingly used for unauthorized purposes, the federal government may pursue loan recovery and / or civil or criminal fraud allegations.

The borrower has carefully reviewed the payments for the eligible wages and expenses for which the borrower seeks forgiveness.

* * *

the The information in this application and the information in all documents and forms are true and correct in all essential respects. I understand that Knowingly making a false testimony in order to obtain the forgiveness of an SBA Guaranteed Loan is punishable by law, including 18 USC 1001 and 3571 with a prison sentence of no more than five years and / or a fine of up to US $ 250,000 Dollar; under 15 USC 645 with a prison sentence of no more than two years and / or a fine of no more than $ 5,000; and when presented to a federally insured facility under 18 USC 1014 with a prison term not exceeding thirty years and / or a fine not exceeding $ 1,000,000.

(Emphasis added).

The language above creates a unique federally derived exposure for applicants and recipients of PPP (and other in this regard) funds. Understanding these risks at an early stage is crucial in planning and mitigating liability and risk. Reading the “small print” and knowing what you’re getting into is critical to not only understanding what you’re “signing up for”, but also enabling planning and documentation to avoid such risks.

RECOGNITION OF POTENTIAL EXPOSURE & RISKS

So you may be wondering what is the problem? Applying for and obtaining federal funding, especially given the types of certifications listed above, can make the applicant subject to both the Civil and Criminal False Claims Act (FCA). In conclusion, violating the FCAs may expose the applicant to criminal and civil (financial and administrative) penalties, including prison terms and the possibility of suspension or suspension that prevent the employer and its signatories and officers from continuing access to have government contracts.

Although the PPP program has been widely reported as successful in helping employers and workers, not to mention the economy, one concern that has remained is the traditional “free money” situation and the criminal element if pushed out of the wood, these proceeds will sink in. The PPP is no different. In pursuing the “lifeline” of the PPP program, many employers have failed to read the fine print or the fine print in full and have ignored it when signing their applications. Stories are mounting of scammers who take advantage of the PPP even though they don’t qualify for it.

LATEST HEADINGS – Extreme Examples

While the PPP funds came out in mid-to-late 2020, by March 2021, just a year after the CARES bill was passed (but before the PPP funds were distributed), the DOJ had announced it had over half a billion U.S. Dollar in fraud and charged with 474 people for stealing money. Many of these people were recipients of PPP funding. Since then, other cases have been pursued. Just announced by the Justice Department on November 29th was the case of Lee Price III, guilty of the wire fraud and money laundering charges resulting from the filing of two fraudulent PPP loan applications for three companies in which:

The price incorrectly reflected the number of employees and labor costs in each of the PPP loan applications. To aid the fraudulent PPP loan applications, Price also submitted fraudulent tax records and other materials. For example, regarding 713 Construction LLC’s loan application, Price applied on behalf of someone who died shortly before the application was submitted. After receiving the PPP loan funds, Price spent the money on a Lamborghini Urus, Ford F-350 truck, Rolex watch, and repaying a home loan, among other things. The Department of Justice, along with law enforcement partners, confiscated over $ 700,000 of the funds Price fraudulently received.

https://www.justice.gov/opa/pr/two-men-plead-guilty-multimillion-dollar-covid-19-relief-scheme.

While it may be an extreme case, the DOJ’s COVID-19 Fraud Enforcement Task Force and related officials are making significant efforts to investigate and prosecute fraudsters like Mr Price. There are a multitude of other cases that have been prosecuted or sued, and there are no doubt many more to come.

CONCLUSION

Although the PPP program has expired and should already be spent by the recipients, this is not the end of the program or the exposure. Recipients must ensure that they have issued proper and accurate certificates, asked for forgiveness in a timely manner, and that their expenses and receipts are correct and accurate.

This is an important reminder that the FCA’s liability is limited not only to the PPP program, but to any situation where a payment request has been made and / or federal funds have been received in false or fraudulent circumstances. Any concerns a recipient may have should now be investigated and discussed with a lawyer so that action or containment can be taken, rather than when the government knocks on the door.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

https://www.mondaq.com/unitedstates/government-contracts-procurement-ppp/1140390/in-extremis-ppp-money-is-not-free-so-applicants-recipients-need-to-beware-