The Paycheck Protection Program (PPP) was intended to provide a fast influx of assistance to small businesses during the economic shock created by the COVID-19 pandemic. The speed with which loans were distributed to businesses nationwide was striking, and so was the speed with which the Department of Justice (DOJ) began prosecuting those abusing the program. Reports of corporations and individuals seeking to take advantage of the PPP prompted a vigorous law enforcement response that has broadened its scope in recent months. As we highlighted last year, the DOJ has taken aggressive action to pursue those who engaged in misconduct involving the PPP and other CARES Act stimulus programs.

In the beginning, the cases connected to COVID-19 stimulus programs—charging crimes such as bank fraud, false statements to a financial institution, and money laundering—involved brazen conduct, including the misuse of loan proceeds to buy things like luxury cars, homes, or jewelry. Now, we are seeing a significant increase in civil enforcement actions relating to the program. This increase signals a new phase of enforcement for the DOJ, and all organizations that benefited from the program must pay close attention.

Paycheck Protection Program

Congress enacted the PPP on March 29, 2020, as part of the CARES Act, to provide emergency financial support to millions of Americans suffering the economic effects caused by the COVID-19 pandemic. Under the PPP, eligible businesses could obtain loans guaranteed by the Small Business Administration (SBA). Companies were required to spend loan proceeds for employee compensation, rent or mortgage, and other specified expenses. Depending on their use of the loan proceeds, businesses could qualify for loan forgiveness, up to the full amount of the loan. The program was intended to distribute money quickly, so more typical hurdles like verification or substantial documentation upfront were not required. Instead, the program relied on self-certification by participating individuals and organizations.

Recent PPP Settlements

The past year has seen growing evidence of the DOJ assigning civil liability under the False Claims Act (FCA) in connection with the PPP program. False certifications, failure to make reasonable efforts to ensure the accuracy of the certifications, or the submission of false information can subject organizations that received PPP loans to treble damages and civil monetary penalties under the FCA. In February of this year, DOJ announced that a New Jersey construction company had admitted violating the FCA by taking a PPP loan to which it was not entitled. The company falsely certified in its PPP application that no individual owning more than 20% of the company was subject to criminal charges, when in fact one of the owners was subject to a criminal indictment. Similarly, in April, the DOJ announced a $24.5 million settlement with a large physician group, which included liability for false statements in its PPP application. That company falsely represented to the SBA that it was not engaged in unlawful activity, whereas DOJ found that it had billed false claims for unnecessary medical testing and services.

Misappropriation of funds received under the PPP is another area ripe for increased law enforcement scrutiny. The DOJ announced in March 2022 that a government contractor had agreed to pay nearly $3 million in restitution and penalties for misappropriating proceeds from a PPP loan. The contractor and its owners falsely stated the loan proceeds had been used for payroll and other eligible expenses to qualify for loan forgiveness, when in fact the entire loan amount had been transferred to a personal account. Notably, two owners and executives of the company agreed to pay an additional penalty from their own funds as part of that settlement. In August 2021, DOJ announced a similar settlement with the owner of a jet company who misappropriated PPP loan proceeds. In that case, the United States alleged that within a day of receiving the PPP loan proceeds, the owner diverted a significant amount of the funds to pay for personal expenses.

More PPP Enforcement Actions Are Coming

In March of this year, DOJ announced the appointment of a Director for COVID-19 Fraud Enforcement, Associate Deputy Attorney General Kevin Chambers, to lead the department’s criminal and civil enforcement efforts to combat COVID-19-related fraud. At that time, Attorney General Merrick B. Garland said, “The Justice Department remains committed to using every available federal tool—including criminal, civil, and administrative actions—to combat and prevent COVID-19 related fraud.”

All indications are that many more PPP-related enforcement actions will continue to emerge around the country.