The U.S. Department of Justice (“DOJ”) is scrutinizing borrowers who have applied for loans through the Small Business Administration’s Paycheck Protection Program (“PPP”), established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). To date, the DOJ has filed charges in seven separate cases against defendants accused of fraud in connection with PPP loans, and the number of charges continue to grow. These charges demonstrate the Government’s strong intent to claw back any loan proceeds which were obtained by fraud and to prosecute those PPP applicants.
When applying for a PPP loan, a borrower must make a number of certifications to the Small Business Association (“SBA”) including those related to eligibility and the accuracy of supporting documentation. Subsequent to the launch of the PPP, the SBA issued of a series of FAQs which triggered concern and caused borrowers to carefully consider the “need” certification. For example, FAQ 31 suggested that borrowers with alternate sources of liquidity could not make the “need” certification in good faith. That FAQ provided a safe harbor that allowed borrowers to reevaluate their “need” certifications and, if appropriate, return the PPP loan proceeds by May 7, 2020 without exposure to prosecution based on the that certification. On May 13, 2020, the SBA issued FAQ 46, which provided an additional safe harbor from prosecution for misrepresentations regarding the need certification for all PPP loans of less than $2 million. Specifically, FAQ 46 deemed all borrowers of such loans as having made their “need” certification in good faith. Further, the SBA stated that if in its review of PPP loans in excess of $2 million it concludes that the “need” certification was made without an adequate basis, then the SBA would seek repayment of a PPP loan and inform the lender that such loan was not eligible for forgiveness.
Notably, these safe harbors do not provide immunity for other fraudulent conduct in the PPP loan process. Assistant Attorney General Brian A. Benczkowski of the DOJ’s Criminal Division emphasized this point when stating that “[t]he department and our law enforcement partners will remain vigilant in our efforts to protect critical CARES Act relief programs from fraud and abuse.” The DOJ may initiate civil or criminal actions against borrowers even where the SBA has not made a referral, and qui tam relators may bring False Claims Act cases against borrowers. Further, as the PPP applications state, borrowers also may face potential exposure under a number of federal statutes.
PPP certifications will be a focus for government reviews and investigations going forward. Businesses in every industry should anticipate and prepare for government scrutiny.
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