The Department of Justice continues to have its task forces throughout the U.S. investigate and prosecute fraudulent use of funds from the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs which were widely deployed during the pandemic.

Many small businesses throughout New York State and the nation are receiving subpoenas, civil investigative demands, or other notices of civil and criminal fraud investigations.

There are serious penalties associated with PPP and EIDL fraud and if a business or individual receives a subpoena or civil investigative demand for information, it should be taken seriously.

Things to keep in mind:

• The impetus for launching an investigation varies, and could be spurred by a whistleblower, the lender, or the federal agencies tasked with pursuing instances of fraud.
• Investigations are not exclusively focused on misuse of proceeds. They’re also looking at technical or clerical errors with statements made on original PPP applications.
• Investigations are not isolated to large sum loans. We have seen examples of loans under $50,000 facing scrutiny.
• Investigations are location agnostic, and not isolated to the largest U.S. districts.

History of Loan Programs and Recent Fraud Cases

The March 2020 CARES Act established the federal government’s Paycheck Protection Program (PPP), providing a lifeline to small businesses struggling through the pandemic.

Three years later, the investigations into potential fraud are going strong. Here are three examples from just this past year:

• A Florida company agreed to pay $9 million to resolve allegations it submitted false information in support of a PPP loan forgiveness application by applying as a small business with under 500 employees but actually had more than 3,000 employees.
• Two Michigan nonprofit organizations together paid $225,000 to settle allegations they obtained PPP loans for which they were ineligible as nonprofits.
• Two Western New York brothers pleaded guilty to filing eight fraudulent loan applications seeking $7.6 million in forgivable PPP loans for misrepresenting expenses.

What to Do if You are the Target of a PPP or EIDL Investigation

If a business receives a subpoena or other investigative request for information, it is crucial to call counsel before responding. Your attorney can guide you through the process and review your loan application and verification documents to help establish you lacked intention of defrauding the government, negotiate with the various federal agencies and, if necessary, build a defense against any subsequent charges.