Federal prosecutors continued to quickly respond to PPP loan fraud, bringing two additional cases that allege clear misuse of the funds intended for small businesses. In one case, prosecutors in Georgia charged reality TV personality Maurice Fayne, aka “Arkansas Mo” of “Love & Hip Hop: Atlanta” fame, with bank fraud for allegedly using $1.5 million of a $2 million PPP loan to maintain his luxury lifestyle. Fayne allegedly used the funds on a Rolls- Royce, jewelry, including a Rolex Presidential watch, a diamond bracelet and a 5.73-carat diamond ring, and child support payments. Fayne has denied the allegations and claimed he properly applied for the loan for his business, Flame Trucking.
In a second case, prosecutors charged a Texas engineer, Shashank Rai, with using a fake company to apply for $13 million in PPP loans. He allegedly applied for two different loans on behalf of Rai Family LLC, which does not exist. He claimed in his application that the company employs 250 people on a monthly payroll of between $1.2 million and $4 million. The Texas Workforce Commission notified investigators that payroll records for Rai’s alleged business did not exist, leading to the charges. In a release announcing the charges, U.S. Attorney for the Eastern District of Texas Joseph D. Brown warned applicants of the consequences of false representations: “The behavior in this case was very brazen. Those who submit these applications for loans or other assistance need to understand that there are people checking on the representations made, and those representations are made under oath and subject to penalties of perjury.”
These cases, along with the first PPP loan fraud case that we previously covered here, are obvious instances of fraud. The question remains how criminal and civil enforcement authorities will handle closer calls, including certifications made by companies regarding their need for the PPP funds. In particular, public companies have come under scrutiny because of the alternative avenues that many of them have to access capital. Today marks the SBA safe harbor deadline for companies to return funds. For companies that choose to keep the funds, that decision may very well be second guessed by prosecutors down the road. While this may not generate criminal charges, particularly where the certification of need is made in good faith and supported by adequate documentation, inquiries regarding companies’ need for the funds is likely through both audits and civil enforcement.
We will continue to cover enforcement-related PPP loan developments on this blog.
