CARES Act and PPP Fraud

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. Following this announcement, state and local governments took the precautionary steps to ensure the safety and health of the public. On March 19, 2020, California Governor Gavin Newsom issued Executive Order N-33-20 ordering “all individuals living in the State of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors.” Orders such as this one were put in place all throughout the United Stated to attenuate the impact of COVID-19. However, with many businesses closing due to the pandemic, it has also affected many families as well as the overall U.S. economy.

 

 

In order to provide relief to individuals and businesses, on March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2.2 trillion COVID-19 relief package. This relief package included the Paycheck Protection Program (PPP) which, under Section 1102.7(a) of the CARES Act, made small businesses eligible to apply for a loan of up to $10 million (S. 3548 IS, P. 7).

 

 

To prevent as much fraud as possible, the CARES Acts established the Pandemic Response Accountability Committee (PRAC) under Section 15010 as well as a Special Inspector General for pandemic recovery in the Department of Treasury under Section 4018. The purpose of PRAC is “… to promote transparency and conduct and support oversight of covered funds and the Coronavirus response to … prevent and detect fraud, waste, abuse, and mismanagement; and … mitigate major risks that cut across program and agency boundaries.” (CARES Act Sec. 15010(b)) The purpose of the Special Inspector General is to “conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury under any program established by the Secretary under this Act, and the management by the Secretary of any program established under this Act…” (CARES Act Sec. 4018)

 

 

Under Cares Act Section 15010, PRAC has the authority to:

  • Develop a strategic plan that correlates with that of the Committee and Inspector General regarding the oversight of the federal government’s  COVID-19 response;
  • Thoroughly audit and review covered funds to identify any wasteful spending, poor contract or grant management, or any other abuses;
  • Report any unlawful use of these funds to the Inspector General for investigation;
  • Review whether there are enough trained personnel and resources to oversee these programs.

Under CARES Act 4018, some of the jurisdictions given to the Special Inspector General to help them build cases for fraud include authority to:

  • Subpoena and receive all necessary information in a timely manner of the business or individual that the inspector’s office is investigating;
  • Have access to the head of any business or individual that they are investigating;
  • Issue reports;
  • Request aid from any federal, state or local government agencies;
  • Take testimonies.

U.S. Attorney General William Barr directed every U.S. Attorney’s Offices to “remain vigilant in detecting, investigating, and prosecuting wrongdoing related to the crisis” (see Memorandum from the Attorney General). Similarly, the U.S. Deputy Attorney General also released a separate memo asking law enforcement to focus on fraudulent activities (see Memorandum from the Deputy Attorney General). These fraudulent activities include fraud relating to the CARES Act and PPP. If you are accused of taking advantage of any of these programs, not only can you face civil or criminal charges, but you also run the risk of being prosecuted under the federal False Claims Act (FCA).

 

Some examples of CARES Act fraud include:

  • Providing false information when applying for a loan under a CARES Act program. For example, businesses who inflate their employees’ salary to receive a bigger loan are subject to prosecution for fraud;
  • Using the loan for unauthorized expenses. For example, if an owner of a small company applies for and receives a PPP loan instead uses the loan to buy himself a new home instead of paying his employees’ salary, he may be prosecuted for fraud.

Fraud is a serious crime, and the government is taking extra steps to ensure that any funds meant to give aid is not being used unlawfully. As such, with a serious crime comes serious consequences.


What are the penalties for fraud relating to the CARES Act?

 

Anyone applying for a PPP loan must certify in good faith that they are not committing fraud. One of the certifications that must be initialed by the applicant advises the applicant that any false statements made to obtain a guaranteed load is punishable under 18 USC 1001 and 3571 by:

  • Up to 5 years in prison; and/or
  • A fine of up to $250,000

Under 15 USC 645, the penalties may include:

  • Up to 2 years in prison; and/or
  • A fine of up to $5,000

If submitted to a federally insured institution, under 18 USC 1014, the penalties for bank fraud may include:

  • Up to 30 years in prison; and/or
  • A fine of up to $1 million

In addition to any of the above-mentioned charges, anyone to be committing fraud against the U.S federal government can face any of the following penalties under the FCA:

  • A fine between $5,000 – $10,000 for each false claim;
  • A penalty of up to 3 times the amount of damages which the Government sustained due to the fraudulent act
How can I fight a federal criminal and/or civil charge in connection with a CARES Act fraud case?

Defending yourself against fraud charges is no easy matter, however, an experienced attorney can help you come up with an effective defense approach to clear your or your businesses’ s reputation.  A few possible defenses include:

  • You had no knowledge of the fraud. If you unknowingly provided false/incorrect information when filling out an application, then this defense can be used to have the charged reduced or even completely dismissed;
  • You didn’t actually commit fraud. There are times when even investigating agencies make errors. If this is the case, an attorney can help you put together a defense packet to prove to the prosecutor that you were not in violation of any law concerning fraud.
Can I seek legal help if I’ve been charged with fraud relating to the CARES Act?

There are many ways to fight a fraud case, so it is crucial to find an attorney who has experience with criminal and federal cases. If you or a loved one have been arrested or contacted by authorities relating to CARES Act fraud matter and are seeking legal representation, or simply want to understand how legal counsel can help you, we encourage you to contact the Law Offices of Lisa Z. Liu. Attorney Lisa Z. Liu is a state bar certified criminal law specialist who has helped many of her clients throughout Southern California successfully fight their cases in court. She will personally handle your case to the best of her ability.

To schedule a free, confidential consultation with Attorney Lisa Z. Liu, please contact our office at (626) 988-6800 or by email to [email protected]