The U.S. Department of Justice has filed criminal charges against business owners in North Carolina, South Carolina and Georgia for using the Payment Check Protection Program. The program has resulted in a rapid inflow of hundreds of billions of dollars into small businesses, and more money is on the way in Congress’ latest aid package. The Federal Public Ministry has been increasing the number of its investigations linked to the program. There are several things that companies can do to better protect themselves if they have received funds or plan to enroll in the next round.
Companies facing charges in the Southeast include transportation companies like Gaines Reservation and Travel, an entertainment company called Wild Stylz Entertainment and restaurants like La Shish Kabob. The Justice Department alleges that these companies sent fraudulent PPP loan requests to financial institutions, including fraudulent supporting documents that included false and / or misleading statements about the number of employees and payroll expenses.
While the vast majority of PPP borrowers are not engaging in fraud, all program participants should consider measures to better protect themselves from false and / or misleading claims of fraud or certifications. These steps can also better position PPP borrowers to meet the requirements for receiving forgiveness for their loans. In particular, the US Small Business Administration has stated that it will review “all loans of $ 2 million or more, and other loans as appropriate, for eligibility, fraud or abuse and compliance with loan forgiveness requirements.” As part of the review process, the SBA will also require borrowers who (along with affiliates) received a PPP loan of $ 2 million or more to submit a loan requirement questionnaire. You can find guidance on the loan need questionnaire here.
The best advice for companies participating in the PPP is simple: document, document, document. Companies must ensure that they have completed all applications and questionnaires accurately and that they can back up all information included in a PPP loan application and other information sent to their lender or SBA.
On that front, it may be useful to partner with legal and financial advisors to conduct a compliance review to determine whether more or other documentation is needed. This type of review not only helps to reduce the risks related to investigations, but it can also put companies in a stronger position so that their PPP loans are forgiven. The most recent relief package made adjustments to the rules of forgiveness, and the rules have been the subject of evolving guidance from the SBA and the Treasury Department. You can find our latest guidelines on the rules here.
In addition, business leaders must have a plan of what they will do if contacted by the SBA or other government investigators regarding the PPP loan. There are holes in which business leaders can enter, even trying to do the right thing, and these steps can result in even more expensive investigations. It is advisable to contact a lawyer before responding to any type of written or verbal inquiry by law enforcement authorities or other government investigators.
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