The U.S. Department of Justice (the “DoJ”) has delivered on President Biden’s State of the Union promise earlier this month to appoint a chief prosecutor for pandemic fraud, including that related to funds made available as part of coronavirus aid, relief and economic security. Act (the “CARES Act”) and its Paycheck Protection Program (“PPP”), which is overseen by the Small Business Administration (“SBA”). Associate Deputy Attorney General Kevin Chambers, a seasoned prosecutor and former Big Law litigator and auditor to the Big Four, was appointed to the high-level position.
This signals a likely escalation in prosecution activity that was already very active, including more than 2,800 criminal and civil cases – many of which are gaining public attention and some of which result in significant fines and judgments. So far, the government has seized more than $1.2 billion in funds disbursed under various pandemic relief programs.1 There have been more than 350 indictments, around 300 arrests and 150 convictions so far – and, with increased emphasis, these statistics will only grow.
As Mr. Chambers himself said in his official introduction: “[T]he work so far has been extraordinary and I look forward to building on that work and redouble our efforts to identify pandemic fraud, charge and prosecute those responsible and, where possible, recover funds stolen from the American people.”2
The DoJ has been given sweeping powers to aggressively pursue those accused of committing crimes and engaging in questionable conduct during one of the most traumatic times in the nation’s history. The environment for borrowers against whom the DoJ can credibly pursue charges is, indeed, difficult. For example:
- A U.S. District Court judge in Rhode Island has handed down a 44-month prison sentence (in addition to a year for escape) to a man who admitted to simultaneously submitting four duplicate PPP loan applications, from which more of $500,000 has been guaranteed.3.4
- In New Jersey, a man was sentenced to two and a half years in prison after pleading guilty in December to charges that included submitting a fraudulent PPP loan application that generated nearly $500,000 in revenue as well as modifying a check from the US government.5
- A Florida man was sentenced in January to five years in prison for obtaining about $1.3 million in pandemic relief funds after filing 13 fraudulent claims for more than $2.1 million in benefits.6
- A 44-month prison sentence was handed down to a Florida woman in February for her role in a scheme in which more than $2 million in PPP loan proceeds were obtained following fraudulent applications from more than 3, $3 million.
What does this mean for the more than five million recipients? The answer is a categorical “It depends”.
As described by The New York Times, the Cares Act and the PPP were “hastily created and often chaotic”.7 administered not by the government itself, but by an extensive network of private sector financial institutions, including large and small physical and internet-based banks. The goal at the time was to pump money into the economy for emergency stimulus, which was badly needed – and needed fast.
In the frantic push by businesses and their owners to secure the lifelines that PPP funds would provide, many found themselves without support to complete the necessary paperwork – with accountants and bankers often too overwhelmed to provide such support in time. timely, with frequently changing guidance from the SBA itself. It is these same borrowers who are among those whose PPP eligibility and compliance with forgiveness requirements are now being scrutinized.
PPP borrowers are strongly encouraged to back down on statements made during the loan application and forgiveness process in order to be prepared when and if federal auditors come knocking — a scenario it’s safe to assume will happen. will produce. In other words, companies that have obtained PPP funds, and their owners, should collect and organize appropriate supporting documentation and consider preparing explanations for all underlying circumstances, identified assumptions, and potential errors or inaccuracies. . The individual borrower, with so much at stake, can never be too prepared and should take steps to document their support when it is fresh in their minds, rather than trying to piece those items together when listeners come up with years later. Legal advice and accounting advice from firms experienced in this area are strongly recommended during this process.
While the full implication of Mr Chambers’ appointment as chief pandemic fraud prosecutor remains to be seen, it is safe to say that the level of investigation will be heightened for some time. Being prepared to answer questions that may be asked is essential for companies wishing to successfully navigate the choppy waters that regulatory and judicial scrutiny can entail.
James J. Agar is Managing Director of the Financial Advisory Services (“FAS”) firm of Eisner Advisory Group, where he is a member of the firm’s New Jersey Forensic, Litigation & Valuation Services Group (“FAS”). A Certified CPA in Financial Forensics and a Certified Fraud Examiner, he brings nearly 30 years of experience to clients across a wide range of industries and ownership structures, as well as their internal and external counsel.
Henry Vargas is a principal in the Financial Advisory Services (“FAS”) practice of Eisner Advisory Group, where he is a member of the firm’s New Jersey Bankruptcy and Restructuring Group. A Chartered Accountant and Certified Fraud Examiner, he brings several years of experience auditing and advising clients in a wide range of industries on multiple accounting issues. Henry has extensive experience with the Payroll Protection Program (“PPP”) loan application and forgiveness processes, as well as preparing responses to the U.S. Small Business Administration (“SBA”) regarding inquiries. which result.
1 Pandemic Relief Fraud – A Goal and Priority for the Department of Justice | Pietragallo Gordon Alfano Bosick & Raspanti, LLP – JDSupra
2 COVID-19 Fraud Enforcement Director Kevin Chambers speaks at the COVID-19 Fraud Enforcement Task Force Roundtable | Takeover bid | justice department
3 Massachusetts man sentenced to federal prison for fraud and faking his own death | WJAR (turnto10.com)
4 Staveley sentenced to 4 years for PPP fraud – WarwickPost.com
5 Middlesex man sentenced to 30 months in prison for fraud under the Paycheck Protection Scheme and obtaining funds from stolen and altered US Treasury checks | USAO-NJ | justice department
6 Man convicted of PPP fraud adds to growing number of government fraud convictions (newsweek.com)
7 Spotting $62 million in alleged PPP fraud was the easy part – The New York Times (nytimes.com). See also Small Business Loan Program, Chaotic From Start, Gets Round 2 – The New York Times (nytimes.com)