The U.S. Department of Justice has brought criminal indictments against business owners in North Carolina, South Carolina, and Georgia over their use of the Paycheck Protection Program. The program resulted in a rapid influx of hundreds of billions of dollars to small businesses, and more money is on the way in the latest relief package from Congress. Federal prosecutors have been increasing the number of their investigations tied to the program. There are several things businesses can do to better protect themselves if they have received funds or plan to apply in the next round.
The businesses facing charges in the Southeast include transportation companies such as Gaines Reservation and Travel, an entertainment company called Wild Stylz Entertainment, and restaurants such as La Shish Kabob. The Justice Department alleges these businesses submitted fraudulent PPP loan applications to financial institutions, including fraudulent supporting documents that included false and/or misleading statements about their number of employees and payroll expenses.
Although the vast majority of PPP borrowers are not engaging in fraud, all program participants should consider steps to better protect themselves from allegations as to fraud or false and/or misleading certifications. These steps can also better position PPP borrowers to address the requirements to receive forgiveness of their loans. In particular, the U.S. 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 that (along with affiliates) received a PPP loan of $2 million or more to submit a loan necessity questionnaire. You can find guidance on the loan necessity questionnaire here.
The best advice for businesses participating in the PPP is simple: document, document, document. Businesses should make sure that they accurately complete all applications and questionnaires and that they can back up every piece of information included in a PPP loan application and other information submitted to their lender or the SBA.
On this front, it can be useful to partner with legal and financial advisors to conduct a compliance review to determine if more or different documentation is needed. This type of review not only helps reduce risks related to investigations – it can also put businesses in a stronger position to have their PPP loan forgiven. The latest relief package made adjustments to the forgiveness rules, and the rules have been the subject of evolving guidance from the SBA and the Department of the Treasury. You can find our latest guidance on the rules here.
In addition, business leaders should have a plan for what they will do if contacted by the SBA or other government investigators regarding their PPP loan. There are potholes that business leaders can step in even in trying to do the right thing, and those steps can result in even costlier investigations. It is wise to contact an attorney before responding to any type of written or verbal inquiry from law enforcement or other government investigators.
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