September 25, 2020  
 
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Extent Of PPP Loan Fraud Continues To Amaze

Written by Ken Gaebler
Published: 8/31/2020

Yachts, Rolex watches and luxury sports sedans have allegedly been paid for with fraudulently acquired proceeds from the government's PPP coronavirus relief program for struggling organizations.

When you start handing out money with noble intentions, expect bad actors to show up.

PPP Fraud Cases

The Paycheck Protection Program (PPP), aimed at helping struggling businesses to survive the coronavirus pandemic, is no exception to that rule.

The New York Times reported last week that the Justice Department had filed over 40 criminal complaints against individuals who allegedly stole $62 million in PPP relief funds using stolen identities, fake documents and certifications that were not accurate or truthful.

PPP fraud charges have been filed in federal court, and include the following charges:

  • The owner of a Florida talent management company and four others were charged in complaints unsealed yesterday for their alleged participation in a scheme to file fraudulent loan applications seeking more than $24 million in forgivable Paycheck Protection Program (PPP) loans.
  • A Seattle doctor was taken into custody for allegedly a submitting several fraudulent PPP loan applications in the names of businesses with no actual operations or by misrepresenting the business's eligibility.
  • A man in the Los Angeles metro area was charged with fraudulently obtaining COVID-19 relief loans for a fake sewing company, transferring the bulk of the money to his personal bank accounts and then fleeing the country to Belarus.
  • A man in Washington, D.C., was arrested and charged with fraudulently obtaining over $2.1 million from the PPP program and another government relief program. He allegedly used the funds to buy a $300,000 yacht, a $1.13 million rowhouse, and a $46,000 luxury sports sedan.

"The United States made funds available to small business owners through the Paycheck Protection Program to ensure that our communities' local businesses and their employees financially survive this pandemic," said U.S. Attorney Ariana Fajardo Orshan, who is prosecuting the Florida case mentioned above. "Those who defraud the program with no regard for the effect that their actions of greed will have on the small business owners and employees who legitimately need the money will be vigorously prosecuted."

Despite the fraud, the PPP has helped many businesses to navigate the pandemic and avoid employee layoffs. The program allows qualifying small businesses and other organizations to receive loans with an interest rate of one percent.

PPP loan proceeds can only be used for payroll costs, interest on mortgages, rent, and utilities. The loans have a two-year term, but the interest and principal can be entirely forgiven if the business spends the money on allowed expense items within a designated time period.

Commenting in the New York Times article, Hannibal Ware, the inspector general of the Small Business Administration, said she expects more fraud will come to light in the months ahead, noting that the fraud that has been detected so far is likely just "the smallest, tiniest piece of the tip of the iceberg."

Government agencies and lending institutions have been been instructed to keep an eye out for PPP fraud cases. Common indicators of potential PPP fraud include:

  • PPP applications with manipulated or fraudulent supporting documentation.
  • PPP applications in different names that contain nearly identical application information and supporting documentation, and originate from the same Internet Protocol (IP) address.
  • Fake businesses established during the pandemic that do not have an internet presence, and have minor differences between names on the application documents and public business registration documents.
  • Existing accounts may have a consistently low balance with no history of business payroll expenses.
  • New accounts created for the sole purpose of applying or receiving SBA funds. These accounts do not reflect any previous business-related transaction activity, and funds are quickly transferred after receiving loan advances or proceeds.
  • After loan advances or proceeds are deposited into an account, funds are immediately withdrawn in cash, wired out, transferred to an investment account, used to purchase luxury assets not associated with typical business-related expenses, or used to start an entirely new business.

This list of PPP loan red flags was provided by the National Credit Union Administration (NCUA), in an advisory note to its member credit unions.

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