The DOJ charged the president and CEO of a technology services provider for exaggerating or fabricating information included in Paycheck Protection Program ("PPP") loan applications, in violation of wire and bank fraud statutes.

In its Criminal Complaint, the DOJ alleged that the defendant submitted at least four PPP loan applications to various Small Business Administration ("SBA") approved lenders, in amounts ranging from $2 million to $7.5 million. The defendant received a $2 million wire transfer of PPP loan proceeds. The Complaint alleges that the defendant misstated numerous facts in the applications, including the location of his employees and the amount of his payroll, and that he falsified documents in support of his loan applications. Several of the loan applications to different potential lenders were inconsistent with one another.

In addition to filing charges against the defendant, the government issued freeze orders and seizure warrants, and was able to recoup $1.98 million of the original $2 million PPP loan.

Commentary Jodi Avergun

This is the fifth case in which the government has announced charges of fraud relating to PPP loans. This case, like the others, presents an egregious example of easily detectible and provable fraud. However, the government is sure to become more aggressive in its attempts to root out more sophisticated fraudulent schemes - as suggested by the SEC Enforcement Division's industry inquiry to recipients of PPP funds based on those recipients' public disclosures, as well as the DOJ's reported subpoenas to big banks for PPP application information. Accordingly, borrowers in the PPP program will do well to insure that they possess documentation that establishes the good faith basis for a loan application. Similarly, lenders should act now to insure that their own compliance and KYC policies were followed in awarding the loans to applicants.

Originally published June 22, 2020.

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