What Is PPP Loan Fraud? What Is The Punishment For The Scammers?

As hundreds of thousands of businesses in America went through bankruptcy due to the unpredicted spread of the Coronavirus crisis, the federal government allowed aid worth billions of dollars via the Paycheck Protection Program or PPP. Let’s learn about ppp loan fraud.

While this was a lifesaver for most of the dying businesses, the scammers took an illegitimate advantage of it.

Yes, the PPP loan fraud is one of the most popular scams that ever took place in the United States. In one of the cases, Izzat Freitekh, along with his son Tarik, were sentenced to 4 and 7 years of jail time for claiming $1.7 billion in the fraudulent PPP loans. 

However, this was only the tip of the iceberg of PPP loan fraud. It is something so deep and so huge that investigators are still trying to get to the root of it. 

In this article, we shall discuss what happened with the PPP loan fraud. We’ll also discuss its punishments and how financial institutions can avoid them.

What Is PPP Or The Paycheck Protection Program?

The Paycheck Protection Program was an initiative by the Federal Reserve under the Coronavirus Aid, Relief, and Economic Security Act. It is more popular than the CARES Act. The main goal of the PPP loans was to protect all the businesses that were on the verge of going bankrupt. These loans were forgivable, meaning the borrowers did not have to repay them to the government. 

The PPP loans, which went on from the month of April 2022, continued till May 2021. It was an elixir for business owners who were down with worries of having to take away the wages or healthcare facilities of their employees who were working hard even in the middle of a pandemic. 

Business owners could apply for the PPP loans from the Federal government through the commercial banks. The limit to which a business could ask for a loan was $10 million. 

There were certain eligibility criterias that the applicants were to meet. They also had to follow the strict limits and requirements on how they were spending the PPP loan money. Any violation of those regulations would result in the involvement of the IRS, FBI, or DOJ. 

However, the PPP loan fraud was the result of a high volume of applicants. This is where the government could not maintain the record. They did not know who was getting the loans or who was using the money for what purpose. 

To make things worse, they were in a hurry to hand in the funds in the hands of the legitimate business owners. Meanwhile, the congress voted to let the fintech companies issue PPP loans.

Now, it’s pretty evident that these Fintechs sourced a significant portion of the 1.4 million fraudulent PPP loans. 

How Did The Scammers Execute The PPP Loan Fraud? 

PPP loan fraud is an outright scam of the loan initiative, which was supposedly a lifesaver for a number of businesses in America. These were the businesses that were almost dying due to the COVID-19 pandemic. 

In simple terms, PPP loan fraud happens when businesses or individuals submit false information while filling out an application for PPP loans. Or while attempting to certify forgiveness for PPP loans. 

As PPP loans were forgivable, many gave in to the temptation to lie in the face of the Federal Reserve. They did all this to get money from the government, which they would not have to pay back later. 

However, apart from these, there are other ways too in which scammers could commit PPP loan fraud: 

1. Scammers would commit “loan stacking” by applying for the money through PPP loans from a number of lenders. 
2. Using PPP loan money for unapproved and improper purposes. 
3. Giving false statements during the audits for PPP loans or fraudulent investigations. 

Scams on social media platforms claim these are the easiest ways to pull out money from such relief programs.

What Are Punishments For PPP Loan Fraud?

While the scammers may have thought that no one would be able to find out, they were indeed wrong. For any business or individual that associates with the PPP loan fraud, the allegations may end up with them facing charges at the Federal level. 

This may include charges like: 

False Claims Act Violations (31 U.S.C. §§ 3729 – 3733)

The False Claims Act forbids the submission of any fraudulent or false claims for any payment under a federal benefit program. Therefore, any business that had submitted incorrect information in the PPP loan application or submitted a falsified PPP loan forgiveness certificate has the potential to lead to multiple charges under the False Claims Act. 

Making False Statements To The Small Business Administration (Sba) (18 U.S.C. § 1014)

This is the law that states it is a federal offense if an individual or entity

“knowingly makes any false statement or report . . . for the purpose of influencing in any way the action of the . . . Small Business Administration.”

The SBA is an agency that is responsible for administering the Paycheck Protection Program as well as the Economic Injury Disaster Loans. 

Any violations of Section 1014 have the potential for approximately $1 million in penalty and 30 years of imprisonment under the Fed.

Making False Statements To An Fdic-Insured Bank (18 U.S.C. § 1014)

Section 1014 has the exact same penalties for making false statements to any banks or other financial institutions insured under the FDIC.

Bank Fraud (18 U.S.C. § 1344)

This is a federal which may lead to a fine of $1 million and federal imprisonment of 30 years for

“knowingly execut[ing], or attempt[ing] to execute, a scheme or artifice—(1) to defraud a financial institution; or (2) to obtain any of the moneys . . . under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.”

Wire Fraud (18 U.S.C. § 1343)

This law states that

“any scheme or artifice to defraud, or . . . obtain[] money or property by means of false or fraudulent pretenses, representations, or promises.”

Violations of this law would result in penalties of $500,000 and federal imprisonment of 20 years under Section 1343. 

How Bad Was The PPP Loan Fraud?

In the initial stages, the PPP loan fraud did not seem like it was on such a vast scale. The government was pretty satisfied that they were being able to help the businesses operate during such a tough time. So, who would care if some of the funds were not even used for their actual purpose? 

However, the disgusting truth that is out now out shows how billions of U.S. taxpayer money, which was there to help businesses, went to the accounts of scammers on the lookout to make a few quick bucks. 

Here are some of the statistics on how big the scam actually was: 

• More than 15% of the PPP loans gave at least one indication of potential fraud. 
• As per the researchers, approximately $76 billion in PPP loan funds was taken out illegitimately. 
• The highest rate of suspects was among the Fintech leaders who were giving out PPP loans. 

The Bottom Line 

“It’s estimated that shady business owners and foreign crime rings submitted PPP loan applications for nearly $100 billion in funds.” 

The PPP loan fraud was one of the biggest frauds in America to date. Billions of dollars went to the accounts of scammers who used them to buy Ferraris, Bentleys, Lamborghinis, and lots and lots of Teslas. 
While the investigation still continues, it is pretty shameful how billions of dollars that came from the taxpayers in the United States to help the businesses in need were eventually misused and wasted for nothing.

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