Last year I predicted that the Department of Justice (DOJ) would be busy prosecuting fraud under the Paycheck Protection Program (PPP). A few weeks ago, the DOJ announced its first civil settlement of such fraud claims.
The stipulation for settlement sets forth the following basic facts:
• SlideBelt Inc. filed for bankruptcy
• Eight (8) months later SlideBelt applies for a $300,000 PPP loan
• A few days later SlideBelt submits an application, through a different financial institution, this one for $350,000
• First lender discovers the bankruptcy case and rejects the PPP application
• SlideBelt promptly applies for a third PPP loan at yet another financial institution
• The second lender approves the loan for $350,000
• All three applications certify that SlideBelt was not involved in any bankruptcy
These facts made it fairly easy for the DOJ to prosecute. The PPP applications are in writing, and the statements about bankruptcy are quite clear.
The settlement was for $100,000 in damages and penalties, and SlideBelt must also fully repay the $350,000 loan. The real kicker is if SlideBelt defaults. Then it will be subject to a $2 million consent decree.
We have already had a number of potential clients contact us about this concern regarding PPP loans and we are working on strategies to protect people from fraud allegations. It is still too early to tell which strategy should be most effective, but it is better to plan in any event.