Preventing and Mitigating Potential Criminal Penalties Related To PPP Loan Applications

May 11, 2020

Introduction

Congress established the Paycheck Protection Program (“PPP”) to guarantee loans made to small businesses and nonprofits that meet certain criteria. PPP loans are guaranteed by the Small Business Administration (“SBA”). Borrowers are responsible for self-determining whether they are eligible to apply for funds under the PPP, and lenders are entitled to rely on the borrower’s certifications of compliance with the PPP’s requirements. Accordingly, borrowers must be aware of the risk of criminal penalties that may result from applying for and accepting PPP funds. The Department of Justice (“DOJ”), which will be prosecuting fraud schemes and other unlawful conduct related to the PPP program, does not provide advisory opinions or particularized guidance as to interpretation of terms and requirements of the program.

This alert is intended to provide a general overview, perspectives, and direction on best practices to limit exposure to criminal penalties. It is not intended as legal advice for a particular client or specific situation, and borrowers are advised to consult with counsel regarding their particular circumstances.

What type of conduct can incur risk for criminal prosecution related to PPP loans?

The PPP Borrower Application Form (“the Form”) is the gateway to access PPP loans. In addition to qualifying questions regarding the borrower’s business and how loan proceeds will be used, the Form lists several certifications that the borrower must initial and agree are true.

Knowingly making a false statement or certification on the Form is the likeliest way to invite criminal prosecution. Whether a borrower acts “knowingly” depends on the statute that the government alleges was violated. Generally, one can act “knowingly” if they have actual knowledge or act with deliberate ignorance or reckless disregard to the truth or falsity of the information provided. The “deliberate ignorance”/”reckless disregard” elements are traps for the unwary that can lead to allegations of criminal conduct. Thus, it is crucial for borrowers to seek legal counsel to guard against such allegations.

What criminal charges could borrowers face if charged with making false statements or certifications on the Form?

Borrowers who make false statements or certifications on the Form risk exposure to the following charges (among others) –

15 USC § 645 – Offenses related to aid for small businesses
18 USC § 1001 – Making false statements/entries to the US government
18 USC § 1014 – Fraud and false statements related to loan/credit applications
18 USC § 1343 – Wire fraud
18 USC § 1344 – Bank fraud

All of these offenses are punishable by imprisonment and steep fines.

How can borrowers best prevent and mitigate risks of prosecution related to PPP loan applications?

The short answer is document, document, document. Borrowers should be prepared to justify their reasons for seeking a PPP loan. The best way to do this is to show that the decision to apply for the loan and determination of whether the loan is necessary was supported by documentation such as balance sheets, cash flows, analysis of access to additional capital and the terms of such capital, financial forecasts, budget and business plan, number of employees, etc. Borrowers must also be ready to show that any funds received under the PPP were used for permitted purposes.

These steps can help mitigate risks of civil and/or criminal liability down the road.

Still have questions about terms, eligibility, or risks associated with PPP loan applications or disbursements? We can help. Remember, we are all in this together.

David Kubiliun
Chair & Partner
Office: (305) 789-2712
Cell: (305) 778-3163
[email protected]

Adriana Collado-Hudak
Senior Counsel
(305) 789-2713
[email protected]

About Greenspoon Marder

Greenspoon Marder LLP is a full-service law firm with over 240 attorneys and more than 20 office locations across the United States. With operations from Miami to New York and from Denver to Los Angeles, our firm attracts some of the nation’s top talent in key markets and innovation hubs. Our core practice areas include Real Estate, Litigation, and Transactional Services, complemented by the capabilities of a full-service firm. Greenspoon Marder has upheld a spot on The American Lawyer’s Am Law 200 as one of the top law firms in the U.S. since 2015, and our goal is to provide exceptional client service by developing a thorough understanding of each client’s business needs and objectives in order to provide strategic, cost-effective solutions.

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This Greenspoon Marder LLP Client Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.

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