By Philip Hilder

April 5, 2020

The Coronavirus Aid Relief and Economic Security (CARES) ACT provides $350 billion to assist small businesses in keeping their workers employed during the pandemic crises. The Paycheck Protection Program (PPP) is administered by the Small Business Administration (SBA) and federally guaranteed. Some or all of the loan may be forgiven if a business keeps its payrolls constant for approximately three months and/or uses the funds for rent or utilities. Misuse, however, can result in charges such as Bank Fraud.

AVOIDING BANK FRAUD LIABILITY

The loan application is a federal prosecution minefield. False statements on the SBA application may trigger later Federal Bank fraud prosecutions. The SBA does not actually make the loan, rather federally insured banks do. Simply, a Federal Statute states that, “whoever knowingly executes or attempts to execute a scheme or artifice to defraud a financial institution or … obtain… moneys, funds, credits… under the custody or control of a financial institution by means of false or fraudulent pretenses, representations or promises…. shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both” Title 18 USC 1344.

Questions on the PPP application need to be reviewed carefully before signing the application.

  • Is the business or any owner presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy?

 

  • Has the business, any of its owners, or any business owned or controlled by any of them, ever obtained a direct or guaranteed loan from SBA or any other Federal agency that is currently delinquent or has defaulted in the last 7 years and caused a loss to the government?

 

  • Is the business or any owner an owner of any other business or have common management with other business?

 

  • Has the business received an SBA Economic Injury Disaster Loan between January 31, 2020 and April 3, 2020?

 

  • Are you presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction, or presently incarcerated, on probation or parole?

 

  • Within the last 7 years, for any felony or misdemeanor for a crime against a minor, have you: 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; 4) been placed on pretrial diversion; or 5) been placed on any form of parole or probation (including probation before judgment)?

Additionally, there are a number of certifications that the borrower must be mindful of such as the Debarment and Suspension Executive Order 12549.

  • Debarment and Suspension Executive Order 12549; (2 CFR Part 180 and Part 2700) – By submitting this loan application, you certify that neither you nor any Associates have within the past three years been: (a) debarred, suspended, declared ineligible or voluntarily excluded from participation in a transaction by any Federal Agency; (b) formally proposed for debarment, with a final determination still pending: 9c) indicted, convicted, or had a civil judgment rendered against you for any of the offenses listed in the regulations or (d) delinquent on any amounts owed to the U.S. Government or its instrumentalities as of the date of execution of this certification.
 FRAUD PROSECUTION

However, the most significant certification is the application’s catchall prosecution provision. It states: I further certify that the information provided in this application and the information that I have provided in all supporting documents and forms is true and accurate. I realize that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a Federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.

As of this post, the national unemployment filings are at an unprecedented 10 plus million. The PPP is a quick attempt to stem this figure from growing even larger. There will be those eager to sign paper to keep their business afloat. However, be mindful of the long term ramifications of prison and fines should misrepresentations be made on the PPP application form including Bank Fraud Charges. Contact our Firm with questions regarding this or any other questions.