Because these fraud cases are so new, sentencing will depend on the judge and the details of the case, but I have a feeling that these cases will be prosecuted aggressively. I’ve heard from various prosecutors that a lot of offices are creating special taskforces to dedicate their time to nothing but these investigations. Miami is one of the fraud capitals of the United States, and Southern Florida is about to see a huge number of these kinds of cases and indictments.
On a human level because of the pandemic, I think that judges are not going to look favorably on these cases. Juries could also be tough on you. The pandemic is not something that only a very small segment of the population or the community experienced. Literally everyone in the country has been living in the pandemic; and when these judges and juries hear that someone, in the middle of this unprecedented time, tried to defraud programs created to help people, they are probably going to be very heavy-handed in their sentencing and the punishments.
Why Is the US Department of Justice Cracking Down on PPP Fraud?
When the pandemic began, it was very important for the government to get money in the hands of people and businesses in need as soon as possible. To streamline this process, they skipped over the usual verification procedures that you would expect when a bank or the government is giving people money. In my experience, clients who submitted PPP loan applications were getting approved within days or weeks. That is incredibly fast for a program that requires you to provide significant documentation.
The result of this haste is a significant amount of fraud. Why? First of all, people are desperate and while many are good people, they were seeing their businesses crumble and hoped this could save them. And second of all, people who are sophisticated in fraud schemes see an opportunity where the verification process will not be as robust as it normally would be for things like mortgage loans, when the underwriting process takes anywhere from one to two months. The Department of Justice knew there would be a significant fraud problem, so they’ve had taskforces in place since the beginning.
The PPP loan process didn’t go directly through the government or the Small Business Administration (SBA); it went through individual banks. Therefore, the taskforces are working with these banks to identify problem loans and then prosecute people who are involved. So, not only do we have the government investigating, but individual banks themselves, and when their fraud department suspects a fraudulent case, they are going to hand it off to the government. You now have multiple sets of eyes and institutions looking at these loans, reviewing them and tagging them for potential fraud.
Bigger banks like Chase, Bank of America, and Wells Fargo weren’t as fast in getting these loans to people as others were. Smaller banks and community banks saw this as an opportunity to gain new business because people were desperate, meaning they were even less strict with their underwriting process, or verification process, to get these loans out. The majority of the fraud probably occurred at these smaller community banks.
While the loans were meant to be for small businesses, the cap on small businesses was actually fairly high, including up to 100 employees. Anyone with any kind of corporation or LLC setup could apply, and a lot of people saw the relaxed verification process as an opportunity to just submit some forms and get what they thought was going to be forgivable loans, free money. Some people spent this money on clearly frivolous things, like cars, jewelry, watches, and even stock market investments. Unless you are a jeweler, buying jewelry is never a legitimate business expense. Spending the money on business supplies or marketing costs could be justified, but personal things that venture completely outside of normal business expenses are not permitted and will lead to charges.
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