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Small Business Fraud Discovered During Pandemic

Due to the Coronavirus pandemic and to address the financial fallout experienced by many small business owners, the federal government instituted the Paycheck Protection Program. This program is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was initiated in March to prevent further unemployment and ease the financial burden faced by many small business owners throughout the nation.

The program sought to prevent unemployment by allowing applicants’ loans to be forgiven if they were used to cover payroll and other specified expenses related to the pandemic. The program meant to support small businesses was exploited by several people who lied about having legitimate businesses and instead used the money for luxury items. Several of the loans were disbursed to large, publicly traded companies and financial firms instead of small businesses that truly needed it.

Program Offerings

The program allowed small businesses to borrow up to 2.5 times their monthly average payroll costs. The loan could be forgiven in full if the small business owner retained employees for at least eight weeks after the loan was procured. Small business owners could also put a portion of the loan toward rent, utilities, and other specified expenses. The program’s loan administration was outsourced to the Small Business Administration (SBA) and a network of banks nationwide. Due to the high demand for loans, the SBA and banks involved were overwhelmed with having to administer 10 times the volume of loans they were used to.

Issues Discovered in the Program

Lack of a definition of what constituted a small business in order to be eligible for the program led to many large businesses partaking in the loans, even if they were able to withstand the financial stress of the pandemic. This limited the funds available to small business owners who truly needed them.

Banks were also uncertain about how the loans should be distributed and how they would be forgiven. Because the program offered immediate loan processing, many banks could not look over paperwork and lacked the necessary documentation and materials to process the loans at the scale and demand presented. Many banks were inexperienced in administering the loans at the scale required. They had to process loans rapidly for which they were not prepared.

Criminal and Fraud Charges Waged by the Justice Department

The Justice Department has charged at least 57 people for stealing from the program. The total amount stolen is more than $175 million. These individuals and groups sought loans ranging from $30,000 to $24 million. Those accused have lied about their businesses or fraudulently claimed to use the money for purposes other than those specified by the program. Some of those who procured the loans involved criminal rings.

The Justice Department is investigating these crimes with the help of the SBA, the Treasury Department, the Internal Revenue Service (IRS), and the United States Postal Service (USPS). They recovered and froze more than $30 million from those who violated the program or acted fraudulently.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Advocate for Business Owners Affected by the Pandemic

If your business is being accused of not using SBA loan funds appropriately, contact the Philadelphia business lawyers at Sidkoff, Pincus & Green P.C. We specialize in compliance matters and can help you navigate federal and state regulations and policies affecting business owners. For more information, contact us online or call us at 215-574-0600 for an initial consultation. Located in Philadelphia, we serve clients throughout Pennsylvania and New Jersey.