The Status of DOJ Enforcement of PPP Fraud

by Sabrina Solow

A year into his presidency, President Biden’s Department of Justice continues vigorously to prosecute perpetrators of Paycheck Protection Program (PPP) fraud. Biden’s DOJ has not shied away from prosecuting individuals for PPP fraud and in recent months has issued several PPP fraud Press Releases.

Thus far, the DOJ has enjoyed a measure of success in its PPP loan fraud enforcement. PPP fraud enforcement has been a priority across very disparate administrations because of the high moral culpability of defendants who exploit the pandemic for their own financial gain. As of early January 2022, the DOJ had prosecuted over 150 defendants accused of PPP fraud and had secured more than $75 million through its recovery efforts. Recent convictions and sentences contribute additional texture:

  • In mid-December 2021, the DOJ recently secured the convictions of several more defendants involved in a PPP fraud conspiracy scheme that had first emerged on the Trump DOJ’s radar. This PPP fraud obtained $35 million in PPP loans and relied in part on kick-backs to the scheme’s leaders.
  • In early January 2022, the DOJ announced that a Georgia woman convicted of seeking to obtain nearly $8 million in fraudulent PPP loans had been sentenced to nearly 3.5 years in prison.
  • In late January 2022, the DOJ announced the conviction and sentence of a Utah man who had sought to obtain on behalf of his business fraudulent PPP loans worth $438,000. He was sentenced to 28 months and three years of supervised release.

As discussed further below, the DOJ in the past year has demonstrated its commitment to prosecution of PPP fraud by (1) continuing PPP fraud enforcement actions begun by the Trump DOJ, (2) emphasizing PPP fraud (and other pandemic-related fraud) as an area of focus, (3) prosecuting individuals accused of PPP fraud, holding to account individual wrongdoers involved with schemes of diverse loan sizes and complexities, and (4) focusing on certain pandemic fraud hotspots.

Background on PPP Loans

In order to support small businesses suffering as a result of the coronavirus pandemic and attendant economic ramifications, U.S. Congress in 2020 enacted legislation establishing a Paycheck Protection Program (“PPP”), implemented by the Small Business Administration (“SBA”). The PPP was designed to “provid[e] small businesses with the resources they need to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead.”[1] Although the temporary program concluded in May 2021, while it was active, PPP enabled small businesses and individuals to seek loans (PDF: 83 KB) from SBA-certified lenders and federally insured depository institutions, among other lenders. As early as April 16, 2020 (PDF: 670 KB), over 1.6 million loans had been approved, totaling more than $342 billion. And by August 8, 2020 (PDF: 728 KB), approved PPP loans totaled over $525 billion.

But the new PPP also created opportunities for wrongdoers, acting alone or in concert with others, to obtain fraudulent PPP loans through falsehoods on PPP loan applications or through use of fraudulent supporting documents. The DOJ under both Trump and Biden has reacted by prosecuting and convicting many perpetrators of PPP fraud.

The Current State of DOJ PPP Fraud Enforcement

A.    Continuation of enforcement actions initiated under the prior DOJ

Despite the change in administration, the Biden DOJ has continued to pursue some PPP fraud actions initiated during the Trump administration. For instance, in September of 2020, the DOJ charged eleven defendants allegedly involved in a $24 million PPP loan fraud conspiracy, highlighting in its Press Release the charges brought in the Southern District of Florida against former NFL player Joshua Bellamy, and noting several other individuals associated with the scheme. The Biden DOJ has continued to prosecute individuals associated with this conspiracy, now believed to be a $35 million scheme. As recently as January 2022, additional conspirators and the two ringleaders were convicted, the latter duo pleading guilty in the Northern District of Ohio and now awaiting sentencing.

B.    Emphasis on rooting out PPP fraud through collaboration

Formation of the COVID-19 Task Force

The DOJ under Merrick Garland has placed increased emphasis on rooting out pandemic-related fraud. To this end, it established a task force in May 2021. The COVID-19 Fraud Enforcement Task Force focuses both on prosecuting and preventing covid-related fraud. The Task Force commits DOJ to work in tandem with other government agencies in order to promote coordination and sharing of resources.

The Task Force not only focuses on prosecuting criminals, but also aims to “prevent pandemic-related fraud.” The Task Force’s description of its prevention efforts hinges largely on inter-agency collaboration and information-sharing, suggesting a belief that a more robust and complementary tapestry of enforcement will provide a strong deterrent effect to potential pandemic fraud offenders.

In addition to pursuing PPP fraud vigorously, Biden’s DOJ has similarly sought to prosecute schemes relating to other pandemic-driven programs and initiatives, such as the Economic Injury Disaster Loan (EIDL) program and Unemployment Insurance (UI) programs.

Collaboration with an Array of Investigative Agencies

DOJ is actively collaborating with a variety of investigative agencies in order to root out PPP and other pandemic-related fraud. Examples of agencies that have partnered recently with DOJ on pandemic-related fraud actions include the IRS Criminal Division (IRS-CI), the Federal Housing Finance Agency – Office of Inspector General (FHFA-OIG), the Small Business Administration – Office of Inspector General (SBA-OIG), and the U.S. Treasury Inspector General for Tax Administration.

C.    Focus on individuals and emphasis on moral culpability

Focus on Individuals

DOJ has prosecuted PPP fraud defendants at the individual level, mirroring the Biden DOJ’s emphasis on individual accountability in other spaces (i.e., corporate criminal enforcement). However, the DOJ has not hesitated to connect defendants in larger schemes in order to levy additional conspiracy charges.[2] And even rather rudimentary frauds, such as those based on submitting loan applications rife with falsehoods, or those which sought relatively small amounts of PPP assistance, have been targeted and their perpetrators prosecuted.

Some may argue that some of these defendants are merely low-hanging fruit; that these simple schemes did not demonstrate a level of sophistication meriting attention from a department with resource constraints. However, the range of loss amounts involved in these enforcement actions hints at the DOJ’s commitment to providing more than lip service to the prosecution of opportunists who, at any scale and with varying degrees of sophistication, sought to take advantage of PPP and other pandemic-related programs.

Notably, banks and other lending institutions involved in granting fraudulent PPP loans have thus far largely remained out of the DOJ’s crosshairs. Although reports in May 2020 indicated that the DOJ had issued subpoenas to many banks relating to the PPP, the absence of additional information since then suggests that the DOJ may be training its sights on the perpetrators of the schemes and not any bank malfeasance associated with granting the fraudulent PPP loans.  

Suggestion of Moral Culpability

The DOJ under both administrations has often framed PPP loan fraud as uniquely reflective of an individual’s moral failing. There are few, if any, sympathetic PPP fraud perpetrators based on the DOJ’s Press Releases; there is no Jean Valjean seeking bread. Instead, the defendants are often portrayed either as using a PPP loan toward luxury purchases, or having displayed exceptional dishonesty in enacting their scheme. Particularly damning facts in these cases have included defendants’:

D.    Focus on hotspots

As of early December 2021, DOJ’s Fraud Section had announced charges filed in twenty-two pandemic fraud related actions in the Southern District of Florida, with an additional fifteen in the Northern District of Georgia. These figures include pandemic-related fraud beyond just PPP loan fraud, and they indicate that the Eleventh Circuit has emerged as a hotspot for pandemic fraud activity and has attracted particular enforcement scrutiny. In contrast, DOJ has filed only two pandemic-related fraud cases to date in the Eastern District of New York.       

Conclusion

The Biden DOJ has taken several concrete steps to emphasize the gravity of PPP fraud. By continuing to prosecute schemes initially identified by the prior administration’s DOJ, creating a task force and emphasizing inter-agency collaboration, focusing on individuals whose motivations and conduct evince particular moral culpability, and targeting certain fraud hotspots, the DOJ has made clear that opportunistic perpetrators of pandemic-related fraud should expect to meet the full force of the law.

Footnotes

[1] U.S. Dep’t of the Treasury, Assistance for Small Businesses, https://home.treasury.gov/policy-issues/coronavirus/assistance-for-small-businesses.

[2] See, e.g., U.S. Dep’t of Justice, Two Florida Men Plead Guilty to $35 Million COVID-19 Relief Fraud Scheme, https://www.justice.gov/opa/pr/two-florida-men-plead-guilty-35-million-covid-19-relief-fraud-scheme (Dec. 16, 2021); U.S. Dep’t of Justice, Two Charged as Co-Conspirators for Nearly $1 Million COVID-19 Relief Fraud Scheme and Money Laundering, https://www.justice.gov/opa/pr/two-charged-co-conspirators-nearly-1-million-covid-19-relief-fraud-scheme-and-money (June 11, 2021).

 

Sabrina Solow is a J.D. candidate at New York University School of Law. She is a student fellow in the Program on Corporate Compliance and Enforcement and an associate editor of Compliance & Enforcement.

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