While the number still remains small, the amount of Paycheck Protection Program (PPP) fraud cases continues to rise.
PPP loans have provided a much-needed lifeline to many small businesses, non-profits, and sole proprietors during the Coronavirus pandemic, however the rushed creation of this program is starting to show its negative side effects. Just this week, we’ve seen two new arrests in relation to PPP fraud.
On Tuesday, local news station KTNV Las Vegas reported a Henderson, NV resident was arrested on charges of false statements to a financial institution, wire fraud, bank fraud, concealment money laundering, and engaging in unlawful monetary transactions after using $500,000 in pandemic relief (approx. $350,000 PPP loan and $150,000 EIDL loan) to buy a house.
Also this past week, the story of a 32-year-old man of St. Paul, MN purchasing a Harley Davidson with his PPP funds has been popular among news sources. He received $841,000 in relief loans for a business that has been non-operational since August 2018 by submitting falsified bank and IRS documents in addition to multiple false claims on his PPP application. $650,000 of this loan was transferred to a bank account unrelated to the business that was used to make personal purchases such as the $30,000 motorcycle and golf equipment reports a local Minnesota radio station. He was charged with two counts of both wire fraud and money laundering.
These two cases add to a growing list of PPP frauds we’ve seen over the summer, such as the infamous Florida man who purchased a Lamborghini with PPP funds last month. This pandemic has been a huge breeding ground for scams of all types. Experts told CBS News that PPP was “fertile ground” for scams. “The federal government and banks granted hundreds of thousands of loans too quickly with limited vetting of applicants' backgrounds,” they said. 1
Steven Weisman, teacher of white collar crime at Bentley University, explains “whenever such a massive program is rushed into existence there will be vulnerabilities to be exploited by criminals. Lenders are feeling pressure to close loans under tight deadlines that make it difficult for forensic accountants to properly investigate sophisticated criminal applicants."1
Critiquing this vulnerability, law professor Richard Gordon of Case Western Reserve University told CBS, “The federal government should not have used banks and employers as middlemen for getting paychecks to employees. If I'm not an honest person and I like committing bank fraud, this would be the way to go, as opposed to committing fraud in another way where the bank might try to catch me." Gordon also mentions a safer alternative would have been for the U.S. Treasury Department to directly pay workers a portion of their wages. 1
The speed and urgency in which the Paycheck Protection Program was designed and implemented has undoubtedly left room for vulnerabilities within the execution, one of those being the rise of these fraudulent applications we’re seeing. As the end of PPP and Forgiveness draws nearer (for now), we’re sure we have not seen the last of cases like these.