The Avalanche Continues To Fall On Abusers Of The PPP Program

Daniel Stonebarger of Highlands Ranch, Colorado has been sentenced to 41 months in a federal prison for charges related to illegally obtaining Paycheck Protection Program (PPP) funds meant to help small businesses during the lockdowns and closures due to the COVID-19 pandemic.

The funds were fraudulently obtained by Stonebarger between April and June 2020 in which he submitted several false applications to the Small Business Administration’s Paycheck Protection Program (PPP). The plea agreement also details applications fraudulently submitted for Economic Injury Disaster Loans and Economic Injury Disaster Grants and Colorado Pandemic Unemployment Assistance.

Hundreds of abusers of the PPP program will be sentenced to prison on a daily basis across the U.S., attorneys told California Business Journal.

Daniel Perlman, the attorney for Stonebarger, whose case was covered by the Miami Herald and Sacramento Bee, has told media outlets that his client’s “punishment could have been far worse” and that “his real sentence is in the emotional impact he has dealt his family and himself.”

The fraudulent applications included the business names of existing companies but further details such as number of employees, costs, and revenues were fabricated for the purposes of qualifying for these loans. The court case details how these fraudulently obtained funds were spent and include plastic surgery, jewelry, travel, resort stays, and a Peloton.

The case is an example of the type of crimes that FBI investigators are uncovering as they pursue those who would have taken advantage of a program that was meant to genuinely help businesses who were struggling to stay afloat.

Sadly, abuse of the PPP program in 2021 alone was $4.3 billion.

As a result of a plea deal, Stonebarger will serve 41 months in federal prison with an additional three years of supervision after his release. He is also responsible to pay restitution in the amount of $822,794.50 to the agencies from which he fraudulently obtained the funds in the first place.

Law enforcement agencies are stepping up efforts to uncover cases of PPP fraud like the case detailed above and harnessing more sophisticated measures to do so.

In states like Colorado, a task force has been created to investigate these fraud cases and pursue and arrest individuals who have actively worked to defraud the system. Coordinating across agencies and using knowledge from cases that have already been discovered, they are zeroing in more and more on people who have unlawfully obtained pandemic assistance and seriously prosecuting these cases.

PPP fraud involves illegal activity related to obtaining, spending, or requesting relief of the funds that were originally allocated for small businesses as a part of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Under the act, the Paycheck Protection Program (PPP) was created to provide emergency assistance to American workers who were dealing with economic hardship as a result of the pandemic. The intent of the PPP was to help small businesses stay afloat and keep their employees on the payroll while weathering the unexpected effects of lockdowns and other consequences of the pandemic.

As with any economic assistance program, there are individuals who look at this much-needed aid as an opportunity to obtain funds for their own gain, even if they do not genuinely qualify for the assistance. The cases where someone has gone out of their way to misrepresent their circumstances intentionally in order to obtain a PPP loan are the types of cases that are being aggressively investigated.

Other less grievous cases are also being investigated, including some where errors or mistakes were made in the application process and do not align with the actual circumstances. If any of the eligibility criteria is questionable, or if the use of funds that were received were outside of the scope of what they were intended for, these may raise red flags. If these errors were found to be made unintentionally, it is less likely an individual will suffer such harsh penalties but being audited at all because of PPP loan can be cause for concern.

There are three main types of fraud related to PPP Loans and can be classified as (1) fraud related to obtaining the loan, (2) fraud related to spending the allocated funds, and (3) fraud related to seeking loan relief.

Fraudulently Obtaining a PPP Loan

You may not have been as outlandish as Stonebarger but maybe you are being questioned about:

• • Misrepresentation of employee numbers;
• • Misclassification of independent contractors and employees;
• • Inaccurately declaring payroll costs.

Any of these errors on your application that helped you obtain a PPP loan could be subject to review.

Fraudulent Use of Funds

Even when a PPP loan is obtained legally, the loan recipient is responsible for using the funds for expenses only related to payroll (with the requirement that 60% of the funds be used for this), mortgage interest, lease payments and rent, or utilities costs. Anything outside the scope of these expenses would constitute illegal misuse of PPP funds.

Fraudulently Qualifying for Loan Forgiveness

The benefit of PPP loans is that if a small business fits the criteria its loans can be forgiven completely. In order to qualify for this loan forgiveness, the company must provide information on an application showing that it meets the requirements. If the information is found to be incorrect in a way that advantages, you to obtain PPP loan forgiveness it may put you at risk of being charged with fraud.

If you or someone you know is currently being investigated for such matters, it is important that you obtain the right legal counsel to help with your case. As in the Colorado case, there could be serious prison time at stake as well as being accountable to pay the entire sum back.

“Having the right representation even before charges are brought can make a significant difference in the outcome of a case,” Perlman says. “We’ve now seen first-hand how aggressively PPP cases are being investigated. PPP fraud is a serious matter and if you are being investigated or at risk of being investigated you should not take any chances. Having a federal criminal defense lawyer who is well-versed in issues surrounding PPP fraud is your best chance of avoiding prison time.”

Related Posts