Coronavirus PPP loan relief and fraud: How thieves may try to game the system

How businesses may try to game the paycheck protection program

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The government has made it clear it will look into and take necessary action against companies that have accepted money from the Paycheck Protection Program but shouldn’t have, but experts suggest it may be focusing its efforts in the wrong place to sniff out fraud.

This week, in updated guidance, the Small Business Administration said it will largely focus its audits on companies that received loans valued at more than $2 million – and other loans “as appropriate.” It will consider any business owners who received a loan of less than $2 million to meet its required good faith certification, meaning that it will assume the cash was necessary to keep operations moving and that the owner did not have access to other sources of liquidity.

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However, federal attorney Nick Oberheiden not only doubts that the government has the resources to audit every loan in excess of $2 million, but also says it could miss a lot of fraud by overlooking smaller companies.

“I think the danger here is that somebody uses this and creates … LLCs or fictitious companies and then kind of has a series of smaller amounts of fraud,” Oberheiden said, adding that he believes there is less danger among people asking for loans valued at $2 million or more.

People may then take or send the money abroad, as is very common in other fraud cases, Oberheiden noted, essentially securing the fraud.

The first fraud charges filed over paycheck protection loans involved borrowers who had requested about $500,000.

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Still, the companies that have received the bulk of attention, so far, have been larger companies that have requested loans, like Shake Shack and Ruth’s Chris, which have committed to returning the funds after receiving public criticism for requesting them in the first place. There is a concern that these companies are taking the money even though they may not really need it.

Treasury Secretary Steven Mnuchin told FOX Business last week that anyone who should not have taken money may be held criminally liable.

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As of Tuesday, the SBA said paycheck protection lenders had distributed more than $191.3 billion, the average loan size was about $72,296.

Businesses have until May 18 to return their cash if they think they are no longer eligible under the program’s evolving terms and conditions.

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