Contributed by Marissa Koblitz Kingman
The U.S. Department of Justice has recently begun charging defendants with bank fraud in relation to Paycheck Protection Program loans as part of its continuing efforts to investigate and prosecute individuals for crimes associated with COVID-19 related aid. If the government is able to prove that fraud occurred, individuals face the prospect of significant time behind bars, even if the PPP loans are for relatively small amounts.
The CARES Act
The CARES Act (Coronavirus Aid, Relief and Economic Security Act), enacted in March 2020 and later reauthorized to create a second draw lending program, was designed to provide emergency financial assistance to those suffering economic losses and uncertainty as a consequence of the COVID-19 pandemic. It included $2.8 trillion in economic aid for individuals and businesses and provided access through the Small Business Administration (SBA) to forgivable loans to cover payroll and other specified expenses through the Paycheck Protection Program (PPP). It also provided government assistance through the Economic Injury Disaster Loan (EIDL) program and Unemployment Insurance (UI) program. However, the CARES Act also provided an opportunity for people to take advantage of the government assistance, and all signs point to one of the most expansive white-collar criminal investigations in U.S. history as the government’s vast investigative resources continue to aggressively prosecute fraud and abuse in these programs.
Bank Fraud Related to COVID-19
A person commits bank fraud if they knowingly execute, or attempt to execute, a scheme to defraud a financial institution; or obtain any of the moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations or promises. If someone is found guilty of bank fraud, they can be fined up to $1 million or imprisoned for up to 30 years, or both.
Documents for PPP loans are generally submitted to financial institutions, i.e. banks. If a person submits documents that contain any false information as part of their PPP loan application, they could be charged with bank fraud.
Bridgitte Keim, of Tampa, Florida, recently pleaded guilty to bank fraud for submitting false and fraudulent loan applications and supporting documents for PPP loans. Keim faces up to 30 years in prison.
According to the plea agreement, between April and May 2021, Keim executed a scheme to defraud a federally insured financial institution (a bank) and the SBA. Keim also recruited family members to provide their personal information in exchange for free “COVID money.” Keim prepared and submitted false and fraudulent PPP loan applications to the bank on behalf of her relatives in the names of fictitious businesses. Keim created email addresses in the names of her relatives and communicated with bank employees by impersonating her relatives to convince loan officers that they were communicating with the actual prospective borrowers.
Based on these false statements, the bank approved and funded a $20,833 PPP loan in the name of one of Keim’s relatives. Keim subsequently diverted $7,500 in loan proceeds to her personal bank account.
Continued aggressive prosecutions over relatively small loans that could lead to harsh prison sentences demonstrate that individuals and businesses must proceed with caution when navigating potential fraud issues related to COVID-19 aid. Any communications with banks containing inaccurate information, even if just in e-mail correspondence with the bank, could lead to very serious criminal charges.
Any individual or business owner who is concerned about compliance with the CARES Act or about potential exposure to COVID-19 related fraud allegations should immediately consult counsel and not wait to be contacted by law enforcement. Those who have already received a subpoena or inquiry from any law enforcement agency should immediately consult with counsel to assess the full potential for civil and for civil and criminal exposure before responding.
For more information on federal enforcement activities related to COVID-19 aid, contact any member of Fox Rothschild’s Franchise Team or Marissa Koblitz Kingman, a member of the firm’s White-Collar Criminal Defense & Regulatory Compliance Practice Group, at 973.548.3316 or firstname.lastname@example.org.