PPP Loans and Fraudsters: Too Many Shades of Gray?

With the world, and consequentially the economy, essentially shutting down last year, the Paycheck Protection Program (“PPP”) truly was a lifesaver for middle-market and smaller businesses. It preserved jobs and stimulated the economy through liquidity injections for applicants who qualified, saving many businesses. Within these confluences, the majority of the recipients followed the law and guidelines, received their money honestly and legally, and continued to operate throughout the pandemic. Unfortunately, there are always those who feel they are above the law and try to push the limits of established rules and guidelines. These people only start back pedaling when they get caught, often feigning ignorance despite blatantly taking advantage of the loans. Some examples of people abusing the system and the PPP loans are:

• A Florida man procured a PPP loan to buy himself a new $318,000 Lamborghini.
• A small restaurant obtained a PPP loan and told its employees that they would no longer be salaried and only work for tips, despite the terms of the loan being businesses retain and pay their employees.
• A company went through bankruptcy fraud as it was turned down two or three times for a PPP loan until finally receiving one because it lied on the application.
• Shake Shack, Harvard University and Ruth’s Chris Steak House all applied and received loans, only returning the money when faced with immense public pressure.
• Certain “big four” professional sports teams, some valued more than $1 billion, applied for PPP loans.   
• Influencers—despite continuing to earn hundreds of thousands of dollars through sponsorships, social media interactions and reality television shows—felt compelled and justified to apply for $20,000 PPP loans. While they are legally within their rights, should they morally take these loans?

One thing that seems clearer than ever is that people and businesses can justify almost anything if it ultimately fits what they are trying to accomplish. Generally, this is a key component for those who commit fraud: the rationalization for the actions taken. When paired with motive and opportunity, it is not surprising that there has been rampant PPP fraud, especially considering the tumultuous and uncertain atmosphere since 2020. 

It appears that those abusing the system, and often society, severely underestimate the price of getting caught.  The price is high, both quantitatively and qualitatively. How will the public perceive the abuser once the information gets out?  As the saying goes: It takes a lifetime to build a reputation but only a moment to destroy it. The reputation argument is especially key for those who legally obtained loans but did not necessarily need them.

While the aforementioned abusers may be the “loud minority,” it is undeniable that the PPP loans have been vital for the survival of many businesses that compose the silent majority. Though some flourishing businesses have rejected or returned their loans, believing that they could survive without them, others were rescued by the cash infusions.

With the possibility of a second round of PPP forgiveness, applications are skyrocketing and the government is taking more steps to prevent loan and forgiveness fraud. Through the Small Business Administration chose to abandon Form 3509/2510, the Liquidity Justification Form, it is being met with significant resistance when asking for documentation surrounding the PPP loans businesses have received. Though the process can be lengthy, this is a vital step in ensuring that all loans were used in an appropriate manner in order to help prevent further fraud.