Reporting Lender Fraud Under The CARES Act

As a result of the coronavirus, Americans are relying on the government more than ever to save lives and to cope with the economic difficulties the pandemic has caused. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was created to assist individuals and businesses with the financial burdens related to the coronavirus. Unfortunately, any undertaking as big as the CARES Act is an invitation for fraudulent activity. Fraud related to the CARES Act can occur in various ways, such as lender fraud under the Paycheck Protection Program, which was rolled out to support small businesses and their employees.

What Is The Paycheck Protection Program And How Does It Work?

The Paycheck Protection Program (PPP) offers small businesses the opportunity to apply for loans to pay for eight weeks of employee payroll (including benefits). The funds that are provided can also be used for mortgages, rent, and utility payments. PPP loans do not require any collateral or personal guarantees, and the small businesses will not be charged any fees by the lender or the government for the loan.

When small businesses -- those with under 500 employees -- use the PPP funds as required, the loans will be forgiven and do not have to be paid back. This is reliant on businesses maintaining employees and salaries. If the number of employees or salaries decrease, then the forgiveness will be reduced.

Small businesses can apply for PPP funds with any Small Business Administration (SBA) 7(a) lender that is participating in the program. The lender will collect the necessary documentation to certify that the business is adhering to the program requirements, disburse the loan, and collect a processing fee or percentage from the government.

How Is Fraud Related To The CARES Act Committed By PPP Lenders?

Lender fraud committed by PPP lenders may not be the first type of fraud that comes to mind. After all, the lenders are the liaisons between federal government and the small businesses that are applying for a loan. However, it does happen. The way lenders make money off these deals is with the processing fee or percentage they are paid by the government that makes it worth their time and effort to be in the program.

Fraud occurs when the lender does not do its due diligence to determine the eligibility of the business for PPP funds. The lender may ignore the business’ compliance with the program’s requirements or not verify the documentation that supports it. Instead, the lender simply approves the loan. If it is determined that the loan was invalid or the numbers were padded, the lender could be liable. It is considered fraud for lenders to simply rubber stamp a loan, knowing they will be paid the processing fee.

What Should You Do If You Suspect Lender Fraud Related To The PPP?

When lenders commit this type of fraud, various individuals within the bank or other financial institution may discover it. Whistleblowers in this situation may be the staff-level employee who sees the applications and is responsible for putting together the processing information for the underwriter. It could be an employee from the underwriting department itself, including the people who actually have to review the loan application to make sure that it matches up with the supporting documents. Even upper management-level people may be whistleblowers, if they are aware of an underlying policy at the lender or institution.

The first step that should be taken by an employee who suspects fraud is an internal communication – in practice, at least. In reality, their first call should be to a whistleblower attorney to help determine what their options are. The attorney can then advise them what to expect if they do make that internal communication. Will the whistleblower be fired, blackballed, or let go? The attorney will have advice on that.

The reality of the situation is while we can hope that companies would respond to an internal communication reporting fraud properly, it doesn’t often happen. So, employees who discover fraud need to have somebody in their corner to guide them through the different routes to report the fraud externally.

Let Ross Feller Casey Help You With Your Whistleblower Case

If you suspect lender fraud that is related to the CARES Act, including the PPP program, you need an experienced whistleblower attorney to help. At Ross Feller Casey, we are currently investigating fraud cases that have occurred due to COVID-19 funding for small businesses.

Our attorneys are knowledgeable about whistleblower cases and have a proven track record in winning these types of claims. Contact us today for a free case review, and we will help you determine how to proceed.

Whistleblower cases are handled on a contingency basis, so you will not be charged unless financial compensation is awarded to you.