In March 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide emergency financial assistance to individuals and businesses suffering economic effects due to the COVID-19 pandemic. The most well-known relief programs under the CARES Act were the Paycheck Protection Program (PPP), offering forgivable federal loans for payroll costs, mortgage interest, rent and utilities, and the Economic Injury Disaster Loan (EIDL) program, providing economic relief to small businesses experiencing a temporary loss of revenue because of government-mandated shutdowns and other effects of the COVID-19 pandemic.

All told, over $5 trillion has flowed through the CARES Act programs, including mainly PPP and EIDL but also several others, such as:

  • Economic Impact Payments (EIP), commonly known as the stimulus payments for American families;
  • Provider Relief Fund (PRF), which was intended to provide financial support to health care providers that experienced lost revenue and increased expenses during the pandemic in order to maintain national health system capacity;
  • Pandemic Unemployment Assistance (PUA), giving States the option of extending unemployment compensation to independent contractors and other workers who were ordinarily ineligible for unemployment benefits;
  • Federal Pandemic Unemployment Compensation (FPUC), which provided additional unemployment compensation for individuals deemed to be qualified.

These programs, in combination with the PPP and EIDL programs, helped businesses and individuals sustain themselves during the worst parts of the pandemic.

Unfortunately, the emergency nature of the CARES Act programs  leaves loopholes in the system that can leave the loan and compensation program requirements lacking in specificity and susceptible to errors in the application process.  loan and compensation programs.

The Rise of Fraud and Prosecution under the CARES Act

From the outset of the CARES Act relief programs, domestic and international criminal actors took advantage of vulnerabilities in the loan application and reporting requirements to receive federal funding. Some of these cases have made headlines due to criminals using CARES Act funds to make lavish purchases and put millions of dollars in their own pockets.

Naturally, the U.S. Department of Justice acted quickly and established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to combat and prevent pandemic-related fraud.

What Is CARES Act Fraud and What are the Penalties?

Fraud occurs when someone knowingly misrepresents information to receive something of value. In CARES Act litigation, this generally involves business owners or individuals misrepresenting business income, financial assets, payroll obligations, and tax information to obtain federal loans or reimbursements.

Punishment for CARES Act fraud can ultimately include prison time and massive restitution penalties. In one instance, an individual was sentenced to 40 months in prison and ordered to pay nearly $1.4 million in restitution after pleading guilty to a scheme involving the Economic Injury Disaster Loan Program (EIDL) and Paycheck Protection Program (PPP). This individual submitted over 20 fraudulent EIDL applications and reported having over $5 million in payroll expenses on a PPP application despite not being a business owner or having any employees.

In another case, an individual filed fraudulent Unemployment Insurance (UI) claims using the stolen identities of dozens of individuals to obtain more than $500,000 and was sentenced to 37 months in prison and ordered to pay close to $270,000 in restitution.

Just as criminals were quick to exploit CARES Act relief funding, the Department of Justice and state prosecutors have been quick to make examples of those investigated for fraud under these programs.

While some of those making headlines were flagrant fraudsters with no honest business purposes, some legitimate business owners and other individuals may still find themselves under investigation. As the federal government casts a wide net to recoup millions of dollars in wrongly obtained funds, any type of mistake or incorrectly-submitted form can invite scrutiny. The penalties for fraud are severe and it is critical to protect yourself and your business as carefully as possible. This starts by consulting with an experienced law firm that can examine your business records and prepare a careful defense strategy when needed.

What Should I Do if My Business is Investigated for Potential CARES Act Fraud?

People suspected of committing fraud related to any of these programs could face both criminal and civil liability, meaning they could be imprisoned for a term of years and also exposed to thousands, if not millions, of dollars in financial penalties. The Tampa CARES Act fraud defense lawyers at Trombley & Hanes, P.A. practice both white collar criminal defense and civil litigation, representing clients in Tampa, throughout Florida and nationwide who have been accused of defrauding the government. Reach out to us today for help.