Two of the 7 bills advanced by the House’s Small Business Committee deal address fraud in the Paycheck Protection and Economic Impact Disaster Loan programs.
Both bills would establish a ten-year statute of limitations for prosecutions related to fraud. HR 7352 is for the PPP, and HR 7334 is for the EIDLs. The PPP bill includes all types of PPP fraud, and the EIDL bill includes EIDL advances and targeted EIDL advances.
House Small Business Committee Advances PPP Loan and EIDL Loan Fraud Bills
The ten-year time frame mirrors the established 10-year time frame for prosecutions related to bank fraud.
The dollar amount for fraud for the PPP and EIDL programs combined is estimated at $80 billion, or about 10% of the programs.
To report fraud, call the SBA’s Office of the Investigator General at 800-767-0385. Reports are confidential.
PPP and EIDL Loan Fraud Case in California
An eight-person crime ring in California was able to get more than $18 million in Covid relief funds, obtaining a collective 150 loans from the PPP and EIDL programs.
Three of the crime ring members were convicted in June 2021, subsequently fled and were captured in Montenegro (Europe) late in February 2022.
Richard Ayvazyan, 43, who authorities say was the group’s ringleader, had been sentenced to serve a 17-year sentence. His wife, Marietta Terabelian, 37, got 6 years. After their convictions and sentencing, the two cut their ankle bracelets and fled, abandoning their three children.
They used the Covid relief funds to buy luxury homes, diamonds and gold coins.
“The SBA, in sending that money out, basically said to people, apply and sign, and tell us that you really are entitled to the money,” said Justice Department Inspector General Michael Horowitz, in an interview on NBC’s Nightly News. “What didn’t happen was even minimal checks to make sure that the money was getting to the right people at the right time.”
Horowitz said that fraudsters took money away from deserving applicants. He further said that the way those programs were structured, the programs “invited fraudsters.”
Ways Fraudsters Worked
With the PPL program, fraudster applicants most frequently inflated the numbers of employees. As one of the requirements of the PPP, a loan could be forgiven if the applicant later returned the workforce to the full compliment of employees. Also, the monies could be used for payroll expenses. In fraud cases, employees may have been real people, but they were never employed by the company.
To date for the PPL, more than $800 billion was spent, covering more than 21 million loans.
With the EIDL, documents contained false information regarding the extent of damage and value of equipment damaged. In some cases, companies were created on paper but didn’t exist. The SBA’s Investigator General has already identified $78.1 billion in fraudulent EIDL applications and awards.
What About SBA Lender Banks?
With both the PPP and EIDL programs, small business owners apply through SBA approved lenders. The final decision rests with the SBA. In the case of fraud, the lender banks are off the hook.
Language regarding the programs and lender banks for the SBA says that lenders “will be held harmless for borrowers’ failure to comply with program criteria.”
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