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CLIENT ALERT: PPP Loan Application Certifications

CLIENT ALERT:PPP Loan – Criminal and Civil Liability and the Safe Harbor Rule;Updates on Disbursements and Corporate Groups and Non-Bank and Non-Insured Depository Institution Lenders

The PPP Loan Application includes several certifications, some of which are discussed below.  If a borrower finds that it obtained a PPP Loan based upon misunderstanding or misapplication of the required certification, there is a limited safe harbor which allows the borrower the opportunity to repay the funds in full by May 7, 2020 without liability.  Also, in order to ensure PPP Loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate.  For borrowers that have obtained or that are considering a PPP Loan (or PPP Loan Forgiveness), they should heed the forthcoming enforcement and carefully assess their eligibility.  Borrowers that run afoul of the PPP rules when obtaining a PPP Loan (or seeking PPP Loan Forgiveness) may face criminal and/or civil liability.  A general list of the potential criminal and civil liabilities is provided below. 

PPP LOAN APPLICATION CERTIFICATIONS:

  • The PPP Loan application provides: “I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.” 
  • In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. 

LIMITED SAFE HARBOR WITH RESPECT TO CERTIFICATION CONCERNING NEED FOR PPP LOAN REQUEST:

  • Consistent with section 1102 of the CARES Act, the Borrower Application Form requires PPP applicants to certify that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Any borrower that applied for a PPP loan prior to the issuance of this regulation and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith. The Administrator, in consultation with the Secretary, determined that this safe harbor is necessary and appropriate to ensure that borrowers promptly repay PPP loan funds that the borrower obtained based on a misunderstanding or misapplication of the required certification standard.  The Interim Final Rule can be found here: https://www.sba.gov/sites/default/files/2020-04/Interim-Final-Rule-04%2024%2020.pdf 

SBA REVIEW OF INDIVIDUAL PPP LOAN FILES:

  • The SBA reminds all borrowers of an important certification required to obtain a PPP loan. To further ensure PPP loans are limited to eligible borrowers in need, the SBA has decided, in consultation with the Department of the Treasury, that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application. Additional guidance implementing this procedure will be forthcoming. 

CRIMINAL AND CIVIL LIABILITY:

  • The PPP application identifies several criminal statutes that are violated by the provision of false information:
    • 18 U.S.C. § 1001 and 3571 (false statements to federal officials)
    • 15 U.S.C. § 645 (misrepresentation of size status; false statements to SBA)
    • 18 U.S.C. § 1014 (false statements to a lending institution)
    • The above are some, but not all, of the statutes that could be used in a criminal action. 
    • More commonly used provisions that regularly appear in cases involving fraud under other SBA loan programs include:
      • 18 U.S.C. § 287 (criminal false claims)
      • 18 U.S.C. § 1344 (bank fraud)
      • 18 U.S.C. § 1341 (mail fraud)
      • 18 U.S.C. § 1343 (wire fraud)
      • 18 U.S.C. § 371 (criminal conspiracy) 
      • 18 U.S.C. § 1349 (conspiracy to commit fraud)
      • In instances where a loan was obtained through bribes or kickbacks, expect to see cases brought under 18 U.S.C. § 215 (bank bribery)
      • Although not identified in the PPP application, enforcement may also occur through the civil False Claims Act, 31 U.S.C. § 3729 et seq. (FCA). The FCA serves as one of the government's primary methods to recover damages from fraud.  Violation of the FCA exposes offenders to treble damages and per-claim penalties in excess of $21,000. The statute is unique in that it provides a right of action for not only the government but for relators (private whistleblowers) as well.

NEW INTERIM FINAL RULES ISSUED ON DISBURSEMENTS AND CORPORATE GROUPS AND NON-BANK AND NON-INSURED DEPOSITORY INSTITUTION LENDERS

*The Attorneys at Levene Gouldin & Thompson, LLP are available to provide advice and counsel concerning these new statutory obligations and other matters related to COVID-19.

 

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