Episode 45: Paycheck Protection Program (PPP) Fraud Tracking with Matthew Lee and Marissa Koblitz Kingman
Have you wondered how much fraud exists in the Paycheck Protection Program? Matthew Lee and Marissa Koblitz Kingman have too and have been tracking the fraud cases prosecuted since May 2020. Join Leah as she interviews Matt and Marissa about their research, resources, and other implications of fraud against the government in relation to the PPP loan.
Matthew D. Lee is a partner and Co-Chair of the White-Collar Criminal Defense & Regulatory Compliance practice at Fox Rothschild LLP. He is a former U.S. Department of Justice trial attorney who focuses on the areas of white-collar criminal defense and investigations, federal tax controversies, financial institution regulatory compliance and complex civil litigation.
Marissa Koblitz Kingman is an attorney in the White-Collar Criminal Defense & Regulatory Compliance practice at Fox Rothschild LLP. A trustee of the New Jersey Association of Criminal Defense Lawyers and an active member of the Women’s White Collar Defense Association, she has a wide range of criminal defense and litigation experience involving digital crimes, privacy rights under the Fourth and Fifth amendments and healthcare fraud.
Alert on PPP Loan Fraud Enforcement:
https://www.foxrothschild.com/publications/ppp-loan-fraud-enforcement-2-0-preparing-for-the-next-round-of-scrutiny/
Coronavirus Resource Center: https://www.foxrothschild.com/coronavirus-resources/
Matthew Lee LinkedIn Profile: https://www.linkedin.com/in/matthewdlee
Matthew Lee Twitter Profile : https://mobile.twitter.com/matthewdavidlee
Marissa's email to request PPP Fraud Tracker: mkingman@foxrothschild.com
Marissa Koblitz Kingman LinkedIn Profile: https://www.linkedin.com/in/marissa-koblitz-kingman-esq-66374791/
Marissa Koblitz Kingman Twitter: https://twitter.com/NJCrimDefense
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Transcript for Episode 45:
Intro (00:01):
Welcome to the investigation game podcast brought to you by Workman forensics.
Leah (00:08):
Welcome to the investigation game podcast. I'm Leah Whietholter, CEO of Workman forensics, in Tulsa, Oklahoma. I have with me today, Matthew Lee and Marissa Copeland's Kingman with Fox Rothschild, LLP. Matthew is a partner and co-chair of the white collar criminal defense and regulatory compliance practice. He's a former US Department of Justice trial attorney who focuses on the areas of white collar, criminal defense and investigations, federal tax controversies, financial institution, regulatory compliance, and complex civil litigation. Marissa is an attorney in the white collar criminal defense and regulatory compliance practice, a trustee of the New Jersey association of criminal defense lawyers and an active member of the women's white collar defense association. She has a wide range of criminal defense and litigation experience involving digital crimes, privacy rights under the fourth and fifth amendments in healthcare fraud. Thank you, Matt and Marissa for joining me today.
Marissa (01:02):
Thank you so much for having us.
Matthew (01:03):
Yeah, it's our pleasure to be here today.
Leah (01:06):
So today we're going to be discussing fraud in the paycheck protection program, but before we get into that, I'd love to know more about each of your current areas of practice. So Matt, we'll start with you. Will you share with us a little bit about the type of work you currently see in your white collar criminal defense practice?
Matthew (01:21):
Yeah, sure. I'd be happy to, I handle really a wide variety of white collar financial fraud, investigations and prosecutions, sort of across the, sort of across the board. However, I have a specialty in criminal tax. So most of the investigations that I get involved in have some sort of tax component. And I also do a fair amount of work with money laundering and asset forfeiture.
Leah (01:49):
Okay. So like from the, uh, so you're on the criminal defense side of the asset forfeiture and tax cases.
Matthew (01:57):
Yeah. So the clients that I typically represent are individuals, companies that are, um, you know, that find themselves under investigation by, um, you know, some federal law enforcement agency. I just, because I do so much work in the tax field, there's, you know, it's usually the IRS is on the other side of the cases that I'm handling. Um, but, but, but not always, you know, I handle really a wide variety of, of, uh, fraud cases in general, but yes, I'm always on the defense side representing individuals or companies that, you know, come under scrutiny, um, by some, some sort of government agency.
Leah (02:33):
I, I want to ask you so many questions about that, but that's not what we're here to do today. So I will just, but maybe we're just going to have to have you back to talk about a few of those things. Cause I have so many thoughts and those areas,
Matthew (02:44):
Sure I'd be happy to come back another time. And anytime,
Leah (02:49):
So Marissa, what types of work or cases have you seen in your criminal defense practice?
Marissa (02:53):
I'm also on the defense side, like Matt Lee and I worked in a variety of federal and state courts and I work on a variety of fraud cases, digital crimes, and right now a lot of compassionate release matters and matters dealing with the paycheck protection program.
Leah (03:12):
What are compassionate? I'm sorry, I didn't catch the whole thing. They're compassionate,
Marissa (03:16):
Compassionate release applications, which are motions that we file on behalf of our clients that are in prison and it's to get them out of prison do right now, mostly to COVID.
Leah (03:31):
Okay. That makes sense. Okay. Interesting. Since this is the investigation game podcast in your criminal defense work, do you utilize investigators or experts?
Matthew (03:42):
Why don't you take a, you want to go first?
Marissa (03:45):
Sure. So we use a variety of investigators and, uh, we really have private investigators to kind of dig up the facts and figure out what's going on with our clients. We use CPAs on the financial side and forensic accountants, which are extremely critical in fraud investigations. And then we also have legal experts dealing with the PPP issues and the SBA matters. We have an expert at our firm that we use and every time we use an expert, we enter into an agreement with that expert and I'll let Matt Lee discuss the kind of agreement that we enter into.
Matthew (04:31):
And what Marissa is referring to is what's called a kovel agreement and a kovel agreement. It's, it's named for a, uh, very famous court case from about 40 or so years ago. And the name of that course, that court case was kovel. And what that, what kovel agreements allow for is lawyers like Marissa and me to retain the services of an expert in a particular subject matter expertise. We retain them under the, under the protection of the attorney client privilege that we have as lawyers. And it allows those non lawyer experts to work as consultants with us in helping to defend, uh, you know, whoever our clients are, whether they're individuals or companies. And it, it really provides a tremendous benefit because it cloaks the communications that we have with those experts again, with, with the protection of the attorney client privilege, meaning they are confidential.
Matthew (05:29):
And the government, you know, investigators from the government or prosecutors cannot pry into those conversations with our, uh, with our experts. So those kovel agreements are really a critical, uh, tool in, um, in the defense attorneys toolkit when, you know, when dealing with a government investigation. And then let me just say one more thing about the use of experts. Um, we're talking really what we're talking about here are financial fraud cases that are, you know, often, um, they can involve mountains of paper, um, sophisticated books and records of accompany, accounting records, bank records. So in my cases, um, we almost always are going to be retaining the services of a forensic accountant or, you know, perhaps a team depending on how sophisticated and how complicated the work is, but we are almost always going to be retaining the services of an accountant to help us, um, review those financial records and, um, really drill down into, you know, what can be really complicated.
Matthew (06:32):
Um, and for luminous, uh, financial records. So particularly in tax cases, which as I said is a lot of what I do. I'm always, almost, almost always looking to bring on a forensic accountant expert. And, you know, in some cases we'll look to hire someone who might have worked for the IRS early on in their career and has come out into the private sector. Those types of experts can be really helpful because they can bring the perspective of having worked at a government agency earlier on in their career. And they can bring that to, um, to the defense team, which is oftentimes really invaluable. Yeah.
Leah (07:06):
I'm glad that you mentioned the kovel agreement because we haven't really talked about that on the podcast at all. And, um, and most of my experience with it has been on the defense side of things. What have you found, uh, like you mentioned hiring experts who have experience with the IRS and so forth, but is there's something, uh, you know, what have you found useful about hiring investigators or experts? You mentioned handling the massive amounts of information or paperwork. Is there anything else,
Matthew (07:39):
Uh, in a lot of financial fraud cases, there's a question of, you know, where the money went, you know, if there's an embezzlement or a theft or some sophisticated, um, transactions where there's, there's a lot of money moving around, you know, a lot of times what we'll need to do is trace the money and, and, you know, and that's exactly what the government is doing. You know, there are teams of investigators on the other side of this equation who worked for the government, whether it's the IRS or FBI or sec, they're doing that work, you know, on the, on the government side. And so we need to do the same thing, you know, to, to, to zealously defend our clients, represent them in these investigations. We need to have our own investigators, oftentimes their accountants, as I mentioned, you know, pouring through these records and tracing money, um, recreating, um, complicated financial transactions, if, you know, uh, if that's what the case is about.
Matthew (08:35):
Um, so there's really a wide variety of, um, tools and tasks that we rely upon accountants to do. Cause look, frankly, you know, most accounts, most lawyers aren't, you know, sophisticated, um, financially and they need the assistance of accountants. And frankly, that's what the whole, that kovel case I mentioned that goes way, way back decades in that case, the court recognized that lawyers need, uh, you know, there are times when lawyers need the assistance of financial experts and, um, and that was really the whole premise of the kovel decision from, from OSA many years ago, but it continues to be, to, to be widely used, uh, now, uh, and, and certainly will be for the, for the foreseeable future as a, as a critical tool to, you know, have that accountant be part of the defense team and within the, the, the limits of confidentiality.
Leah (09:24):
Yeah. So for those of our listeners who maybe have never worked both sides of a fraud case, or, or any type of case in my experience, whenever I've worked of fraud case from the defense side, you know, at first it felt like, or one of the first ones I did, and it was a bank fraud case, and I felt like, Hmm, am I recreating the work that the government already did? Uh, and in a sense, I did do that, but also I was looking for, you know, kind of, it's not like I got their work to check it. It was more so checking their methodology of how they did this. And in this case, I found that, um, they had traced money between all these different bank accounts, but they didn't identify how my client benefited from all of these funds that he allegedly stole. And so, you know, that's where at least in that case, that was one of the ways that we were able to create value in that case. So do you find, I don't know, just kind of that balance between redoing something to maybe end up at the same result as law enforcement, or do you find that just by looking at it from a different perspective, it can help build your case.
Marissa (10:33):
So I think looking at it, having our own person look at it, it gives us the benefit of poking holes in what the government thinks happened or the government's story that they're presenting. And it also sometimes allows us to demonstrate to the government that our client isn't necessarily the bad actor.
Leah (10:57):
Yeah. That makes sense. In fact, that you saying that reminds me in that same bank fraud case, we didn't get to prove any of this, but after looking at the evidence, it actually looked like perhaps my client's employee had been the one to commit the loan fraud. So, um, that resulted in this big mess. So, um, okay. So to make sure that we have plenty of time to talk about this paycheck protection program. I mean, cause I could, I could just keep asking you questions about, uh, criminal offense in fraud cases. But I had the privilege of listening in, on a presentation where, um, Matt, I know you were presenting about fraud and the pay checks protection program. And so you have developed, or you all have developed resources reporting on the PPP fraud statistics. So what kind of inspired this tracking and creation of resources and you know, why did, why did you guys start looking at, at these trends? Well,
Matthew (11:53):
That's a good question. And so early on in the pandemic, when, when it, when we started to see Congress, you know, start talking about injecting significant minimum amount of money into the economy and that, you know, that really came together very quickly throughout the month of March. But, you know, we started thinking about, you know, what happens when there is a tremendous infusion of stimulus money into the economy and you can look at history to see this, um, the most recent time when there was a significant stimulus was back in 2008. Um, when we had a severe economic recession, Congress reacted by, uh, by, um, you know, electing to, to inject, you know, billions of dollars into the economy. And, you know, when there's that much money flowing into the economy, you know, there are tremendous opportunities for fraud. And we saw that in the 2008 economic crisis.
Matthew (12:52):
So when we saw the same sort of thing playing out here in the pandemic, we started thinking about, well, you know, obviously Congress is doing, you know, it's doing a good thing here by making money available to individuals and to small businesses that are facing really unprecedented economic hardships as a result of the pandemic. But at the same time, this amount of money is providing a tremendous opportunity for fraudsters. So we started thinking about, you know, how do we, how do we keep an eye on this? How do we track the fraud that's that will undoubtedly flow from the hundreds of billions of dollars that, um, came out of the cares act, uh, in late March. And so we, we decided early on that we were going to look at particularly, we're going to focus on the paycheck protection program, which is really one of the signature provisions of the cares act.
Matthew (13:45):
And in the first round Congress allocated about $650 billion of PPP funds to businesses, uh, in the form of loans that could be forgivable, um, to pay payroll and related expenses. And, um, so we started focusing on, on, on the PPP program just because it was one of the biggest, um, you know, by dollar amount, one of the biggest, um, programs under the cares act and it, and frankly, we've just sort of thought that there would be a tremendous amount of fraud, um, unfortunately associated with that program. And it's turned out that that's been absolutely true. So one of the things we've been doing is we've been tracking all of the criminal cases that have been filed against borrowers who got PPP loan, PPP funds, and it's really been extraordinary. I mean, we can talk about some of the trends we've seen, but just the sheer magnitude of the number of cases that have been filed in, in about six months, you know, we're up to, you know, at last count, I think we're over 160 criminal cases been filed across the country against PPP borrowers since may of 2020.
Matthew (14:56):
So just a few short weeks after Congress passed the cares act and the president signed the bill, you had criminal charges being filed the first week in may in Rhode Island against a borrower. I mean, you know, six weeks later, it's just, you know, law enforcement in a white collar case just doesn't ever move that fast, frankly, it's just extraordinary how quickly this, um, th the, the federal law enforcement agencies reacted, um, to investigate these cases and to bring charges. And so, you know, we just felt like this would be, this is going to be a, um, a real trend in white collar criminal enforcement. And, and, and it's gonna, I think, frankly, this is going to be a hot topic in government investigations and prosecutions, you know, not just for 2020 and 2021, but this is going to continue for quite some time. And it's just, there's so much money. There's so much opportunity for fraud. And, and I think we've really just in many ways, sort of, we're just seeing the tip of the iceberg of the fraud that's associated with this program. So there's undoubtedly more to come.
Marissa (16:00):
If I could just add one more thing that kind of inspired us, keeping track and maintaining these resources, is that because of how big this program is and how Matt was discussing the large amounts of money that the government was going was giving out to these borrowers. We knew that the government, you know, couldn't investigate and prosecute every single case. So we really had to learn what kinds of cases the government was going to use its resources on to prosecute. And we were able to figure out, you know, the more egregious cases were coming first, which were the individual frost, fraudsters, you know, buying boats and cars with the government's money and making up businesses and fake payrolls.
Leah (16:50):
Yeah. I was actually going to ask, do you think that based on what you've gathered that these 160 cases that have been filed criminally that they've been able to do so because it has been like pretty obvious egregious.
Matthew (17:04):
I think the one, yeah, the one sort of trend we've been able to, one easy trend we've been able to discern from the data is that these are absolutely the most egregious cases of fraud, the most blatant, blatant example of misuse of, uh, government stimulus. So, you know, these are the easy cases as, as Marissa said, I mean, these are, you know, these are borrowers that, you know, filled out SBA loan applications and certified under penalty of perjury, that they had legitimate companies with legitimate workforces and legitimate payrolls. In many cases, that was, those were just, you know, flat out lies and, um, examples, you know, where people got the money and, you know, instead of using it to pay their workers, they bought Lamborghini's and Ferrari's and went on trips, or they went to Vegas and they gambled the money. I mean, just, just really the, the most egregious examples of fraud.
Matthew (18:01):
And, and frankly, this is what we often just called low hanging fruit. I think these are easy cases for prosecutors and investigators to root out, and they're going to be easy cases to prosecute. And we've already seen a number of guilty pleas that have come out of these cases. And I think it reflects a recognition that there's, you know, there's not much of a defense here for some of these cases. They're just so they're so egregious that there's not really much of a defense. And I think you see, that's why you see so many of the defendants, uh, or a large percentage of the defendants who've been charged so far, you know, are, are stepping forward and pleading guilty because they realize there's just not much, you know, there's not much to fight about,
Leah (18:38):
Wait to see in what you've been tracking, like how law enforcement came to learn about these cases or not the cases, but how the borrowers I guess, were using the money.
Marissa (18:49):
Yeah. So I think the government is notified in a lot of ways. One can be the lenders, you know, if they're getting, if the borrowers are getting this money and then depositing it into their own personal accounts, that's going to be a flag to the lenders. And there's also whistleblowers that if borrowers are taking all of this money and instead of spending it on their employees and on payroll they're instead going on trips or buying luxurious items, people will certainly notify the government. And the FBI makes whistleblowing very easy because they maintain a 24 7 complaint center where people can call at any time and give them tips
Matthew (19:37):
Just to add onto what Marissa said. I think, I think one of the really interesting trends that we've seen is that is really the critical role that the financial institutions themselves are playing in identifying fraud. You know, the way this program was set up is it's, it's administered by the small business administration within treasury, but the, but the loans themselves are, are, um, you know, the loan application process is managed by your private banks and the funds are dispersed by private banks. So, you know, these financial institutions, um, are really on the front lines. They are the gatekeepers in many ways, um, to find, and to report fraud. And I think it's clear. And by the way, there were, there were more than 5,200 banks who participated in PPP one. So this has really spread out. I mean, this is not, you're not, you're not just talking about the top five largest banks in the country.
Matthew (20:31):
I mean, you're talking about banks all over the United States, big small community banks, but these banks really are on the front lines. And it's clear from reading, um, the court filings in these early criminal cases that a lot of the fraud was brought to the attention of law enforcement by the banks themselves. They grew suspicious about loan applications were about interactions they had with these borrowers and through the filing of what are known as suspicious activity reports or SARS. I think it's clear that, you know, a lot of these tips and leads are coming right from the banks themselves. So it's an interesting, you know, it's an interesting lesson, I think in how law enforcement gets, you know, how, how law enforcement gets cases. And at least in this area, a lot of them are coming from the banks themselves. A lot of the leads.
Marissa (21:20):
Interestingly enough, we also expect that some of those lenders will face liability themselves because some of the applications, it's not just that these borrowers are lying, but that the information wasn't there on the application to begin with and the lenders still gave the money. So why the SB guidance states that the lenders can reply on the borrow representations in those applications? Uh, investigators will likely examine whether the lender knew or should have known that certain information on their missing information was either inaccurate or false. Um, so the lenders that are not kind of investigating and giving information to the government, uh, they can expect to be in the crosshairs of the government's investigations.
Leah (22:12):
We'll be right back to this interview
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Leah (24:00):
Welcome back to the podcast. Yeah, I thought I remembered in the first round that banks were going to be held harmless or, you know, indemnified and could rely, like you said, on, uh, borrowers representations, but then just as Matt mentioned, there's still this BSA component and suspicious activity reports that I would imagine just because this one program, they weren't going to be held harmless, surely that didn't exempt them from having to report suspicious activity and BSA type thing. So I don't know. I think it's good that that's where these leads are coming from, because other than people reporting, like you said to the FBI hotline and, you know, kind of relying on whistleblowers, the best way to know would be from how are people spending the money, which is what the banks have access to. So now that we're moving into PVP round two, has anything improved in preventing or reducing fraud that you've seen
Matthew (24:54):
To answer, you know, to really, to be candida is I'm not sure. Uh, I mean, one thing we do know for sure is that I think the banks themselves learned a lot from PPP one. I think the government learned a lot from PPP one. Um, so, you know, I would think that, and we'll see how this plays out, but I would think that, um, the, the SBA will, um, be more, hopefully be more clear in the guidance. It publishes. I mean, there was a lot of unclear guidance and changing guidance that came out from SBA over the course of PPP. One, which left a lot of borrowers and banks sort of scratching their heads because the rules kept changing. And, um, it wasn't, you know, there wasn't sort of clear direction from, from SBA on a lot of key issues. Hopefully a lot of that uncertainty has been resolved, um, in favor of certainty.
Matthew (25:49):
Now that we're in PPP too. I also think though, just again, going back to something we talked about just a moment ago, I mean this, the sheer magnitude of 160 or so criminal cases being filed in a short period of time as a result of PPP, one, I think is going to be a really important lesson and message to the financial institution community that, that banks really need to be vigilant, even if they weren't, they need to be, they need to be vigilant. And even if they were vigilant before, they need to be even more vigilant now in watching out for fraud or indicators or fraud, um, with PPP and, you know, deterrence is, is really, uh, you know, deterrence is always a big part of law enforcement and prosecuting wrongdoers. And clearly the justice department, you know, by bringing 160 criminal cases and counting.
Matthew (26:46):
I mean, they, you know, it's like almost every day, you see another criminal case, so that it's not like that number is static. I mean, that's that number is going to continue to climb. But I think the justice department's hope is that by bringing such a quick, um, an overwhelming number of prosecutions early on through PPP one, that that will be a sufficient deterrent or a significant deterrent to would be fraudsters that are thinking about doing it in PPP too. I mean, there's no way that we're going to eliminate fraud in PPP two to zero, but I think the hope is that, um, there won't be as much, uh, you know, of course, you know, who knows these are, you know, these are, these are our speculations. And, and we really won't know for sure until we have the benefit of, of, of sort of looking back in time, once we get through PPP two. But I, but I do, I'm confident that there is a expectation on behalf of the SBA and investigators and prosecutors that, um, there will be less, uh, you know, there'll be lower instances of fraud with PPP two, just because sort of put the programs have been tightened up now we're now that we've, we're in the, in the second iteration.
Marissa (27:56):
Yeah. I think the most egregious cases of fraud will probably slow down with PPP two because of the deterrence from the DOJ press releases about these prosecutions. However, there, the PPP two program created these additional hurdles and potential issues for borrowers. So the less egregious cases, you know, we're dealing with issues in the second draw PPP loans that we didn't have to deal with in the first draw PPP loans. So again, there's no guidance on those issues. And I think people are filling out these applications and getting these loans who may not be entitled to the funds
Leah (28:42):
Leads me to, okay. So if, if the egregious cases are being worked and maybe there's even fewer of those on round two, just because of the changing guidance throughout round one. And now again, to everything just kept changing. And sometimes things were changing after employers had received this money and looking at how it could be used, and then kind of looking at the discretionary, uh, of, of how those funds could be used. I am kind of curious as long, how deep into this as law enforcement going to look when perhaps when somebody received the money, it wasn't against the guidance or the confusion on paying federal employer taxes. And, you know, we tried to issue our own tools as we were working through this based on the guidance, you know, that here, this is how much of this PPP money you can use, but if people commingled those funds and, and you know, like how granular do you guys have any thoughts on how granular this might get, um, with these kinds of investigations?
Matthew (29:48):
I mean, look, that's a great question. And it's one that we think about and have been thinking about, you know, since we started this exercise of tracking all these cases to your first question, though, about the changing nature of the guidance and, you know, some, some people say, you know, the goalposts were constantly moving during PPP one. I mean, that's sort of, you know, that's a defense lawyer's dream almost, you know, how in the world is a prosecutor going to be able to prove intent criminal intent in a criminal case beyond a reasonable doubt when, when the SBA isn't giving clear guidance to the borrowing community about things like, you know, what are the eligibility criteria for applying for a PPP loan? What are the permitted uses of PPP, um, funds when, when the government is giving conflicting and, or changing guidance to borrowers, how can you prove criminal intent?
Matthew (30:48):
I just, I think it's going to make it very hard for prosecutors to build criminal cases. You know, once we get past all this, this early stuff, which is, you know, there's no question that, you know, you couldn't use PPP funds to buy a fancy car. I mean, no one is arguing that the guidance was unclear on that subject. I mean, those are the clear cases, but we're going to get past these easy cases and we're going to get into some tough cases. And I think frankly, that's when we're going to start to see the breakdown between criminal cases and civil audits, you know, we, haven't seen a whole lot of activity on the civil side and, you know, there is going to be, I think, a significant amount of civil audit activity of borrowers. And those are going to be cases where, you know, you couldn't prove criminal intent, but, you know, maybe you can prove that the borrower, um, you know, wasn't completely accurate on an application or on certification or, or, or, or slightly misused the funds. And you could prove it, you know, uh, by a much lower civil standard, but certainly not by a criminal standard. So I, I just, I think we're going to start to see this, this we're going to start to see a lot more civil activity. We've already started to see a little bit, but there's, there's definitely more to come on the civil side.
Marissa (31:59):
And in terms of the crimes that prosecutors so far are trying to fit this in, we're talking about bank fraud, wire fraud, mail fraud, you know, false statements to the lender, false statements to the SBA, aggravated identity theft. So there's very clear elements that the government has to prove for those. And if someone's using a fake social security number, if someone's leaving an application blank or someone's putting in clearly false statements, then you know, it can be easier for the government to prove those cases. But if it's not such blatant fraud, I think what Matt is saying is the government will be forced to have these cases resolved in a civil context.
Leah (32:49):
Well, and as you were mentioning that I started thinking about, okay, fraud in the, like these more granular, like civil audits and just audits in general, should you have received the funds and did you spend it properly or according to, you know, the guidance so forth, but then there's another application, which is the forgiveness piece and essentially having to audit or, um, kind of look at, did people, I mean, I guess they kind of work hand in hand, but still people may not have, I, I don't know. I could just see that starting a whole nother slew of audits and stuff on the forgiveness piece as well.
Marissa (33:26):
Definitely. So when people start to go for forgiveness is when they're starting to realize that they may have made errors in the application in the first place. And that's when they're coming to us, thankfully, because if you submit this forgiveness application that is going to have the lender review, everything that you did. And so if you did something by mistake, if you did something fraudulent, um, or just negligently, it's going to get flagged when you go and try and get forgiveness,
Matthew (33:58):
It's clear that, you know, the forgiveness aspect of this, it's a, it's another, you know, what we sometimes call a touch point. It's another opportunity for the lender and the SBA to take a look at a borrower. And, you know, so it's not just at the, on the front end with the application, but it's, it's, it's also the forgiveness piece. And, you know, frankly, there probably are going to be instances where borrowers who got the money and, you know, we're, you know, likely they were eligible for the funds and they got the money, but they may, you know, they may not want to apply for forgiveness. You know, there may be issues with how they spent the money and they, it just might be a better and a safer decision for the borrower to simply not apply for forgiveness and just repay the loan. According to its terms, we're starting to see those kinds of questions come up a good bit in our practice. You know, you've got borrowers who are, who are confronting that tough question about whether they should even submit a forgiveness application at all, or, or maybe they submit a partial forgiveness application and they agree to repay, you know, some, some remaining portion of the loan. These are all tough issues. Um, that, that, that, that borrowers across the country are, are, are dealing with right now,
Leah (35:13):
Because there is on the forgiveness side. Uh, you know, if you're concerned about it, obviously get some advice and help, but maybe just consider paying it back to, um, avoid issues on the forgiveness side. So one of the things I thought was really cool from your presentation, uh, that I heard earlier this year, or I guess in 2020, but was about your PPP fraud prosecution. I'm curious, how does this work? How does somebody get a copy of this and what are some takeaways from that data you'd like to share?
Matthew (35:43):
Yeah, thanks for asking about our tracker. That's something we're really proud of. Um, this is, this is, you know, we talked earlier in our conversation today, um, you know, about how we sort of got into this at the beginning of, of the pandemic. And so we, you know, one of the tools we created is something that we call our pro PPP fraud, prosecution tracker, and it is a, um, you know, a tool we've created to track every criminal case that's filed against a borrower. And like I said, the first case was filed the first week in may, 2020 in Rhode Island. You know, at last count, as of close of business yesterday, we were just surround 160. Um, so we, you know, what we do is we monitor every one of these cases. You know, we, we track these cases from the time they're filed in court.
Matthew (36:38):
We monitor them as they work their way through the criminal justice system. We keep track of dispositions. Um, you know, is there a guilty plea, um, is there going to be a trial? Uh, if there's a conviction, what's the sentence now we're still early on and there's only been a handful of guilty pleas. And I think, uh, at last count, I think there's only been two sentence sentences handed down, you know, so we're still sort of early on in that part of the, of the process, but, um, you know, we're just tracking all that data cause we, we felt it would be helpful to have it all in one place. And, you know, as we monitor these cases in real time, it's our hope to draw, you know, to draw trends and see, you know, where's law enforcement focusing its resources, are there trends that we can draw out of the data that we can use to advise our clients, you know, as to where, you know, where they might be at risk and you know, things of that nature.
Matthew (37:36):
So, um, I'll let Marissa in a moment talk about some of the trends we've been observing. Um, but we will make this tr we make this tracker available to anyone who's interested. And, um, if you want to get access to it, uh, all you need to do is send an email to either me or Marissa and we will, I'm happy to, you know, get you access to the, to the data set and, uh, and, and then you'll have access to it. And you'll see it updated. Like I said, as we, as we updated in real time.
Marissa (38:06):
And I think we're lucky in the sense that we started tracking these cases and keeping a close eye on them when we did, because the trend may now change because what happened under the Trump administration and with that administration decided to spend its resources on may change under president Biden's administration. So we're really keeping a close eye on that now where if the Trump administration was maybe focus more on individual fraudsters and egregious actions, uh, president Biden's certainly said when he was running, that he wanted to focus the government's expenses on corporate crime. So we might see larger businesses and larger companies come under investigation. And for other trends that we've noticed, and Matt correct me if I'm wrong, I believe the Southern district of Florida still has the most cases so far. That's right. And we also want to look at sentencing and what kind of sentencing enhancements are happening for these cases. And certainly you can expect, you know, a sophisticated means enhancement to come at sentencing. So is it really
Leah (39:23):
It's to sentencing is the fact that this is, could this be considered fraud against the government. And do you think that plays a part in some of the sentencing as well? Have you seen any cases prosecuted like that?
Marissa (39:37):
I think most of them are going to be fraud against the government, um, or false statements to the lender. And so that obviously is going to weigh heavily if it's an egregious case for bank fraud or wire fraud or mail fraud, and they can track where the money went, that it was taken from the government, um, through the lender and to this individual, and then spent on things that shouldn't have been spent on it is clearly defrauding the government and they are not, they're going to come down hard on those cases, and they're going to use every sentencing enhancement that they can. And because these tend to be financial crimes, financial fraud, a sophisticated means enhancement is certainly going to be expected. And so you start to add on these levels at sentencing to the guidelines, and you're talking about years and years.
Matthew (40:34):
I mean, look, I totally agree with Marissa, and this is absolutely fraud against the government. I mean, this is, you know, this is a government program. The SBA is guaranteeing these loans, you know, even the, even though the program is being administered by private financial institutions, this is absolutely government money. And you know, where appropriate these cases will be prosecuted criminally and, you know, as fraud against the government. No question about that, but it, but it also raises I think an interesting, um, corollary issue is that because you're talking about this is, you know, this is a government program with government Monday Mo government money. It brings into play, um, another federal law, which is called the false claims act. And the false claims act is a law that goes all the way back to reconstruction. So it's been around for, you know, for 200 years and it was designed to protect fraud against fraud, you know, in connection with, um, work that was being done to rebuild, rebuild the south, following the civil war.
Matthew (41:40):
But that law is used regularly to, um, to pursue fraud against anybody who does business with the United States government. And we're already starting to see that law being used here in the PVP context. So, um, making a submitting of a loan application, that's premised upon fraud or submitting a forgiveness application, that's premised upon some form of fraud can subject the borrower to civil liability under this false claims act. And the false claims act provides for treble damages, meaning whatever damages the federal government suffered as a result of the false claim. Um, the borrower has to pay, you know, triple the amount of that money. And there are also significant civil penalties that can be assessed under the false claims act. So I really just think we're starting to scratch the surface of the false claims act, but that is I think a trend that we will see unfold over the course of 20, 21 and years to come is, is, is not criminal, but this is, this is a, a tool, uh, to impose civil liability, um, against borrowers, um, who, who are alleged to have committed a fraud against, um, you know, a fraud in connection with the PPP program.
Leah (43:01):
Yeah, for sure. I mean bank fraud, loan fraud, those are serious things. Of course. I mean, any type of fraud is, but fraud against the government. And then I hadn't even thought about the false claims act, uh, side of things. And I know when I worked for the bureau at the beginning of my career, um, one of the agents there knew, you know, she knew that I would work any case. She gave me, I was very, uh, excited to work in case. And so she had a bunch of, um, fraud against the government cases related to hurricane Katrina and FEMA funds. And these individuals, I remember I testified for a grand jury about three individuals, and I think they all stole less than $10,000, but the federal government was investigating them and, uh, just all the penalties and stuff that came with that. So yeah, I could definitely like, it is a serious thing. So I hope that businesses are considering that as they're either applying for loan funds the second round or the, uh, forgiveness applications and things. So thank you both so much for your time today. It's been a pleasure talking to you and if our listeners would like to obtain more information or about your resources, um, or connect with you, what's the best way to do so.
Marissa (44:13):
Yeah. So our emails, uh, mine is Mkingman@foxrothschild.com and Matt's is mlee@foxrosschild.com. And you can just go to Foxrothschild.com and look us up and we have a Fox Rothschild COVID resource center, or you can get resources on everything COVID related, including everything that we've discussed today and the tracker. And we also have a blog on the, on tax and financial crimes.
Matthew (44:45):
Yeah. So we, we, you know, as Marissa said, you know, we'd, we'd be happy to talk to anybody. Who's got questions about, uh, PPP, um, the PPP loan program or government investigations in general. Um, we're happy to, uh, to field those calls and emails. So please feel free to, uh, to reach out to us as Marissa said. And we'd be glad to talk to anybody who has any followup questions to, to the, to what we've talked about today.
Leah (45:12):
Awesome. Well, thank you both so much, and we'll make sure to put links to all of those resources in the show notes, and it's really been a pleasure. Thank you so much.
Marissa (45:20):
Thank you for having us.
Matthew (45:22):
Thank you for having us. It's really been a pleasure to be here today.
Closing (45:24):
Thank you for listening to the investigation game. For more information on any of the topics brought up on this show, visit Workman forensics.com. If you enjoyed our show, be sure to subscribe and leave a review. You can also connect with us on any social media platform by searching the Workman forensics. If you have any questions or topic ideas, please email us@podcastatworkmanforensics.com. Thank you.