PPP scams come in all shapes and sizes, but whatever their shtick, they're illegal.
Hedge fund manager is one of the latest to get caught for PPP scam
A hedge fund manager named Gregory Blotnick has been charged for his role in a major PPP loan scam. He reportedly fabricated information on PPP applications with multiple lenders, ultimately amassing $2.4 million in the process.
Blotnick pled not guilty on Apr. 16, but prosecutors say he misrepresented payroll expenses and used them for his own monetary gain. During the process, he wired hundreds of thousands of dollars to a former investor of his firms, Brattle Street GP LLC and BSC Management LLC.
Other fraudulent recipients are getting caught for scamming the program
The U.S. Treasury automatically audits any PPP loans above $2 million. Funding is based on gross earnings for the year, so larger companies receive a larger amount of funding. On Wednesday, Oumar Sissoko of California was charged with receiving $7.25 million in fraudulent funding. He used some of the funds to purchase a car worth more than $100,000 and a computer worth about $6,000.
However, even smaller sums below the $2 million mark are up for questioning. For example, Olivia Ware, a former candidate for a mayoral office in Georgia, was charged in March for fraudulently obtaining $323,000 in PPP loans.
Then there's the South Florida-based tax preparer Leonel Rivero, who submitted 118 fraudulent applications on behalf of people who were in cahoots with him. The total amount of funding was $975,582.
The DOJ is currently dealing with at least 120 defendants.
There's no shortage of fraud cases for PPP loans, and there will surely be more to come to light. The current PPP loan application round, in which independent contractors and no-employee businesses are eligible to receive SBA funding, doesn't end until May 31.
Most of the fraudulent activity occurs in a few key ways. Many are fabricating tax records by overemphasizing their gross income for the previous tax year, which gets them more money. Others are using the funds for ineligible purchases.
While independent contractors are able to pay themselves with the funding, small businesses with employees must use the money for things like payroll and overhead. Buying a six-figure luxury car does not count as an eligible purchase.
There's also the issue of people creating shell or non-existent businesses in order to receive funding. This has been particularly problematic in the Economic Injury Disaster Loan (EIDL) program that specifically caters to agricultural and nonprofit entities.
In short, if you're thinking about trying your hand at a fraudulent PPP loan application, it may behoove you to think again.