A Closer Look at the SBA’s 11 “Fraud Indicators” in PPP and EIDL Investigations
August 24, 2023
In a recent update on the federal government’s ongoing efforts to prosecute Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) fraud, we noted that the U.S. Small Business Administration (SBA) has identified 11 “fraud indicators” based on its enforcement efforts to date. As we also noted in the update, while these indicators are not necessarily indicative of fraud, they are red flags for the government, and they are likely to trigger scrutiny in many cases.
In this article, we’re discussing these 11 “fraud indicators” in greater detail. With PPP and EIDL fraud investigations leading to criminal prosecution in many cases, taxpayers who have concerns about their PPP or EIDL loans should consult with a federal defense lawyer promptly.
The SBA’s 11 “Fraud Indicators” in PPP and EIDL Investigations
As the SBA explains in its COVID-19 Pandemic EIDL and PPP Loan Fraud Landscape report, its “fraud indicators . . . illustrate the types of schemes SBA OIG and other oversight agencies continue to unravel and then prosecute.” However, while federal law enforcement agencies often talk in terms of “schemes” and “scams,” many of the individuals prosecuted in these cases were simply trying to keep their businesses afloat at the height of the COVID-19 pandemic.
Even so, these individuals can face substantial penalties, and all individuals targeted in PPP and EIDL fraud investigations must be prepared to execute comprehensive and strategic defenses. This includes (but is not limited to) countering any purported evidence of the SBA’s “fraud indicators”:
1. Hold Codes
When processing PPP and EIDL loan applications, the SBA and its third-party lenders would flag issues that gave rise to fraud-related concerns, and then the SBA would apply hold codes to these suspect loans. Now, the SBA and other federal authorities are using these hold codes to identify both loan recipients and unsuccessful loan applicants to target in PPP and EIDL fraud investigations.
2. Foreign or Matching IP Addresses
Federal authorities are also using IP addresses to identify suspect PPP and EIDL loan applications. Specifically, the SBA has noted that (i) foreign IP addresses “are an indication of potential fraud that may involve international criminal organizations, and (ii) PPP and EIDL loan applications submitted from matching IP addresses in the United States “hav[e] a higher likelihood of fraud.”
3. Invalid and Duplicate EINs
The SBA’s fraud landscape report states that the agency has “analyzed all disbursed COVID-19 EIDLs and PPP loans to determine if the application shared an EIN with another application.” While the report “acknowledge[s] that some businesses could have multiple entities associated with a single EIN,” the SBA states that its investigative efforts in this area have “detected more fraud than legitimate businesses.”
Federal authorities are also now scrutinizing the validity of the EINs included on PPP and EIDL loan applications, and the SBA is now looking to see if loan recipients’ EINs were registered after the programs’ respective cutoff dates as well.
4. Matching Bank Accounts and Routing Numbers
Similar to shared EINs, the SBA is also focusing on loan recipients with shared bank accounts. Among other issues, the SBA is focusing on cases in which loan applicants changed the bank account numbers associated with their applications after “having bypassed the controls” put in place to prevent multiple loans from being deposited in the same bank account.
5. Default/No Loan Forgiveness
According to the SBA, “borrowers who fraudulently obtained PPP loans are unlikely to apply for loan forgiveness because they had already obtained the funds and had no intention of repaying or using loan proceeds appropriately.” As a result, while there are various reasons why a borrower may have defaulted on its loan or not yet applied for loan forgiveness, the SBA is nonetheless considering both of these to be red flags for fraud.
6. Hotline Complaints
According to the SBA’s fraud landscape report, the agency has received “more than 250,000” hotline complaints alleging PPP and EIDL fraud. The SBA is now using these complaints to identify loan files to review—and it is taking action in cases in which hotline complaints appear to be substantiated.
7. Sole Proprietors and Independent Contractors Without EINs
While sole proprietors and independent contractors were generally eligible to receive PPP and EIDL loans, early restrictions prohibited these applicants from obtaining more than $1,000 under the EIDL. However, by claiming to have multiple employees (claims that were not vetted by the SBA), sole proprietors and independent contractors could fraudulently obtain loans in excess of this amount. These loans are now “fraud indicators” for the federal government.
8. Suspicious Phone Numbers
Matching phone numbers on PPP and EIDL loan applications are also “fraud indicators” according to the SBA.
9. Suspicious Physical Addresses
The same is true of matching physical addresses.
10. EIDL Advances
As the SBA’s fraud landscape report notes, “EIDL advances aided millions of legitimate entrepreneurs during the early stages of the pandemic.” However, as the report also notes, “[the SBA’s] audit work has found that fraudsters also took advantage of this vital component of the COVID-19 EIDL program.”
Here, too, despite being labeled as a “fraud indicator,” many EIDL advances were legitimate, and even if an applicant improperly obtained an advance, this does not necessarily mean that the applicant’s mistake warrants criminal prosecution. Yet, many individuals who obtained EIDL advances can expect not only to have their advance applications scrutinized but to have their PPP and EIDL loan applications (if any) scrutinized as well.
11. Suspicious Email Addresses
Finally, the SBA has identified loan applicants’ email addresses as “fraud indicators” in some cases. This includes situations in which an email address appears on multiple applications as well as situations in which multiple applications include similar email addresses that appear to be affiliated with a single applicant.
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Our lawyers represent business owners and other individuals in select PPP and EIDL fraud matters. If you are under investigation or facing charges, you can call 888-870-0025 or contact us online to request a confidential consultation.