It did not take long. On April 3, 2020, the Small Business Administration began accepting applications for companies to participate in the Paycheck Protection Program (“PPP”). By early May, the first criminal charges began to roll in. The most attention-getting of these was filed against Maurice Fayne, better known as “Arkansas Mo” from the VH1 reality television show “Love & Hip Hop: Atlanta.” On May 12, 2020, United States Attorney for the Northern District of Georgia charged Fayne with one count of bank fraud in violation of 18 U.S.C. § 1344, alleging that he defrauded United Community Bank in connection with a loan it issued under the PPP. This is among the first prosecutions arising in connection with a PPP loan.
According to the government, Fayne is the chief executive officer and chief financial officer of Flame Trucking Inc. an entity he incorporated in Georgia in 2019. The government alleges that Fayne applied for a loan of $3,725,500 with United Community Bank, and was awarded $2,045,800. In the loan application, Fayne allegedly certified that the loan proceeds would be used to “retain workers and maintain payroll.” His certification notwithstanding, the government alleges that Fayne used a substantial portion of the loan proceeds for other purposes, including payments on loans totaling $80,000, purchasing nearly $100,000 worth of jewelry, and remitting $40,000 in child support. The complaint also alleges that Fayne submitted falsified records to United Community Bank to justify the value of the loan. If convicted, Fayne faces up to thirty years in prison and $1,000,000 in fines.
Fayne’s case follows closely on the heels of another prosecution in Rhode Island on May 4, 2020, alleging the submission of fraudulent applications for PPP loans. In that case, the defendants never actually received any loan proceeds but are alleged to have misrepresented (1) the number of individuals employed by the entities seeking the loans in order to increase the amount of available funds, and (2) that the businesses were in operation prior to the pandemic and at the time of the submission of the application (a condition of receiving PPP funds). The prosecution began after a complaint from a cooperating witness, and is purportedly supported by defendants’ email records, recordings by an undercover federal agent, and a review of records from taxing authorities.
The prosecutions in Georgia and Rhode Island are likely just the beginning of the wave of PPP-related criminal prosecutions. More and more of these cases should come once the safe harbor provision expires and the government ramps up its auditing and oversight functions. These prosecutions also portend a likely increase in civil litigation brought by the government and whistleblowers, particularly via an aggressive use of the False Claims Act. The False Claims Act creates a mechanism for the government and private individuals to recover government funds procured by fraud. In the interim, business-owners and their counsel would do well to make sure that they are submitting accurate applications and using any funds disbursed by banks for the purposes intended by the program.