The Department of Justice appears to be shifting its focus from investigating fraudulent behavior by Paycheck Protection Program (PPP) borrowers to investigating lenders and related institutions.

What Has Happened So Far?

• Since the inception of the PPP, DOJ has mainly focused on people who borrowed PPP funds using fraudulent documentation, inflated figures and/or spent the funds on prohibited uses, including egregious examples like luxury vehicles and expensive jewelry. The Department also has investigated reported fraudulent activity in Economic Injury Disaster Loans.
• So far, only one publicly reported matter involves an action against a PPP lender: In September 2022, a regional Texas- and Oklahoma-based bank settled with DOJ for approximately $18,000 to resolve allegations that it improperly made a PPP loan to an ineligible borrower. DOJ alleged that someone who owned more than 20% of the borrower’s company faced criminal charges, which made the company ineligible to receive a PPP loan, and that the lender knew this but made the loan anyway.

What is Changing?

• Evidence suggests that DOJ is turning its attention to PPP lenders and other non-borrower companies involved in lending. DOJ’s acting COVID enforcement chief, Michael Galdo, has noted that cases against PPP lenders take more time than others to build, but warned that he anticipates more activity in this space.
• As in the 2008 financial crisis, when the government investigated mortgage lenders, we expect the...

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