Best Practices: Certifying Records Requested in a PPP Loan Investigation

Considering the billions of dollars in PPP loans that Lenders made without being able to employ its customary underwriting and due diligence procedures, it is not surprising that investigations are popping up all over the place into possible fraud and abuse by borrowers.  Because the SBA has been designated to administer the PPP loan program, the SBA is involved in the multitude of investigations that are underway.    

The SBA has immediate access to a vast amount of electronic data that has been accumulated when the PPP loans were being processed.  The SBA is creating software programs that search and evaluate this vast amount of information to identify discrepancies that may be evidence of wrongdoing.  The SBA is using this information to identify questionable loan transactions.  Investigators from various agencies, including the Department of the Treasury, the Federal Bureau of Investigation, and the SBA’s Office of Inspector General, are contacting Lenders all over the United States and requesting that documents that refer or relate to PPP loans be produced.  Sometimes these requests are in the form of a subpoena, and other times they are direct requests from the SBA pursuant to its authority under 13 CFR § 120.1010 to access information with regard to SBA loans.  

In requesting these documents from a Lender, the Lender is being informed that its obligation to produce the documents includes the obligation by the Lender to provide information to authenticate the records.  This information can be provided in one of two ways:  testifying before a grand jury or another duly constituted investigative proceeding; or by providing a sworn certification regarding the authenticity and origination of the records being produced.  The choice is obvious.  Lenders sign a sworn certification.  

To facilitate the preparation of the certification, the investigators are routinely providing “fill in the blank” forms for the Lenders to use.  However, even though these forms are provided by the Government, they are not tailored to the types of documents that are in a Lender’s possession regarding PPP loans.  More important, the Government supplied forms require that the Lender certify to matters beyond their knowledge.

One of the Government’s goals in getting information regarding the origination and authenticity of these documents is to establish that these documents are admissible evidence in a court proceeding.  That is an admirable goal.  However, the form declarations that are being provided often go beyond what a Lender can properly say about the creation of the documents.  

For example, many documents are admissible as evidence in a court proceeding pursuant to the business records exception to the hearsay rule.  R. 803(6), F.R.E.  In order to establish that a document is admissible pursuant to this Rule, the proponent of the documents must present evidence that the document was created by a person with knowledge, at or near the time of the events recorded in the document, meaning in the course of the Lender’s regularly conducted business activity.  Furthermore, the proponent must present evidence that the making of the record is a regular practice of the Lender with regard to the activity that is recorded in the document.  In many of the form certifications being provided, the Lender is being asked to certify that all the records it is producing are admissible evidence pursuant to this Rule.  

There are a number of potential problems with the Lender making this blanket statement.  Importantly, the Lender did not create most of these records and therefore has no knowledge of the circumstances under which they were created.  Almost all of the documents that are in the possession of a Lender with regard to a PPP loan were either provided to the Lender by the Borrower (i.e., tax forms, personal identification, certificates of incorporation), created by the Borrower using forms available on the Lender’s PPP loan website, or created by the Lender based on information provided by the Borrower (i.e., the loan agreement and the note).  The Lender should not be making representations about the creation of documents it did not create or based on information provided by persons that the Lender cannot vouch for.  Additionally, the Lender should not be providing an opinion on the admissibility of these documents in evidence.   

In sum, Lenders need to ensure that the representations they make about any documents which they produce are accurate.  Lenders should recognize that any documents provided to the Government may very well be integral to any criminal investigation.  Accordingly, inaccurate representations may create unforeseeable consequences for the Lender.  While it may be expedient to simply execute the Government form certification regarding the authenticity and origination of the records being produced in these PPP loan investigations, Lenders should be aware that such a policy does not relieve the Lender of its responsibility to provide true and accurate representations to the Government.    

For assistance with requests from the Government concerning PPP loans, contact the attorneys at Starfield & Smith at 215.542.7070.