How Fraudulent Paycheck Protection Program Claims Impact Vulnerable Small Businesses

Last week, the U.S. Attorney for the Southern District of New York announced a $3.2 million settlement with fashion company Alice + Olivia for improperly receiving a Paycheck Protection Program (PPP) loan by falsely certifying that it met the size requirements for eligibility.

The company admitted it had more than 300 employees, exceeding the threshold for a Second-Draw PPP loan, yet still applied for and received $2 million in forgivable funds. It later repeated the misrepresentation during the forgiveness process.

On paper, this is a False Claims Act case. In practice, it’s something much bigger.

Fraud like this drains oxygen from the very businesses PPP was designed to protect.

During the pandemic, countless actual small businesses family-owned shops, local service providers, rural entrepreneurs, and women-owned firms—were fighting to survive. Many were denied funding or received far less than they needed. Some closed permanently.

When large or ineligible companies siphon off relief funds:

• Legitimate small businesses are pushed to the back of the line.   PPP was a finite pool. Every improper loan meant one fewer business could keep its employees on payroll.

• Trust in government programs erodes.   When people see well-resourced companies gaming the system, they assume the programs are rigged or inaccessible.

• Oversight becomes harder and more expensive.   Agencies must divert resources to investigate fraud instead of supporting businesses.

• Small firms face increased scrutiny and administrative burden.   Ironically, the smallest, most honest businesses often endure the toughest documentation requirements because of fraud committed by much larger players.

This isn’t just about one company it’s about the ripple effect.

Fraud at scale creates a narrative that “everyone is doing it,” which harms the reputation of the small business community and undermines public support for future relief programs. And for businesses that truly needed PPP to survive, these cases are a painful reminder that the system didn’t always protect them.

Why this matters now

As states and federal agencies continue to strengthen fraud prevention and internal controls, cases like this highlight why oversight isn’t bureaucracy—it’s equity. It ensures that when the next crisis hits, the businesses most in need aren’t competing with those who never should have been in line.

Small businesses deserve a fair shot. Fraud especially by companies that clearly don’t meet eligibility rules steals that from them.