Soon after Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in March 2020, the Criminal Division of the U.S. Department of Justice (DOJ) moved quickly to address potential COVID-19 related fraud. One area of early focus was the Paycheck Protection Program (PPP), a program under the CARES Act that provides loans to small businesses to help pay employees. The Fraud Section set up a team devoted to PPP fraud and, within two months of the passage of the CARES Act, had charged several individuals.

On August 9, 2011, the United States Court of Appeals for the Fifth Circuit held that a non-insider's debt claim can be recharacterized as equity in Grossman v. Lothian Oil Inc. (In re Lothian Oil, Inc.).2 The Fifth Circuit, in reversing the district court, held that: (i) there is no per se rule limiting to insiders the recharacterization of debt claims as equity and (ii) non-insider debt claims may be recharacterized as equity under section 502(b) of the Bankruptcy Code.