FEDERAL CRIMINAL LAWYERS

Accused of Inflating Payroll Costs on PPP Application

Welcome to Spodek Law Group. Our goal is to provide every client facing federal charges with aggressive, experienced defense representation. If you’ve been contacted about inflating payroll costs on your PPP loan application, the next decisions you make could determine whether you face civil penalties or federal prison. We’re going to walk through exactly what happens in these cases and what separates people who resolve this quietly from those who end up serving years.

Heres the thing nobody tells you about PPP payroll inflation accusations: the actual amount you allegedly inflated often matters far less than what you do after investigators contact you. We’ve seen cases where business owners inflated payroll by hundreds of thousands and walked away with civil settlements. And we’ve seen cases where the inflation was relatively minor but the owner ended up with a twenty-year sentence because of how they handled the investigation.

That probably sounds backwards. But thats exactly how federal prosecution works.

The $100K Trap That Catches Honest Business Owners

The CARES Act included a rule that most business owners never fully understood. When calculating your average monthly payroll for PPP loan eligibility, you were basicly required to cap any individual employee’s annual compensation at $100,000. That means if you had an executive making $200,000, you could only count $100,000 of there salary toward your payroll calculation.

Freedom Solar learned this the hard way. They weren’t criminals. They didnt fabricate employees or create fake payroll records. They simply included their executives’ full salaries in the calculation because nobody told them about the cap. The result? Their April 2020 PPP loan application overstated their eligible payroll costs. And now the DOJ considers that fraud.

Heres the kicker. The $100,000 cap wasnt intuitive. Nothing in the application made it obvious. And during those chaotic first weeks of the PPP program, with rules changing daily and lenders desperate to process applications, plenty of honest business owners made this exact mistake.

But the government dosent distinguish between “I didnt understand the rules” and “I intentionally inflated my numbers” when they open an investigation. That distinction only matters later. Much later. After youve already made decisions that could destroy your case.

Why “Mistake” and “Fraud” Look Identical to Investigators

This is the uncomfortable truth about PPP payroll inflation cases. When an SBA algorithm flags your loan for discrepencies, the file that lands on an investigators desk looks exactley the same wheather you made an honest mistake or committed deliberate fraud.

The file shows: Application claimed X in monthly payroll. IRS records show Y. The difference is Z.

Thats it. Theres no column for “probable intent.” Theres no early classification as “likely honest error.” Every flagged loan gets investigated the same way. Agents pull your records, interview your employees, subpoena your bank statements, and build a case file.

Your intent – the thing that actualy determines whether you committed a crime – dosent get evaluated until much later. Usually by prosecutors deciding whether to charge you. By then, the investigation has already generated hundreds of pages of evidence. Including, potentially, statements you made to agents when they first contacted you.

And heres were most people make the mistake that transforms their situation from manageable to catastrophic.

The 48-Hour Window That Determines Everything

When FBI agents or SBA investigators first contact you, most people’s instinct is to explain themselves. To clear things up. To show they’re cooperative and have nothing to hide.

This instinct will destroy you.

Michael Fullerton and his wife Tiffany ran businesses in Georgetown, Texas. When investigators came around asking about their PPP loans, they talked. They explained. They provided information.

The Fullertons ended up with a combined 32 years in federal prison. Michael got 286 months. Tiffany got 108 months. Their restitution order exceeded $3 million.

Heres what people dont understand about federal investigations. Every word you say to a federal agent can become evidence. If you say something that turns out to be inaccurate – even if you believed it was true when you said it – you can be charged with making false statements under 18 U.S.C. § 1001. Thats a felony carrying up to five years per statement.

So that “helpful” conversation where you try to explain your payroll calculations? If you misremember a number, get a date wrong, or describe somthing in a way thats inconsistant with your records, youve just committed a new federal crime. One that has absolutly nothing to do with your orignal PPP application.

Todd Spodek has seen this pattern repeatedly in PPP fraud cases. Clients who had defensible cases on the original allegations end up facing additional charges because of statements they made trying to cooperate.

The first 48 hours after initial contact are critical. What you say – or dont say – during this window shapes your entire case trajectory.

What Freedom Solar Got Right That the Fullertons Got Wrong

This is the paradox that explains everything about PPP payroll inflation outcomes.

Freedom Solar overstated their payroll by failing to apply the $100K salary cap. The Fullertons submitted multiple fraudulent applications totaling $3.5 million. You would think the Fullertons would get the harsher treatment, right?

Actually, both situations involved overstated payroll. The difference wasnt the conduct. It was the response.

Freedom Solar’s case resolved civilly. They paid back what they shouldn’t have received, faced penalties, and moved on. No criminal charges. No prison time.

The Fullertons? Almost 400 months of combined incarceration.

What seperated these outcomes?

Freedom Solar didnt compound their intial error with subsequant lies. When the discrepency was identified, there was no attempt to cover it up, no false statements to investigators, no fabricated documents to explain away the numbers.

The Fullertons made different choices. Prosecutors were able to prove not just that the applications were false, but that the defendants knew they were false and took affirmative steps to deceive. The false payroll records. The fabricated banking details. The statements to investigators that contradicted the evidence.

Every one of those subsequent actions turned a potential civil matter into a criminal case. And turned a criminal case into one of the longest sentences we’ve seen for PPP fraud.

At Spodek Law Group, we tell clients: the original mistake might not be fixable. But you absolutly can avoid making it worse.

The Investigation Timeline Nobody Tells You About

Most people accused of inflating PPP payroll costs have no idea how long they’ve been under investigation before first contact. The answer will disturb you.

Federal agents dont knock on your door the week after your loan gets flagged. They spend months – sometimes years – building there case first. They pull your tax records. They interview your employees. They subpoena your bank records. They talk to your lender. They compare your PPP application to every other finacial document youve filed.

By the time that agent shows up at your business or calls your phone, they already have a substantial case file. They already know the discrepancies. They already have documentation.

That “casual conversation” theyre trying to have isnt really casual. Its an attempt to get you to make statements that lock in their case. To contradict your own records. To say something they can later prove was false.

The statute of limitations for PPP fraud extends until 2030 or 2031, depending on when you received your loan. That means the government has years to build their case. They’re in no hurry. They can afford to be patient.

You cant afford to be naive.

Heres the timeline reality that shapes your defense options:

Look at that timeline. The first two stages – where the government is actively building their case against you – happen without your knowledge. You have no opportunity to respond, explain, or correct misunderstandings.

Then suddenly first contact happens. And in that moment, you have to make decisions that will determine the rest of your case. Most people make those decisions without understanding what’s already happened.

Defense Strategies That Actually Work

Lets talk about what actually matters when defending against PPP payroll inflation accusations.

Intent is everything. The difference between civil liability and criminal conviction comes down to whether prosecutors can prove you knowingly made false statements. This means your defense must establish that any errors were:

• Unintentional calculation mistakes
• Based on confusing or changing SBA guidance
• Made in good faith reliance on professional advice
• Consistent with your understanding of the rules at the time

Documentation matters more than you think. If you can show that your payroll calculations followed a reasonable methodolgy – even if that methodolgy was wrong – that undermines the prosecutors ability to prove intent. Did you use the same numbers you reported to the IRS? Did you follow your accountants guidence? Did you apply rules consistantly even if incorrectly?

Early intervention creates options that disappear later. Before indictment, there are possibilities that simply dont exist after charges are filed. Negotiated civil resolution. Voluntary disclosure programs. Cooperation agreements that reduce exposure. The window for these options closes once a grand jury returns an indictment.

The biggest mistake we see is waiting. People think theyre being smart by not “stirring things up” or by hoping the investigation goes away. It never goes away. And while youre waiting, the government is building their case with documents and witness statements that you could have contextualized or rebutted if youd engaged earlier.

Your First Contact Decision Matrix

When FBI or SBA investigators make contact, you face immediate decisions. Heres exactly what to do:

Scenario 1: Agent calls on the phone

• Do: Say “I need to consult with my attorney before discussing this matter.”
• Dont: Answer any questions, even “simple” ones
• Dont: Agree to a “quick meeting” or “informal chat”
• Dont: Provide documents or records
• Outcome: Buys you time to retain counsel and develop strategy

Scenario 2: Agent appears at your business

• Do: Confirm their identity (ask for credentials and business card)
• Do: Say “I want to speak with my attorney before answering questions”
• Do: Ask if you’re required to let them in (usually you’re not without a warrant)
• Dont: Invite them in or show them around
• Dont: Answer questions about your business operations
• Dont: Offer to “just show them the records real quick”
• Outcome: Protects your rights while avoiding confrontation

Scenario 3: You receive a target letter

• Do: Call a federal criminal defense attorney within 24 hours
• Do: Preserve all documents related to your PPP application
• Do: Stop talking to anyone about the case (including employees)
• Dont: Contact the DOJ yourself
• Dont: Destroy, alter, or hide any documents
• Dont: Discuss the situation on email, text, or phone
• Outcome: Maximizes negotiating position before charges

Scenario 4: Agents have a warrant

• Do: Let them execute the warrant (resistance creates new charges)
• Do: Ask for a copy of the warrant to give your attorney
• Do: Note what they take and who’s present
• Do: Call your attorney immediately after they leave
• Dont: Interfere with the search
• Dont: Answer questions during the search
• Dont: Volunteer the location of items not specified in the warrant
• Outcome: Complies with legal requirements while protecting future defense

Common Mistakes That Turn Civil Cases Into Criminal Convictions

Let me tell you about the mistakes that turn manageable situations into prison sentences.

Mistake 1: Talking without counsel

Patricia Williams owned beauty salons in Georgia. When investigators came around, she talked. She explained her payroll calculations. She tried to clear things up.

Prosecutors used her statements against her. She was convicted of PPP fraud for inflating her buisnesses’ payroll expenses to obtain $4.5 million in loans. The statments she made – thinking she was helping herself – became evidance of her knowlege and intent.

Mistake 2: Creating documents after the fact

Golden-Larimore in Missouri didnt just inflate payroll on applications. When questions arose, she created counterfeit IRS forms for nonexistent businesses and inflated income for existing ones. She thought she was fixing the problem.

She got 51 months in federal prison. The document fabrication transformed a fraud investigation into an open-and-shut case.

Mistake 3: Lying to cover the lie

The Fullertons didnt just submit false applications. When investigators dug in, the false payroll records and fabricated banking details kept coming. Each lie compounded the previous one.

286 months. Nearly 24 years.

The pattern is always the same. Someone makes an error on their PPP application – maybe intentional, maybe not. Then investigators come around. And instead of immediately lawyering up and developing a strategic response, they try to handle it themselves.

That never works. Ever.

The Federal Sentencing Reality

Heres what youre actually facing if convicted of PPP payroll fraud:

These charges stack. The Fullertons faced 11 counts between them. Federal sentencing guidelines calculate your sentence based on the total amount of fraud, your criminal history, and various enhancements for things like obstruction or abuse of trust.

And then theres restitution. Courts order defendants to repay the full amount of the fraud, plus interest. The Fullertons owe over $3 million. Thats on top of prison time.

Fines can reach $250,000 for individuals or $500,000 for businesses per count.

Your assets can be seized. Homes, cars, bank accounts – anything purchased with PPP funds or used to facilitate the fraud becomes subject to forfeiture.

What Actually Saves People

Lets end with what actually works. Because despite everything I’ve said about the severity of these cases, people do get good outcomes. They do avoid prison. They do resolve these matters civilly.

And heres the pattern that seperates the two groups. Its not about who had the “best” case factually. We’ve seen people with terrable facts walk away with civil settlements. We’ve seen people with relativley minor discrepencies end up with decade-long sentences. The diffrence isnt the evidence. Its what happened after investigators made contact.

The common denominator in every successful outcome we’ve seen:

They got a federal criminal defense attorney early. Not a business lawyer. Not a general practice attorney. Not their buddy who handles DUIs. A lawyer who specifically defends federal fraud cases and understands how DOJ operates.

They stopped talking immediately. No explanations to investigators. No “just clearing things up” conversations. No helpful document productions without legal review.

They developed strategy before responding. Every communication with investigators was deliberate, planned, and designed to advance a specific legal objective.

They let their attorney negotiate. Instead of fighting in court, they worked toward resolutions that recognized the difference between intentional fraud and honest mistakes.

The SBA Inspector General estimates that 17% of all PPP loans were potentially fraudulent. Thats millions of applications. The government cant prosecute everyone criminally. They have to prioritize. And the cases they prioritize are the ones where defendants made themselves easy targets.

Dont be an easy target.

If youve been contacted about PPP payroll inflation – or if you think you might be contacted – call Spodek Law Group at 212-300-5196 for a confidential consultation. The decisions you make in the next 48 hours could determine whether this becomes a manageable problem or a life-altering catastrophe.

We’ve helped clients navigate these investigations and come out the other side. But we can only help if you call before making the mistakes that close off your options.