Wire Fraud vs. Bank Fraud: Understanding PPP Fraud Charges.

1. Wire Fraud

While often discussed under the umbrella of “PPP fraud” or “COVID-19 fraud,” those terms do not correspond to specific federal criminal statutes. Instead, federal authorities prosecute PPP fraud using a combination of existing federal criminal statutes. Two of these statutes are the federal wire fraud statute and the federal bank fraud statute.

Wire fraud is codified at 18 U.S.C. Section 1343, and it covers schemes intended to defraud that use any “interstate wire communication” to execute the fraud. This includes:

• Emails, letters, and forms sent electronically
• Telephone calls and text messages
• Electronic funds transfers and internet transactions

It is not uncommon for federal PPP fraud charges to involve allegations of wire fraud in conjunction with other federal crimes. For example, multiple PPP fraud indictments allege that defendants executed “wire-fraud-facilitated” schemes.

Wire fraud is a separate federal crime from bank fraud, and it does not have a statutory minimum dollar amount for the alleged scheme. PPP loan applicants who are charged with wire fraud can face up to 30 years in prison and, for an individual, generally up to $250,000.

2. Bank Fraud

While not as commonly prosecuted as wire fraud, bank fraud is one of the federal crimes that can be used to prosecute PPP fraud. The federal bank fraud statute, codified at 18 U.S.C. Section 1344, imposes criminal penalties on anyone who “knowingly executes, or attempts to execute, a scheme or artifice” that is intended to:

• Defraud a financial institution
• Obtain money or property from a financial institution by means of false or fraudulent pretenses, representations, or promises

As specified in the federal bank fraud statute, PPP fraud charges involving allegations of bank fraud do not carry a statutory minimum dollar amount. However, in order to qualify as PPP fraud under Section 1344, the federal government must be able to establish that it has evidence of intentional deception.

Which evidence proves the wire-fraud elements at trial?

To prove criminal wire fraud under 18 U.S.C. § 1343, federal prosecutors must meet the specific evidentiary standards in court. This requires proving each element of the federal offense:

• First, federal authorities must establish that the defendant devised or intended to devise a fraudulent scheme or artifice.
• Second, federal prosecutors must prove that the defendant participated in this scheme knowingly and with intent to defraud.

A wire-fraud conviction requires proof beyond a reasonable doubt of every required element, including a scheme to defraud, the defendant’s knowing and intentional participation with intent to defraud, and the use of an interstate wire communication in furtherance of the scheme. This evidence can range from the digital records to human testimony to government calculations.

1. Electronic Evidence

With most aspects of the PPP fraud investigation conducted digitally, electronic evidence is likely to play a role at trial. This includes:

• Emails, texts, instant messaging apps, and other digital communications
• Metadata and IP addresses tied to loan applications, government website logins, bank account access, or other digital transactions
• Deleted files, browser histories, Internet account records, and social-media posts

Similar to the use of subpoenas, search warrants for these types of records are common during PPP fraud investigations.

2. Testimony From Cooperating Witnesses

Prosecutors may call on a variety of witnesses to testify against those accused of PPP fraud, and these include:

• Cooperating borrowers who have pleaded guilty or who are seeking leniency in return for information and testimony
• Former employees, accountants, consultants, and other professionals
• Former business partners and co-defendants
• FBI Special Agents, Office of Inspector General (OIG) investigators, and other law enforcement agents

3. Comparison of Financial Records

Forensic examinations will also typically play a significant role at trial. Investigating agents and analysts will compare loan application representations with records of the borrower’s actual financial status, such as:

• Bank account records and electronic transfers
• Payroll records, tax returns, and IRS filings
• Business registration documents and other government records

4. Proof of Fraudulent Intent

At trial, federal prosecutors must do more than prove the loan applicant’s representation was incorrect. They must also establish the defendant’s intent to defraud. Evidence of criminal intent may include facts supporting an inference of knowing and intentional participation in a fraudulent scheme, such as deliberate falsification of a loan application; gross negligence alone is insufficient.

To defend against fraudulent-intent allegations, borrowers can rely on their lack of familiarity with the loan program’s rules, as well as their reliance on the advice of accountants, consultants, and attorneys who advised the borrower that the PPP loan program was an appropriate fit.

What prison terms can PPP fraud charges carry?

The maximum prison term that can be imposed following a federal conviction under the federal criminal code is generally determined on a statute-by-statute basis. For example, in PPP cases, the maximum prison term for a conviction under the federal wire fraud statute of 18 U.S.C. § 1343 is thirty years.

A violation of Section 1343 that “affects a financial institution” is subject to a thirty-year maximum sentence under the federal criminal code.

A conviction under the federal bank fraud statute of 18 U.S.C. § 1344, however, carries a maximum thirty-year prison term and a $1 million fine regardless of what (if anything) is involved in the alleged fraudulent scheme or artifice.

In addition to a fine or restitution, a violation of Section 1344 carries other potential consequences as well. According to 18 U.S.C. § 1344:

• “shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.”
• Under 18 U.S.C. § 1349, a person who conspires to commit bank fraud is subject to the same penalties as a person convicted of the completed bank-fraud offense.

These statutory maximums apply to the bank fraud statute as well. A conviction under 18 U.S.C. § 1014 carries up to a $1 million fine and a thirty-year maximum term of imprisonment.

As specified in 18 U.S.C. § 371, criminal conspiracy generally is a federal offense with three essential elements. These elements are:

• The existence of an agreement between two or more persons to commit an illegal act
• The defendant’s knowing and voluntary participation in the agreement, with intent to achieve its illegal objective
• The commission of an overt act for the purpose of facilitating the completion of the illegal act

Under Section 371, a conspiracy violation is a separate offense with its own penalties, unless the conspiratorial act itself is governed by a statute that imposes stiffer penalties, as in the case of the federal bank fraud statute.

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When do PPP loss calculations lead to repayment or civil recovery?

Guideline loss calculation calculations under U.S.S.G. § 2B1.1 take into account “intended loss,” not just actual loss. For PPP fraud charges, this means that if the borrower applied for a $1 million PPP loan, but the loan was denied, a conviction could still result, but the thirty-year statutory maximum is not determined by intended loss.

Section 1014 carries a statutory maximum of 30 years, and § 1343 carries a statutory maximum of 30 years when its statutory aggravating condition applies; neither maximum depends on the intended or actual loss reaching $1 million. If the lost amount is less, a sentencing judge will typically impose a lower sentence based on the calculations.

Is repayment or interest required to avoid a criminal conviction? While some individuals and businesses have been able to avoid PPP fraud charges by paying back their loans, repaying loan proceeds does not eliminate criminal liability for previous or ongoing fraud.

Regardless, repayment of PPP proceeds should still be relevant in negotiations with the DOJ, and legitimate expenditures of the PPP funds (i.e., for eligible expenses) should be relevant in sentencing arguments.

What Are the Legal Issues With Denied PPP Loan Applications?

In light of the focus on “actual loss” and “intended loss” in the sentencing guidelines, a denied PPP loan application presents a unique set of legal issues.

A denied application can still lead to significant criminal liability under the federal wire fraud statute. However, the applicant may not have to pay back any funds if they never received them.

Similarly, while federal prosecutors may use a denied application to file charges, they will not be able to pursue financial restitution if no money was ever provided. However, the borrower may still face civil liability under the federal False Claims Act. The False Claims Act, codified at 31 U.S.C. § 3729, contains provisions authorizing:

• Civil fines and penalties for submission of false claims in furtherance of a federal PPP loan application
• Treble damages for the repayment of “plus 3 times the amount of damages which the Government sustains because of the act of that person.”

These additional penalties may still be relevant even if a loan application was denied in the early stages of the application process.

Who investigates PPP allegations before federal charges are filed?

The investigating and prosecuting of PPP loan fraud involves a team effort between a variety of federal agencies and financial institutions. As a result, investigations usually start with the FBI, Small Business Administration Office of Inspector General (SBA-OIG), Internal Revenue Service Criminal Investigation Unit (IRS-CI), Secret Service, Department of Health and Human Services Office of Inspector General (HHS-OIG), Department of Labor Office of Inspector General (DOL-OIG), and others. The Department of Justice (DOJ) and the United States Attorney’s Office (USAO) will typically seek criminal prosecution following an investigation by one or more of these agencies.

These agencies may also seek help from banks and other financial institutions. Under the Bank Secrecy Act, banks must file Suspicious Activity Reports with FinCEN for PPP-related transactions that meet the applicable reporting criteria, generally including a transaction amount of at least $5,000 and facts indicating suspected illegal activity, BSA evasion, or no apparent lawful purpose. This information is transmitted to the SBA, OIG, and other agencies that investigate fraud allegations.

Investigative agents and prosecutors are known to use subpoenas and search warrants to gather bank records, tax returns, payroll records, loan files, and other relevant information during these cases. They can also use grand jury subpoenas to compel the production of documents and testimony prior to filing charges.

Are PPP fraud charges common?

Yes. Even prior to the expiration of the PPP program, these charges were very common. The DOJ has already pursued criminal convictions for thousands of borrowers and businesses. As a result of this substantial experience with prosecution, borrowers’ and businesses’ best hope for avoiding criminal charges will rely on the ability of the defense to prove that the government lacks the intent evidence necessary to meet the evidence standards at trial.

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