EIDL Funds Business Closure.

Does closing down an EIDL-funded business change what it owes?

Closing a business does not erase its EIDL repayment obligations, nor does it excuse misuse of loan proceeds. There are strong implications regarding loan repayment and liability; however, there are also notable exceptions to these conclusions. For example, while EIDL loans are generally low-interest, fixed-rate loans (and thus, not forgivable), some EIDL funds were issued as grants.

This makes it critical to determine how much the business actually owes, whether the loan is subject to repayment, and whether the owners are personally liable. EIDL loan proceeds were intended to be used to cover:

• Payroll
• Rent
• Utilities
• Bills
• Fixed debts
• Other necessary business expenses

As long as EIDL funds were used for legitimate purposes, business owners should not be concerned about their business’s failure. A failure to launch will not necessarily imply knowing, willful misrepresentation on the loan application or loan documents, and an inaccurate application statement will not automatically constitute fraudulent conduct.

In light of the legal requirements regarding EIDL funds, if you are under federal investigation due to allegations of EIDL fraud, our team of federal defense attorneys can help. We will begin by thoroughly documenting your business closure (if applicable), reviewing your records, and ensuring that all documents required for the government to evaluate your case are preserved. We can then help you prove that you did not engage in EIDL loan fraud, or, if applicable, seek a favorable outcome by mitigating the consequences and accepting responsibility.

How should owners document closure and keep an EIDL balance in order?

Plan:

* Address business owners' responsibilities: Explain the importance of documenting business closure and continuing to preserve EIDL-related records, regardless of the business’s operational status.

* Analyze civil repayment notices: Clarify that receiving a repayment demand from the SBA does not necessarily mean criminal charges are pending, although it may indicate civil issues like ineligibility or misuse.

* Explain eligibility and repayment rules: Discuss how EIDL eligibility and rules for advances varied by application period, which is critical for understanding whether a repayment demand is justified.

* Highlight the nuance of the $10,000 advance: Clarify that the $10,000 advance was not universally available to denied applicants, adding another layer of complexity to eligibility determinations.

* Connect back to Spodek Law Group’s role: Explain how the firm uses these details to defend clients, specifically by identifying whether a criminal case or civil matter is warranted.

How Should Owners Document Closure and Keep Their EIDL Balances in Order?

Owners who have closed their businesses must properly document the closure and continue to preserve records related to their EIDL financing. While it may not seem like there is a need to keep this information on hand, these records will prove critical if federal authorities initiate an investigation.

Receiving a letter from the SBA demanding repayment is a situation that requires careful assessment. It does not automatically mean that criminal charges are pending, although it may lead to the conclusion that a repayment demand is warranted for reasons other than fraud. These civil repayment demands often result from administrative findings of ineligibility or improper use of loan funds.

EIDL eligibility and advance rules varied throughout the application periods. For example, the $10,000 advance was not available to all applicants, even those who were denied the larger loan product. These complexities make it possible for the government to mistakenly conclude that you were ineligible, which is a conclusion our team can help challenge.

The distinction between a business failure and a fraud attempt is fundamental to a successful EIDL fraud defense. At Spodek Law Group, we work closely with our clients to understand their specific circumstances and develop a tailored strategy for their defense. We can help identify whether your business owners are liable for criminal prosecution or if the matter can be resolved as a civil issue. Our lawyers have a clear understanding of how the legal requirements for EIDL applications and loan use apply in practice and can advocate effectively on your behalf.

One thing worth knowing before you speak to anyone in custody: those calls are recorded, and prosecutors listen to them. Spodek Law Group tells every client family the same thing.

Does dissolving or bankrupting an EIDL borrower protect its owners?

Plan:

* Address individual liability: Clarify that not only business entities, but individuals involved in obtaining or using EIDL funds, can be held liable under federal law.

* Identify key groups at risk:

* Application signers: Focus on their liability based on representations and certifications they submitted.

* Owners and participants: Address liability resulting from knowledge, intent, or involvement in fraud.

* Non-signers (former officers, agents, etc.): Explain how those who didn't sign can still be investigated if they provided false information used in the application.

* Discuss the impact of identity theft: Explain how unauthorized loan applications in someone's or a company's name change the legal position of the applicant and require a specific defense.

* Examine bankruptcy possibilities: Discuss the factors determining whether EIDL debt is dischargeable in bankruptcy, including loan document language, bankruptcy law, and any fraud findings.

* Connect to Spodek Law Group’s services: Emphasize the firm's capability to review loan documents and evaluate personal and business risks.

Does dissolving or bankrupting an EIDL borrower protect its owners?

Individuals, not just business entities, can face federal EIDL fraud liability. EIDL borrowers, including individual borrowers, loan application signers, former officers, company agents, and anyone else involved in illegally obtaining or using federal funds, can all be investigated and prosecuted. For example:

• Individual borrowers and loan application signers: Individuals who signed the EIDL loan application will be evaluated based on the representations and certifications they submitted on the application and loan documents.
• Business owners and other participants: To the extent that individuals may have had knowledge of, or a hand in, fraudulently obtaining or using EIDL funds, they can all face liability under the federal program.
• Persons who did not sign the EIDL loan application: Not only those who signed the EIDL loan application, but even owners, former officers, or authorized agents of the borrowing company can be investigated for providing the false information (or signing other documents) used to improperly obtain the EIDL funding.

These allegations present unique challenges when a loan application was completed in your name without your knowledge. For example, if someone used your or your company’s identity to apply for EIDL funds without your authorization, the resulting application is fraudulent. Your position as the applicant is fundamentally different from that of the individual who committed the fraud, and you will need to present a strong defense.

Whether business owners and individual borrowers can seek bankruptcy protection depends on a number of factors. These factors include the language of the individual business’s loan documents, applicable bankruptcy law, and any relevant findings of fraud. Our team of federal defense attorneys is available to review your EIDL loan documentation and assess the risk for your company and you as a business owner or borrower.

When Can a Closed Business’s EIDL History Become the Subject of a Federal Fraud Investigation?

When does a business’s EIDL history become the subject of a federal fraud investigation? While there are many situations that could lead federal investigators to investigate a business’s EIDL funding, several common examples include:

• Improper or unauthorized use of loan proceeds. According to some sources, using EIDL funds for luxury purchases, such as cars or jewelry, can alert investigators that someone may be misusing federal relief funds.
• Loan-stacking. For example, submitting multiple EIDL loan applications to different lenders, through different identities, or using different company names, can also trigger allegations of “loan-stacking” fraud.
• Providing false information on an EIDL loan application. Investigators are particularly interested in cases involving inflated revenue, overstated payroll, overstated employee counts, or other false statements about the business’s operations.
• Claiming ineligible business expense reimbursements. Business owners and loan application signers can also be investigated for seeking EIDL reimbursements for ineligible business expenses and for other forms of financial misrepresentation.

The U.S. Department of Justice (DOJ), SBA, and SBA Office of Inspector General (OIG) have broad authority to review financial records, compare EIDL applications and loan documents with tax and payroll records, review business bank accounts, and, in criminal cases, DOJ may obtain grand-jury subpoenas for other historical financial records. They also work with the SBA and the Department of Justice on civil recovery of misused loan proceeds and unpaid loans. These efforts also include civil inquiries and grand jury subpoenas in some cases. All forms of government investigations and enforcement are serious matters, and business owners should consult with a federal criminal defense lawyer at the first possible opportunity.

Which federal consequences can follow suspected EIDL misuse after business closure?

A significant question that arises in cases involving suspected EIDL fraud is whether returning funds received from the federal government will stop criminal prosecution. This isn’t always the case, and while returning the funds may be the appropriate course of action in some scenarios, doing so isn’t a comprehensive fraud defense strategy. When facing federal investigation for fraud under the CARES Act, business owners and other individuals need to work closely with experienced federal criminal defense lawyers to determine their next steps.

The federal laws used to prosecute EIDL fraud carry significant penalties, and it’s imperative for business owners and other individuals to understand what is at stake. Federal fraud charges under the CARES Act can potentially carry incarceration sentences of ten, twenty, and thirty years. For example, some statutes commonly used in federal EIDL fraud investigations and prosecutions include:

• Wire Fraud, 18 U.S.C. § 1343, up to 20 years in prison per offense, or up to 30 years when the offense involves a presidentially declared major disaster or emergency or affects a financial institution
• Bank Fraud, 18 U.S.C. § 1344, up to 30 years in prison per offense
• False Statements or Representations, 18 U.S.C. § 1001, up to 5 years in prison per offense
• Theft or Embezzlement of Public Money, 18 U.S.C. § 641, up to 10 years in prison per offense

In addition to incarceration sentences, individuals facing federal EIDL fraud charges can face substantial fines, seizure of assets through forfeiture, and other federal punishments. Our defense attorneys can assist business owners and other individuals facing federal investigations and EIDL fraud charges, and we can work to protect you from unnecessary liability.

Talk It Through With a Lawyer

Every case turns on its own facts. Todd Spodek is the managing partner of Spodek Law Group, a second generation firm his father opened in 1976, and the firm takes federal criminal and white collar matters nationwide. Call 888 348 8028 to talk it through.