False Information on Forgiveness Application: Am I in Trouble??

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Am I in trouble if PPP loan forgiveness certification contains false information?

As PPP loan forgiveness relied solely on the borrower’s certification that the proceeds were used exclusively for eligible business expenses, the SBA and federal prosecutors are closely scrutinizing all submitted certification forms for any sign of false or missing information. Borrowers who have submitted false, incomplete, or misleading information in their PPP loan forgiveness certifications may be at risk of denied PPP loan forgiveness, civil liability, and criminal prosecution, and the SBA and DOJ are already pursuing legal action in many cases.

As a general rule, if a borrower submitted false or misleading information on its PPP forgiveness certification, its forgiveness will be denied. This may constitute a violation only if the applicable offense’s required elements, including knowing and willful falsity, are met. However, if the borrower’s submission was “incomplete” because certain information was left off the certification, a borrower’s liability will depend on whether the omitted information would have changed the borrower’s eligibility for loan forgiveness. However, PPP borrowers cannot simply claim they forgot to omit information or simply made an error. The SBA and DOJ may investigate whether missing or false information was intentionally fraudulent, and they can use a borrower’s attempts to correct the information, as well as the borrower’s answers to investigators’ questions, to determine the borrower’s liability.

If the SBA determines that your PPP loan forgiveness certification contains false or missing information, it can:

• Deny your loan forgiveness application, and
• Refer you to the DOJ for civil or criminal prosecution.

If the SBA refers your PPP loan forgiveness application to the DOJ, you can face a variety of federal offenses including treble damages, recoupment, suspension, and debarment in civil cases, and prison and criminal fines in criminal cases.

How can a PPP review become a federal fraud investigation?

The SBA has the authority to review all PPP loan forgiveness submissions, and this includes the authority to examine smaller loans as well. While the SBA’s primary review focus has included PPP loans exceeding $2 million, PPP loan applicants of all sizes can be at risk for scrutiny if they are seeking PPP loan forgiveness. During its review, the SBA examines the loan applicant’s PPP loan application, the applicant’s documentation supporting the loan application, and the applicant’s PPP loan forgiveness certification for errors, omissions, and other indicators of fraud.

The information that the SBA obtains during its review can be used to open a federal fraud investigation. While a federal fraud investigation may result from the SBA’s initial review, federal authorities can also launch PPP fraud investigations based on information from other sources. For example, employees of PPP recipients can report suspected fraudulent use of loan proceeds through whistleblower claims and directly to the SBA.

PPP fraud investigations can be expansive in scope, and federal authorities can utilize a wide range of investigative techniques. With support from the DOJ, the SBA can issue subpoenas to obtain documents and other evidence, and federal prosecutors can obtain search warrants to seize devices and documents. Depending on the scope of the investigation, federal prosecutors can also seek to obtain testimony from employees, former employees, and other sources as well. When facing a federal PPP fraud investigation, it is important to engage experienced legal representation to help protect against criminal liability.

To avoid the government’s investigative efforts, it is important for PPP loan recipients to engage an experienced federal criminal defense attorney to coordinate their response to the SBA. Our lawyers can help you identify and address any concerns, and they can represent you during the SBA’s review and federal fraud investigation processes.

What makes a PPP answer materially false under federal law?

Under Section 1001 (18 U.S.C. § 1001), any false statement on a PPP loan forgiveness application can be considered a federal crime if the statement is materially false, knowingly and willfully made, and pertains to a matter within the federal government’s jurisdiction. The government uses Section 1001 to prosecute federal fraud offenses in many different types of cases, and the law imposes strict penalties for making knowingly and willfully false, materially-significant statements or omissions. When pursuing a criminal conviction for a federal offense under Section 1001, the government must prove the elements of the offense beyond a reasonable doubt. To establish that an individual or a company’s representative made a false statement that violated Section 1001, the government must prove that the individual or representative:

• Made a materially false statement knowingly and willfully;
• Made the false statement about a matter within the federal government’s jurisdiction;
• Met the knowing-and-willful requirement, including knowledge that the statement was false and an intent to deceive or mislead; and,
• Made the statement in connection with a matter within the federal government’s jurisdiction.

The element of materiality has been subject to litigation under Section 1001 for decades, though the law has become remarkably favorable to the government over time. In federal fraud prosecutions for a violation of Section 1001, a statement is generally considered “materially false” if it has the capacity to affect a government agency’s action, function, or decision. Unlike many other statutes that impose liability for fraud and other crimes, Section 1001 does not require actual reliance upon the false statement. Instead, if a false or misleading statement has the potential to influence a government official, it can be found to be materially false for the purpose of a PPP fraud investigation.

Further, a PPP answer or certification does not have to be written, signed, sworn, or submitted directly to a federal agency to be considered a violation of Section 1001. If the statement is made to a third party that will submit the information on the statement’s behalf to the government, this can still result in criminal prosecution. As we discuss below, federal PPP fraud investigations also include scrutiny of individuals’ answers to federal investigators’ questions during an investigation.

“I am a straight shooter,” Todd Spodek says of his own practice. “I tell clients exactly where their case stands.”

Where could a PPP statement lead beyond forgiveness denial?

Beyond Section 1001, prosecutors also routinely attempt to file charges against businesses and individuals for fraud offenses that trigger additional or enhanced criminal penalties. If prosecutors can link an individual or company’s submission of false information to a financial institution’s loan processing under the PPP program, this can lead to charges such as:

• False Statements in Connection with Credit Applications, Making a knowingly false statement to influence a financial institution in a credit application is an offense under Section 1014 (18 U.S.C. § 1014), and it carries a penalty of up to 30 years’ imprisonment if a financial institution is affected.
• Bank Fraud, Bank fraud is also a very serious offense that can carry up to 30 years’ imprisonment under Section 1344 (18 U.S.C. § 1344).
• Wire Fraud, Prosecutors often pursue wire fraud charges in fraud investigations under Section 1343 (18 U.S.C. § 1343). While wire fraud generally carries a maximum penalty of 20 years’ imprisonment, individuals facing these charges in connection with financial institutions or related to disasters can face up to 30 years in prison.

Beyond criminal prosecution, PPP fraud can also expose borrowers to civil liability under the False Claims Act. As codified at 31 U.S.C. §§ 3729-3733, the False Claims Act creates liability for individuals and companies that knowingly make a “false or fraudulent claim, or false record or statement material to a false or fraudulent claim.”

Under the False Claims Act, making a false statement “knowingly” includes not only knowingly and willfully acting to commit fraud, but also making a false statement while acting in deliberate ignorance or reckless disregard of the statement’s truth. This definition makes it far easier for the federal government to prove civil fraud, and it creates broad liability for PPP fraud.

Other federal statutes may apply in PPP fraud investigations, as well. For example, borrowers who provide false information during an SBA investigation may face charges under Section 1001 for making false statements during the investigation itself. As a result, it is important for individuals and companies to avoid disclosing any incriminating information to federal investigators.

Can I refuse a federal interview after an inaccurate PPP filing?

Planning

• H2: Can I refuse a federal interview after an inaccurate PPP filing?
• Topic: The implications of refusing an interview with federal investigators during a PPP fraud investigation.
• Key Points:

- Explain that an “honest mistake” can negate the “knowing and willful” intent required for a Section 1001 prosecution.

- Discuss the ambiguity of a question as a defense to a false-statement charge. If an answer is consistent with a reasonable interpretation, the government must address this.

- Clarify that a person typically can decline an interview with federal investigators (though an arrest warrant could be obtained).

- Mention that a witness (not just the target) can face prosecution under Section 1001 for making knowingly false statements.

- The risk is that the federal investigators will use statements made during the interview to build a case, and a person’s decision to refuse to interview can be used to cast suspicion on them.

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Can I refuse a federal interview after an inaccurate PPP filing?

An “honest mistake” can defeat the “knowing and willful” element of a false-statement charge. For example, if an individual or a company representative makes a mistake on its PPP loan forgiveness application, the application will need to be corrected, but the individual or company representative does not necessarily commit a crime. Defendants can also challenge false-statement charges based on the ambiguity of a question. If the question being answered allows for a reasonable interpretation that makes the allegedly false answer accurate, the government may need to present evidence negating that interpretation before a jury can find the answer knowingly false.

Generally, a person can decline an interview with a federal investigator. However, declining an interview does not by itself establish probable cause for an arrest warrant, which requires probable cause to believe that the person committed an offense. As we will discuss below, Section 1001 also imposes criminal liability on witnesses as well as targets of federal investigations. Any individual who knowingly and willfully makes a false, materially-significant statement during an interview can face prosecution under Section 1001, regardless of that individual’s role in the case.

If the target of a PPP fraud investigation declines to have an interview with a federal investigator, this can raise suspicions during the government’s investigation as well. Federal investigators and prosecutors can use the fact that the target declined to participate as an indicator of guilt, and they can use other evidence to convince a jury that the target’s refusal to participate was a calculated attempt to avoid facing questions about the target’s guilt. With this in mind, when facing a PPP fraud investigation, it is important to seek experienced legal representation promptly.

If You Want Someone to Look at Your Case

Reading about a charge is not the same as having someone read your file. Spodek Law Group keeps an attorney on call around the clock, and the first consultation costs nothing and runs as long as your questions do. The number is 888 348 8028.