California PPP Loan Fraud Lawyers.

Federal PPP fraud investigations typically focus on several types of conduct that are believed to result in false certifications. Some common examples include: - Inflating payroll, number of employees, or annual revenue figures

• Creating a shell company or falsely claiming to have a nonexistent business or existing commercial premises
• Applying through multiple lenders for the same business
• Maintaining a business that does not actually have employees or pay payroll taxes (which is not a PPP loan eligibility requirement) We represent clients against similar allegations in federal PPP fraud cases. While these examples are common, federal PPP fraud investigations often involve other types of conduct as well, including misusing the loan proceeds. The DOJ also alleges fraud in many cases involving so-called loan stacking, i.e., when the same business owner submits loan applications to multiple lenders for the same business in order to obtain multiple loans. Federal PPP fraud allegations are also common when the borrower attempts to obtain loan forgiveness through false certifications. In some cases, this may come along with charges for false certifications during the loan application process as well, but in other cases, federal prosecutors allege PPP fraud based on false forgiveness certifications alone. Another misunderstanding with federal PPP loan audits and investigations is the belief that forgiveness approval prevents prosecution. But, in truth, forgiveness is not an affirmation of the legality of the borrower’s certification. If a California PPP loan applicant or borrower misrepresents their business’s eligibility for loan forgiveness, they can face federal criminal charges regardless of whether their loan was formally forgiven. Federal PPP fraud charges can also be substantiated regardless of whether an applicant or borrower’s loan was forgiven or was later repaid in full. If an application was knowingly false or the loan was used as part of a fraudulent scheme, federal authorities may have enough evidence to pursue a case even if the loan did not end up causing a financial loss to the taxpayers.

Which PPP Eligibility and Forgiveness Rules Can Turn a California Loan Into an Ineligible One?

Eligible PPP borrowers could obtain complete loan forgiveness if they were able to satisfy the program’s strict conditions. For example, these conditions generally included a requirement to use at least 60 percent of the loan for “qualifying payroll costs.” Borrowers could use the remaining balance to cover nonpayroll categories as well, including rent, mortgage interest, and other necessary expenses like utilities or other continuing operating costs. The “ineligible” label also applied in cases involving a company’s failure to satisfy a number of different PPP eligibility requirements. One common example is a company’s failure to satisfy the applicable size standards or the requirement that economic uncertainty made the PPP loan request necessary. Another common example is the “affiliation” regulation found at 13 C.F.R. § 121.301, under which a business may be considered “affiliated” with another business if they are owned or controlled by the same individual. In many cases, if affiliation exists, the borrower’s own size must be combined with its affiliated business’s size in order to determine whether the borrower is eligible to receive PPP funding.

What if a California PPP Borrower Made an Honest Mistake?

If you are currently under investigation for federal PPP fraud, there is one other thing you should keep in mind. Many companies that have inadvertently miscertified their loan eligibility (or other aspects of PPP loan use and forgiveness) may face investigation or prosecution, but an inadvertent miscertification alone does not satisfy the knowing or intent-to-defraud requirements of several commonly charged federal offenses. While this is not true for most crimes, this is a well-known possibility in PPP fraud cases, and it is one that every borrower should be prepared to handle.

How Does a California PPP Investigation Move from Data Comparisons to a Criminal or Civil Case?

Since California spans four federal judicial districts (the Central, Northern, Eastern, and Southern), federal PPP cases in California can be highly varied in nature. For example, depending on the district where the case is brought, the case could be subject to district-specific local rules and procedures. The process of moving from a data comparison to a federal PPP investigation typically involves one or more of the following steps:

1. Identification of Inconsistencies in Loan Application and Forgiveness Records

Initially, many of the investigations in California have started with data comparisons. Some examples of what investigative agencies have looked for include duplicate applications and inconsistencies between applications and the data that the SBA had on hand. In other cases, agents have looked for inconsistencies between an applicant’s data from the 2020 application process and the data from the 2021 forgiveness process.

2. Comparison with Tax, Payroll, Banking, and Corporate Records

In some cases, the DOJ and the SBA have obtained tax, payroll, banking, corporate, and other information from other sources, and compared this information to what applicants certified in their PPP loan applications.

3. Interviews with Employees, Accountants, Lenders, and Business Partners

In addition to analyzing documents, federal agents have been known to seek information from individuals who are not borrowers or employees of borrowers. This includes employees, accountants, lenders, and business partners, and in some cases, they have sought information from individuals who worked with the borrowers in other capacities as well.

4. Execution of a Search Warrant

Many PPP fraud cases have started with the DOJ executing a search warrant at a business owner’s residence. Often, these search warrants are the result of the steps mentioned above. In other cases, the search warrants themselves are the first evidence that something is wrong, and subsequent inquiries will reveal the true cause of the federal criminal case.

5. Obtaining Information from Lenders

Federal law enforcement agencies have also obtained information about companies directly from lenders. In some cases, the lenders identified false PPP applications and voluntarily contacted the DOJ. In other cases, agents used subpoenas to compel the lenders to provide the data and documentation it had in its possession.

What Federal Charges Match False Applications, Bank Deception, and Wire Submissions?

1. 18 U.S.C. § 1343 - “Wire Fraud”

This federal statute prohibits transmitting writings, signs, signals, pictures, or sounds by wire, radio, or television communication in interstate or foreign commerce for the purpose of executing a scheme or artifice to defraud. This is one of the most common charges in federal PPP fraud cases, as the use of the interstate wires can be directly tied to the act of filing a fraudulent application. A conviction under 18 U.S.C. § 1343 ordinarily carries a maximum twenty-year sentence of federal prison.

2. 18 U.S.C. § 1344 - “Bank Fraud”

Under 18 U.S.C. § 1344, the government can prosecute anyone who takes part in a “scheme or artifice” aimed at defrauding a financial institution. This statute also covers anyone who “(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;” A conviction under 18 U.S.C. § 1344 will generally carry a sentence of up to thirty years in federal prison.

3. 18 U.S.C. § 1014 - “False Statements to a Bank or Otherwise”

The federal government has also been using 18 U.S.C. § 1014 in its efforts to prosecute alleged PPP loan fraud. This statute makes it a crime to make a knowingly false statement “Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security, for the purpose of influencing in any way the action of the Federal Housing Administration, the Farm Credit Administration, Federal Crop Insurance Corporation or a company the Corporation reinsures, the Secretary of Agriculture acting through the Farmers Home Administration or successor agency, the Rural Development Administration or successor agency, any Farm Credit Bank, production credit association, agricultural credit association, bank for cooperatives, or any division, officer, or employee thereof, or of any regional agricultural credit corporation established pursuant to law, or a Federal land bank, a Federal land bank association, a Federal Reserve bank, a small business investment company, as defined in section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662), or the Small Business Administration in connection with any provision of that Act, a Federal credit union, an insured State-chartered credit union, any institution the accounts of which are insured by the Federal Deposit Insurance Corporation, any Federal home loan bank, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, the Farm Credit System Insurance Corporation, or the National Credit Union Administration Board, a branch or agency of a foreign bank..., an organization operating under section 25 or section 25(a) of the Federal Reserve Act, or a mortgage lending business, or any person or entity that makes in whole or in part a federally related mortgage loan..., upon any application, advance, discount, purchase, purchase agreement, repurchase agreement, commitment, loan, or insurance agreement or application for insurance or a guarantee, or any change or extension of any of the same, by renewal, deferment of action or otherwise, or the acceptance, release, or substitution of security therefor, shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.” Like other charges in PPP fraud cases, this statute also carries penalties of criminal fines and up to 30 years of federal imprisonment.

What Can a PPP Case Cost Through Forfeiture, False Claims Act Recovery, and Sentencing?

Money laundering convictions can also expose you to civil or criminal forfeiture, which can lead to the government attempting to seize your money in bank accounts and other assets you may have purchased with the loan proceeds. While the DOJ has focused heavily on cases involving fraud and misappropriation, money laundering charges have’ve been increasing in number. Often, money laundering charges will serve as the foundation for criminal forfeitures as well.

2. Civil Prosecution Under the False Claims Act

In cases involving the False Claims Act, the DOJ can pursue recovery of up to treble damages, plus applicable civil penalties. In some cases, whistleblowers can claim up to thirty percent of the recoveries they facilitate. When the federal government pursues civil litigation, it doesn’t need to prove guilt beyond a reasonable doubt. Instead, it must show “by a preponderance of the evidence” that the defendant is liable.

3. Sentencing for Conviction

If a PPP borrower faces conviction in federal criminal court, the specific punishment they face will depend largely on the U.S. federal sentencing guidelines, which determine a recommended prison term based on the defendant’s offense level and criminal-history category. In PPP cases, the offense level will be determined by several factors. For example, any increases tied to fraud may depend substantially on the calculated loss amount, which could lead to different prison terms for different defendants.

For example, with regard to conspiracy to defraud the United States, there is a general sentencing range for the underlying crime, and there are increases if the loan was obtained through wire fraud, as well. These increases could lead to some defendants facing several additional years in federal prison compared to others.

4. Disbarment and Loss of Licensing

In some cases, business owners may also face debarment from various federal programs and benefits. This is true even if the individual or entity did not have to pay a PPP loan or any other amount back to the government. Business licensing can also be at risk.

Where to Go From Here

If any of this describes your situation, the next step is a conversation rather than more reading. Spodek Law Group runs a fully online client portal and represents clients coast to coast, with offices in New York, Brooklyn, Queens and Los Angeles. The number is 888 348 8028.