Can the Government Investigate My Forgiven PPP Loan??

Can a Forgiven PPP Loan Still Be Investigated or Prosecuted?

Yes. If the Small Business Administration (SBA) has already approved your PPP loan forgiveness, this doesn’t preclude the SBA’s Office of Inspector General (OIG) or any other agency from conducting a criminal investigation or pursuing criminal or civil penalties. If you received or requested loan forgiveness, you can still be under investigation or subject to civil or criminal prosecution.

How Many Forgiven PPP Loans Are Still Under Investigation?

A number of PPP loan fraud claims have been filed in federal court, but there is nothing in the public record that reveals how many PPP loans are still under investigation, how many are under scrutiny for non-compliance, or how many have been rejected or approved for loan forgiveness. The federal government may have a wide variety of reasons for delaying or denying loan forgiveness requests, some of which are criminal in nature, while many others are benign.

When Does the Federal Government Revoke PPP Loan Forgiveness?

Revocation of PPP loan forgiveness is a possibility, but it may take time for the federal government to prove that a borrower does not qualify for loan forgiveness. This doesn’t mean that the SBA, DOJ, or another agency can’t move forward with criminal prosecution while a borrower’s request for loan forgiveness is under review. It also doesn’t mean that the SBA, DOJ, or another agency is forced to revoke loan forgiveness before proceeding with criminal prosecution.

Do Most PPP Loan Borrowers Who Have Received Loan Forgiveness Still Need to Worry About a Fraud Investigation or Prosecution?

Do not assume that your loan was forgiven because you don’t have anything to worry about. Do not assume that you can avoid criminal prosecution or civil penalties because your loan has been forgiven. While receiving loan forgiveness is not a conclusive or definitive sign of criminal intent or guilt, PPP loan borrowers who have already received forgiveness can still be subject to investigation and prosecution.

What Is the Best Defense to a Criminal PPP Loan Fraud Investigation or Prosecution?

Criminal PPP loan fraud investigations and prosecutions are handled by the U.S. Department of Justice (DOJ). If you have already received PPP loan forgiveness, you may still need to have an experienced PPP loan fraud defense attorney review your case. There are other options in addition to PPP loan fraud defense. If you have not yet received PPP loan forgiveness, this doesn’t mean your request is automatically being rejected. Contact Spodek Law Group today to find out more about your case.

What Did Forgiveness Approval Establish, and What Did It Leave Untested?

PPP forgiveness was available only when recipients used their proceeds to pay for one of the types of authorized PPP expenditures. Under the first-draw forgiven loan process, this included ensuring that recipients’ payrolls, defined as including payroll taxes, amounted to at least a specific dollar amount for an eight-to-24-week period following the date on which the lender disbursed the loan. PPP proceeds could also be used during the covered period for eligible business mortgage interest, rent, and utility payments relating to obligations or services that existed before February 15, 2020.

All of these examples had to be consistent with PPP program conditions. But an administrative decision from the SBA confirming PPP loan forgiveness is just that, an administrative decision. It does not necessarily conclusively establish the borrower’s continuing entitlement to forgiveness, and it does not establish the truthfulness of any and all of the representations made in order to secure loan forgiveness. This is why borrowers can receive loan forgiveness yet still be under investigation for PPP loan fraud.

The difference between the nature of these two procedures (the process for PPP loan forgiveness and the process for a criminal or civil investigation) is critical. The process for PPP loan forgiveness was administrative in nature, while a criminal or civil investigation is an investigative process that may lead to judicial proceedings. These are two very different processes, and receiving loan forgiveness is not proof of any of a borrower’s rights under any other PPP law, regulation, or procedure.

As we say to our clients, PPP forgiveness is something that the government can take away if it believes it can prove that the initial or later representations made to support loan forgiveness were defective. A loan forgiveness approval does not make a borrower ineligible for criminal prosecution if a later-discovery triggers an investigation. Rather, the loan proceeds can still be demanded back by the government if it believes the loan should never have been made (or forgiven) in the first place.

Todd Spodek defended Anna Sorokin, the case Netflix later dramatised as Inventing Anna.

How Does a Federal PPP Inquiry Move from a Tip to Testimony or a Target?

In cases of alleged PPP loan fraud, federal criminal investigators may work with federal law enforcement agencies and the SBA OIG. For example, if the FBI finds reason to believe that a business owner submitted a false loan application, then unauthorized spending was used to commit a crime, the FBI will work with the DOJ to investigate. In cases where the SBA OIG finds evidence that a loan recipient appears to have misused loan proceeds, they will work with federal law enforcement agencies to seek criminal or civil penalties.

Along with auditing loan applications and comparing them to other financial records, investigators can use data from the federal income tax filings of loan recipients’ business entities. They will then use this data to determine if loan recipients were entitled to a loan and, if so, for what amount. They may look at the business’s payroll records, tax returns, and bank records to find evidence of a financial situation that would have limited the loan recipient’s eligibility.

These steps typically include requests for bank records, payroll records, tax filings, and loan applications. This is the sort of information that investigators can obtain through voluntary means, and they can also obtain this information through subpoena if a grand jury or other investigative proceedings are already underway.

In addition to investigating based on their own suspicions, the SBA and other federal agencies are often open to pursuing fraud investigations that are based on complaints filed by individuals who claim that a particular business or business owner has committed PPP fraud. These allegations can come from anywhere and may come from business competitors, former employees, or business partners. In any event, if an allegation has a credible basis, especially one that comes from a source who claims first-hand knowledge, then it will likely be worth pursuing to the extent that federal investigators can find a reason to scrutinize that individual or entity’s actions.

Finally, the U.S. Department of Justice may convene a federal grand jury that will investigate alleged PPP loan fraud violations. Federal grand jury proceedings often do not start with an identified target, and the grand jury will start its investigation instead. In these cases, testimony will usually be sought from those who have any first-hand knowledge of the alleged misconduct, and this includes witnesses to the alleged fraud, too. In some cases, grand jury witnesses can later become targets once it is deemed appropriate.

If you have received a federal subpoena, a target letter, or search warrant; or if a federal agent has knocked on your door to ask you about your business’s receipt or spending of PPP loan proceeds, you may be a witness or a target in a federal investigation. This may mean that the government believes it has sufficient evidence to warrant proceeding with the grand jury process or other law enforcement investigative methods.

If you have a federal agent who is asking to speak with you, remember that you are not required to answer any questions. In these situations, your best bet is to decline politely and seek legal advice. Contact Spodek Law Group today, and we can explain everything you need to know about your situation.

Which PPP Allegations Lead to Criminal Fraud, Civil Liability, or Repayment?

Many of the same alleged misconduct issues that can lead to an SBA audit to recover forgiven loan funds are also grounds for criminal prosecution or civil penalties under federal law. The primary federal criminal fraud statute in these cases is 18 U.S.C. § 1344, which imposes criminal liability for executing “a scheme or artifice to defraud” a financial institution, “Whoever knowingly executes, or attempts to execute, a scheme or artifice-(1) to defraud a financial institution; or (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;” or “a material misrepresentation” in connection with the procurement or obtaining of money or assets owned by a financial institution. Because PPP loans were made through banks, credit unions, community development financial institutions, and fintech companies, the applicability of this statute depends on the lender and the alleged conduct.

Similarly, any individual or entity that submits an electronic application, certification for loan forgiveness, or other related documents to a lender or the SBA through an electronic network could be charged with federal wire fraud under 18 U.S.C. § 1343. In civil cases involving allegations of PPP loan fraud, the federal government may seek to hold borrowers liable for knowingly presenting a false or fraudulent claim for payment or approval, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim, under the False Claims Act. The False Claims Act allows for treble damages and can also impose civil penalties; so, it is a statute that carries substantial liability even when criminal prosecution is not on the table.

For federal prosecutors, which are typically with the DOJ, any criminal prosecution involving an alleged act of PPP loan fraud will require proof of “intent” to commit the offense at issue. This means that an honest but improper payment of PPP funds, one resulting from, say, a calculation error or a poor business decision, may not fall within the scope of the federal criminal statutes. This is not necessarily true when it comes to civil liability, and improperly obtained funds can still lead to repayment or other forms of civil liability.

The federal PPP and Bank Fraud Enforcement Harmonization Act provides that criminal charges or civil enforcement actions alleging borrower fraud must be filed not later than 10 years after the offense was committed. Although the statute allows up to 10 years for these actions, SBA may review any PPP loan at any time in its discretion, and borrowers cannot assume they are safe simply because time has passed. If a PPP loan is not forgiven, the borrower generally must repay the outstanding balance under the loan’s terms. If the loan has been forgiven, the borrower will still have to answer any allegations of improper or unlawful receipt of funds.

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.