Can You Go to Jail for a $20,000 PPP Loan??

The following are some of the key reasons why a $20,000 PPP loan can lead to criminal prosecution even without a minimum fraud amount:

• The federal criminal statutes cited in most reported cases of PPP fraud prosecution do not establish a minimum dollar amount or threshold for liability. While the U.S. Department of Justice has publicly noted that “most” PPP fraud cases involved loan amounts of $50,000 or more, it is not limited to these amounts.
• Obtaining a conviction requires prosecutors to prove the charged offense beyond a reasonable doubt. If prosecutors can prove that the defendant knowingly and willfully misrepresented information when applying for a loan, the size of the loan received can affect sentencing and will not shield the defendant from liability.
• The specific loan amount can impact sentencing in these cases, but the prosecution need not prove a minimum amount was received in order to argue that criminal conduct occurred.

The government has been bringing PPP fraud charges in civil and criminal cases and has been pursuing these cases regardless of the loan amount involved. For example:

• Several news reports have stated that federal authorities are pursuing PPP fraud charges in cases involving loans under $50,000.
• Many news reports cited examples where defendants were sentenced to imprisonment for fraudulently obtaining several thousands of dollars under PPP. While many of these examples involved loan amounts far above $20,000, the prosecution does not have to prove that the loan amount exceeded a certain threshold.
• In one instance, a federal prosecutor in the District of Nevada reported that the government was pursuing PPP fraud charges that “If convicted, the maximum statutory penalty is 20 years in prison.”

Which PPP Conduct Can Support Criminal Charges Rather Than a Repayment Dispute?

There is no federal offense formally called “PPP loan fraud.” Instead, prosecutors seek to have defendants convicted under a variety of statutes that, while unrelated to the PPP program itself, provide federal penalties that mirror those applied in fraud cases. With these statutes, prosecutors often look for evidence supporting the following allegations:

• Mail fraud and wire fraud: Most prosecutions involve these allegations, and criminal convictions for these offenses can carry up to 30 years of federal imprisonment in some PPP-related circumstances. To sustain mail or wire fraud charges, prosecutors generally must prove that defendants knowingly participated in a scheme to defraud.
• False-statement offenses: While mail and wire fraud are most frequently used, there are reports that some defendants were sentenced to imprisonment for making false statements to banks and other entities. These prosecutions generally require proof that defendants knowingly and willfully made a material false statement or representation.
• Other criminal offenses: Federal prosecutors have used various other criminal statutes as well, ranging from identity theft to money laundering and other financial offenses.

Some of the specific allegations involving PPP loans that have led to prosecutions in some instances (though not necessarily all cases) include:

• False payroll figures: When seeking federal intervention, this has often been cited as one of the key red flags. If payroll figures are inflated or falsified, it can trigger scrutiny under various fraud statutes.
• Nonexistent employees: Along with false payroll figures, claiming that nonexistent employees were on the payroll is another common allegation in PPP fraud prosecutions.
• Using PPP funds for prohibited purposes: Although using funds for unapproved expenses will not necessarily lead to fraud charges, this can become a trigger for investigation in some circumstances.

Can Repayment, Forgiveness, or Inability to Pay Prevent PPP Prosecution?

In relation to this issue, federal authorities have explained that repayment of PPP funds does not necessarily prevent criminal liability. That said, repayment (or an attempt to repay) the government may be considered during sentencing for a criminal conviction under the federal sentencing guidelines. A criminal conviction for a PPP loan offense will also likely result in a requirement that the defendant provide restitution to the government or other parties that prosecutors argue were harmed. Prosecutors may also seek money judgments for the full loan amount plus interest, and forfeiture of assets that the government proves were acquired through fraudulent means.

While the inability to repay a loan is not in itself a crime, if a federal authority determines that the inability to repay resulted from fraudulent actions, defendants could face prosecution. Even if a PPP loan was forgiven by the government, this does not preclude the government from later reviewing a borrower’s application and determining that the borrower committed fraud. It is also not uncommon for government agencies to review PPP loan applications after forgiveness has been approved, and this review process could potentially lead to prosecution if fraud is uncovered.

As a result, the following issues will not necessarily prevent federal authorities from bringing a PPP fraud case against a loan applicant:

• Paying the full loan back to the bank or government
• Attempting to pay back the full loan amount or paying back a portion of the loan
• Government recovery of the funds
• Paying monthly payments on the loan (or attempting to pay monthly payments)
• Seeking loan forgiveness
• Having the loan forgiven
• Failing to pay back the loan because of an inability to pay

Todd Spodek cross-examined Alec Baldwin at the 2013 stalking trial in Manhattan.

How Do PPP Investigations Develop, and How Long Can Prosecutors Pursue Them?

The FBI, the SBA’s Office of the Inspector General, the IRS, the Department of Justice, and other federal agencies have been investigating allegations of PPP loan fraud. The following are some ways these investigations develop:

• Comparison of Loan Application with Tax and Payroll Records: Investigators can compare information provided in the PPP loan application with information on business owners’ tax returns, payroll records, and other records.
• Comparison of Loan Application with Other Records: In addition to checking for contradictions with tax and payroll records, investigators can use information contained in PPP loan applications to look for evidence of fraud in other records.
• Obtaining Records from Third Parties: Investigators can obtain records from third parties, including banks, lenders, employees, and others, before notifying the borrowers of an investigation.
• Use of Other Evidence of Potential Criminal Conduct: Information about potential criminal conduct discovered during an initial PPP loan inquiry can be used to launch investigations into other offenses.

How Long Can Prosecutors Pursue Charges Related to a PPP Loan?

In 2022, Congress enacted the PPP and Bank Fraud Enforcement Harmonization Act, which extended the limitations period for prosecuting certain offenses related to PPP loans. For some charges, this means the limitation period is now ten years, though this depends on the specific offense charged, whether civil or criminal, the specific statutory provisions involved, and other relevant factors. To determine whether a PPP-related prosecution is still within the permissible timeframe, a defendant’s attorney should assess the date when the offense allegedly occurred and the date charges were filed.

What Determines a Federal Sentence Beyond the $20,000 Loan Amount?

The statute’s maximum penalty will be different depending on the offense charged. For example:

• Bank fraud under 18 U.S.C. § 1344 carries a maximum 30-year prison sentence.
• Ordinary wire fraud under 18 U.S.C. § 1343 carries a maximum 20-year prison sentence.
• § 1341 generally carries a maximum 20-year prison sentence, but up to 30 years in certain cases involving a financial institution or major-disaster or emergency benefits.
• Crimes of false statements under 18 U.S.C. § 1001 generally carry a maximum 5-year prison sentence.

If convicted, federal sentencing typically takes into account various factors, including the loss amount involved in the fraud. Under the United States Sentencing Guidelines, the loan amount will be just one factor that the sentencing court considers. It is important to note that other factors, including the offense amount, the greater of actual loss or intended loss under the Guidelines, whether an offense involved an ineligible recipient, and various other considerations, can also increase a defendant’s sentencing exposure to more than the loss amount involved would seem to suggest.

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.