Claimed More Than One PPP Loan Using Different Businesses.

To provide a straight answer to this question, we’ll need to consider a variety of relevant factors. First, we should note that the program rules did allow certain qualifying businesses to receive a second PPP loan. This is true whether the second loan was obtained from the business’s original lender or from a different lender (e.g., via a second-draw loan for businesses affected by economic hardship). However, the materials we received do not identify the complete list of eligibility criteria for second-draw loans, so we cannot definitively say whether any individual’s actions were permitted under the program rules, though we can explain why some borrowers received scrutiny. Second, lenders, and prosecutors, refer to the practice of seeking or receiving multiple PPP loans through different lenders as “loan stacking.” This term does not, in itself, describe an inherently unlawful practice. However, the practice can be unlawful in certain circumstances, such as when the borrower fails to meet the eligibility requirements for receiving more than one PPP loan. When a borrower applied to multiple lenders, this could prompt investigation, at least in cases where the borrower lacked second-loan eligibility. Finally, when considering whether a borrower was entitled to receive loans on behalf of multiple companies, we have to consider whether those companies qualified as “separate” companies. Affiliated companies generally had to be aggregated when determining PPP eligibility and employee counts, but eligible affiliated entities could receive separate PPP loans where an applicable affiliation waiver or other program rule permitted it. When deciding whether separate companies qualify as affiliates for purposes of PPP loan eligibility, the U.S. Small Business Administration (SBA) considers factors including the companies’ ownership, management, relationships, ties, and contractual relationships. We can use these records to determine the likelihood that your companies will be considered affiliates, which we can then use to build your defense strategy. You can learn more about what the SBA considers to be an affiliate here.

How do investigators test whether two businesses were truly separate borrowers?

In PPP fraud cases, the federal government conducts its investigations by analyzing the loan application alongside various other relevant documents. These documents include:

• Loan application;
• Forgiveness application;
• Payroll, tax, and banking records; and
• Any other documents that the lender and the SBA consider relevant.

In order to get loan forgiveness, a PPP borrower had to certify that:

• The loan was necessary due to economic hardship;
• The business used the loan proceeds in accordance with PPP rules;
• The business used the loan proceeds only for eligible purposes; and
• The documents supporting the business’s forgiveness application were accurate.

Most importantly, if you’re concerned that you might face federal prosecution for your actions during the loan or forgiveness process, you should know that receiving loan forgiveness did not shield businesses from liability. While getting loan forgiveness is certainly preferable to not getting loan forgiveness, it does not mean that you did not commit an offense.

When federal prosecutors target borrowers for application fraud, their investigations usually focus on the content of the original loan application. For example, if you overstated your business’s payroll, the number of employees it has, its revenue, or whether it was actually operating as a going concern, then the government can argue that you were not actually eligible for a PPP loan. The government can also support application-fraud allegations by showing that you knowingly provided the lender with falsified payroll records, tax returns, or any other required documentation. It is important to remember that federal authorities can (and may) investigate any PPP loan application, regardless of whether the loan was funded or denied. This means that even if your loan application was denied, federal prosecutors can seek to hold you accountable if they believe that you made fraudulent representations on your application. If you are being investigated for PPP fraud, you can rely on Spodek Law Group’s experienced defense lawyers to investigate all aspects of the government’s case against you, and we will use our investigative findings to build your defense strategy.

Finally, some business owners are at risk for federal prosecution not because of their loan application, but because of their actions after they received PPP funding. If you were entitled to a PPP loan, but you improperly used loan funds or you made false representations on your forgiveness application, then you can still face federal charges. This can be the case even if you are a good-faith loan recipient in all other respects.

When does a forgiven PPP loan become a fraud case rather than a repayment dispute?

To determine when a business owner’s request for PPP loan forgiveness is likely to be seen as a matter for civil enforcement rather than criminal prosecution, it is necessary to look at how and why the business used the proceeds of its loan.

Along with meeting a substantial portion of the job retention requirements, businesses that requested PPP loan forgiveness had to certify that they used their loan proceeds for their businesses’ payroll, rent, mortgage interest, utilities, insurance, and other costs, but only those costs that were designated as PPP-eligible. Purchases such as personal expenses and luxury items were outside the scope of the program’s permitted business purposes. When an application for loan forgiveness does not reflect full compliance with the program’s guidelines, it can make the business’s actions subject to a wide range of responses. If a business used a small fraction of its PPP loan proceeds to fund unauthorized expenses, it is likely that a small portion of the loan will have to be repaid, and it is unlikely that a civil enforcement action will be worthwhile. If the business owner appears to have used PPP loan proceeds to fund a business’s general operations, and if the amount of the unauthorized spending is large enough, it is likely that a civil enforcement action is on the horizon. This includes allegations of using the funds for an unauthorized business purpose, using them as a form of financing to acquire real estate or securities, and mixing PPP funds with unrelated business income in order to conceal the source of the spending. When the government pursues criminal fraud charges, it must generally be able to prove that the business’s owner knowingly or intentionally committed misconduct, rather than making a simple error. If you are concerned about facing criminal charges due to issues related to spending, a federal criminal defense lawyer can use the facts of your case to challenge the government’s proof of intent. Factors that can play a role include:

• Reliance on a business accountant’s or PPP fraud defense lawyer’s advice,
• Vague and confusing guidelines with conflicting instructions regarding spending and reporting,
• Unintentional mistakes such as accidentally transferring funds,
• Overlooking eligible expenses when requesting forgiveness.

In these cases, and in others like them, demonstrating that a business’s owner did not knowingly or intentionally violate the law may be sufficient to shield the business’s owner from criminal prosecution.

Which charges and civil remedies can follow a PPP loan investigation, and why is one deadline not enough?

Under the federal criminal fraud statutes, defendants can face charges including bank fraud under 18 U.S.C. 1344 and wire fraud under 18 U.S.C. 1343 (with the latter commonly applied to the online and digital nature of the loan application process). Bank fraud carries a maximum prison sentence of 30 years and can be punishable by a fine of up to $1 million; wire fraud carries a maximum prison sentence of 20 years. However, when wire fraud involves an attempt to defraud a financial institution, a disaster benefit scheme, or either of these scenarios, federal authorities can seek a maximum prison sentence of 30 years. Additionally, if you made false statements to the SBA during the PPP loan process, the government can charge you under 18 U.S.C. 1014, which includes potential fines, imprisonment, and other punishments. Federal authorities also have the power to pursue civil fraud charges. One of the most common civil fraud statutes is the False Claims Act, 31 U.S.C. 3729 et seq., and a business owner can face liability under the False Claims Act if they either knowingly presenting a false or fraudulent claim for payment to the government (i.e., knowingly request forgiveness for a PPP loan they are not entitled to), or knowingly making or using a false or fraudulent record or statement material to a false or fraudulent claim for payment.

The False Claims Act imposes liability for “knowing” misconduct; and, among the various types of “knowing” misconduct, the Act identifies “actual knowledge,” “deliberate ignorance,” and “reckless disregard” of the truth, which can satisfy the “knowing” standard. For these types of misconduct, the False Claims Act generally allows damages of up to three times the damages sustained by the Government, plus applicable civil penalties. The government can collect treble damages in civil fraud cases involving PPP loans, as well as in other types of civil fraud cases.

The various statues that allow federal prosecutors and civil enforcement authorities to seek penalties following PPP loan investigations also allow these authorities to pursue penalties at different times. Criminal and civil enforcement actions are subject to different statutes of limitations, including generally applicable criminal periods, longer periods for certain financial-institution offenses, and the False Claims Act’s six-year or three-year-after-knowledge periods subject to a ten-year outside limit. For example, even if you have already provided some documentation to the SBA, government prosecutors can still bring criminal charges based on other documentation you may have withheld.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 888 348 8028.