Criminal Defense Lawyers

I Didn’t Mean to Violate PPP Rules – Will I Be Convicted?

I Didn’t Mean to Violate PPP Rules – Will I Be Convicted?

Lots of business owners scrambled to get Paycheck Protection Program (PPP) loans during the pandemic. The rules seemed confusing and were constantly changing. Now some borrowers are being accused of knowingly committing fraud. I made some mistakes on my application but I certainly didn’t intend to break the law. What are the chances I’ll actually face criminal charges?

Unraveling the Confusion Around PPP Rules

When the PPP program first launched, the rules felt like they were in total chaos. Guidelines kept shifting while business owners urgently tried accessing funds to stay afloat. Details around loan forgiveness were murky. The application asked about payroll numbers from a specific monthly time frame but many businesses have seasonal workers. Some owners pay themselves inconsistently. Applicants wondered – should we use our average payroll numbers or figures from that exact month?Banks also gave contradictory information on what documentation was required. Many businesses submitted applications without actually attaching tax forms and payroll records, thinking they could provide those later if necessary.In the rush to get cash, over 10 million PPP loans were approved totaling over $700 billion. Now the SBA appears to be scrutinizing loans over $2 million. Any miscalculations could be considered fraud. But in those early days, the guidance was so confusing that errors were rampant.

Where Negligent Borrowers May Face Consequences

The Department of Justice has already started prosecuting dozens of borrowers for allegedly falsifying PPP loan applications. In some cases these look like deliberate attempts to take advantage of the program. For example, a reality TV star inflated his payroll by over $3 million then used loan proceeds to buy a Ferrari.Prosecutors seem focused on going after borrowers who exhibited clear intent. They look for indicators like:

• Falsely claiming to have payroll when the business has no W2 employees
• Using PPP funds for prohibited purposes like buying luxury items
• Applying through multiple lenders for the same payroll
• Quickly defaulting on the loan with no attempt to use funds as required

Negligent borrowers may still face consequences like repaying loans with interest, civil fines, and being banned from future SBA financing. But criminal fraud charges seem less likely in cases where someone tries repaying any disputed loan amounts.

PPP Loan Forgiveness Hinges on Strict Compliance

The SBA emphasizes PPP loans can be 100% forgiven if borrowers adhere to rules around:

• Loan proceeds covering payroll, rent, utilities, etc.
• Maintaining employee headcount
• Reinstating fast pay cuts
• Spending within a limited timeframe

With so much money at stake, the SBA is really cracking down on full compliance. Even innocent mistakes could make your loan only partially forgivable or completely ineligible.Unforgiven loan balances convert to 2 year terms at 1% interest. The SBA extends repayment terms for larger loans over $150,000. But if any amount remains payable, monthly payments kick in after just 10 months.For struggling businesses already devastated by COVID slowdowns, even small unforgiven balances could feel unmanageable. And perceived application errors transform what felt like desperately needed relief funds into burdensome debt.

Navigating Gray Areas Around PPP Rule Violations

With forgiveness at stake plus potential penalties, PPP mistakes can quickly spiral. What if issues surface that feel ambiguous? For example:

• Claiming seasonal employees without submitting precise documentation
• Using slightly inconsistent payroll calculation methods
• Not recalling laid off staff quickly enough
• Lacking detailed expense tracking on spending

These situations live in gray areas lacking clear intent to defraud. Without proper advice, business owners may:

• Pre-emptively repay loans despite potential forgiveness
• Make rash decisions reacting to audit requests
• Answer investigator questions without representation
• Attempt explaining well-intentioned mistakes as criminal acts

Any missteps could compound legal and financial troubles. Treading carefully is essential.

My PPP Loan is Being Audited – What Should I Do?

Let’s say you just received a letter from the SBA requesting more information on your PPP loan application. Or perhaps federal agents directly contacted your business around potential fraud. Either situation would rightfully feel scary and stressful. But panicking rarely helps.Here are some tips if your PPP loan gets flagged for review:

• Don’t ignore requests. Carefully confirm deadlines given to supply any additional documents. Ask for extensions if needed to prepare full responses.

• Consider lawyer referrals. Consult an attorney experienced with PPP rules that can advise if your situation seems concerning. FindLaw and Avvo offer search tools to locate qualified local lawyers.
• Don’t alter records. Be completely transparent sharing payroll records, bank statements, tax filings, and other real documentation. Never amend anything related to your loan application.
• Carefully craft communications. Script out well-thought email and phone responses to investigators with your lawyer’s guidance. Do not casually chat about your loan without representation present.

• Explore repayment options. Discuss with counsel whether prepaying back concerning loan amounts before charges get filed seems prudent. This could help mitigate penalties.
• Request settlement meetings. If fraud allegations still get raised, immediately ask authorities about settlement offerings to resolve the situation. Admitting errors in pursuing financial assistance could show reasonable intentions without willful deceit.
• Prepare your defense. As a last resort if settlement talks fail, develop an argument around getting confused amidst unclear rules rather than deliberately violating program policies.

Having an action plan for working through a PPP loan audit can ease panic. The law contains protections for situations involving unintended faults.

Fighting PPP Fraud Allegations with Help of Legal Defenses

If discussions with investigators take an adversarial turn, several legal defenses may apply to inadvertent PPP rule violations. Understanding these options matters when deciding how to approach your own circumstances.

Unconscious Recklessness

This argument claims you failed perceiving or recognizing application errors under pressure to hastily get assistance. Desperation to save your struggling business blinded you from understanding potential mistakes.

Reliance on Expert Advice

You may claim assuming guidance received from bankers, accountants, consultants absolved your responsibility in preparing accurate paperwork. This also helps explain why certain figures got calculated incorrectly amidst confusing criteria.

Lack of Fraudulent Intent

Prosecutors prioritize deliberate misrepresentations, deception, and greed. If your actions show attempting to use funds appropriately without personal gain, arguing absent intent could be persuasive.

Not Willfully Negligent

You potentially contend staffing shortages left inadequate resources for perfectly administering the urgent loan. Though careless oversights occurred, nothing reached the level of intentional or willful negligence.

• The above are simply examples of potential defenses, not formal legal advice. Consult qualified attorneys to discuss strategies directly relating to your unique situation.

Having a few well-researched arguments gives options if investigators allege fraud. An experienced lawyer’s guidance maximizes the chances of resolving your case favorably.

What Are Possible Penalties Around PPP Rule Violations?

Wondering what consequences you might really face if accused of PPP fraud? Here’s an overview of potential penalties defined by the SBA:

• Loan repayment – At minimum, any PPP funds used improperly must get repaid plus interest. You also lose eligibility for loan forgiveness.
• Treble damages – If false statements made in loan applications get proven as intentional, the Justice Department can seek repayment of 3 times original amounts.

• Civil fines – The SBA can impose civil monetary penalties up to $250,000 per violation plus assessments equaling twice any claimed losses.
• Criminal charges – For serious fraud involving large loans over $2 million, prosecutors can pursue criminal wire/bank fraud charges punishable by hefty fines, decades in prison, or both.

• Banned from federal contracts/loans – Those convicted of felony fraud often get debarred from future government contracts and SBA loan programs for set time periods.