Criminal Defense Lawyers

NYC PPP – SBA – EIDL Loan Fraud Lawyers

NYC PPP – SBA – EIDL Loan Fraud Lawyers

The COVID-19 pandemic led to an unprecedented level of government assistance for small businesses in the form of PPP and EIDL loans. While these programs provided a lifeline for many businesses impacted by the economic fallout of the pandemic, they also created opportunities for fraud. In New York City and across the country, law enforcement is aggressively investigating and prosecuting cases of PPP and EIDL loan fraud.

Overview of PPP and EIDL Loan Programs

The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program were introduced in early 2020 as part of the CARES Act. The programs were administered by the Small Business Administration (SBA) to deliver emergency loans and grants to small businesses struggling due to the pandemic.PPP loans were designed to provide businesses with funds to pay employees and cover other expenses during COVID-19 shutdowns. The loans can be fully forgiven if used on eligible expenses like payroll, rent, utilities, etc. This provided businesses with much-needed cash flow during closure periods.EIDL loans and grants provided working capital funds to businesses suffering substantial economic injury due to the pandemic. These loans have very favorable terms like a 3.75% interest rate and 30-year repayment period. The EIDL Advance grants up to $10,000 did not have to be repaid.While the programs were hugely successful in terms of participation, distributing over $800 billion in aid, they were also plagued by high rates of fraud and abuse. It is estimated that over $200 billion in potentially fraudulent loans were distributed through PPP and EIDL according to a Secret Service report.

Types of PPP and EIDL Fraud

With the rush to get emergency aid out to businesses quickly, there was limited upfront verification of eligibility and need. This created opportunities for bad actors to exploit the programs. Some common schemes included:

• Falsifying payroll/employee numbers – Since PPP loans were based on payroll size, some applicants inflated their number of employees and payroll costs to get larger loans.
• Identity theft – Criminals used stolen personal information to apply for loans under other people’s names and businesses. This was easier with the EIDL program which had minimal identity verification initially.
• Fake/shell businesses – Completely fictitious businesses were created specifically to apply for emergency loans and grants.
• Double dipping – Businesses applied for and received aid from multiple lenders and programs for the same purpose, which is prohibited.
• Misuse of funds – Borrowers used loans for non-eligible expenses like personal purchases instead of payroll and business costs. Failure to use PPP funds properly makes the loan ineligible for forgiveness.
• Lying on applications – Applicants falsified information about number of employees, revenue losses, criminal history, and other data required to qualify for loans or forgiveness.

Law Enforcement Response

In the aftermath, federal and state authorities have made prosecuting PPP and EIDL fraud a top priority. The DOJ, FBI, IRS, SBA Inspector General, and other agencies have been investigating fraud across the country.Some notable actions include:

• DOJ COVID-19 Fraud Enforcement Task Force – Formed by the DOJ in May 2021 to coordinate law enforcement efforts related to pandemic relief programs. It has led to numerous prosecutions for PPP and EIDL fraud across the U.S.
• SBA Inspector General – The SBA’s internal watchdog has been auditing PPP and EIDL loans and referring cases of suspected fraud for criminal investigation. As of June 2022, they had issued over 190,000 referrals for suspected fraud or false statements on applications.
• FBI Investigations – The FBI has been aggressively pursuing PPP and EIDL fraud through its field offices, with cases ranging from individuals defrauding lenders of thousands to organized criminal rings stealing millions.
• IRS Audits – The IRS can audit and penalize PPP borrowers who improperly reported loans as income or ineligible businesses that applied for tax-exempt loans.

PPP and EIDL Fraud Penalties

The consequences for PPP or EIDL loan fraud can be severe depending on the offense. Possible penalties include:

• Up to 30 years in prison and $1 million fines for major fraud cases prosecuted under federal bank, wire, or mail fraud statutes.
• 5-10 years in prison for making false statements on loan applications or other documents.
• Fines equal to the amount of the loan or twice the gross gain for financial fraud.
• Restitution to lenders of any stolen loan funds.
• Permanent exclusion from future government contracts or loan programs.
• IRS penalties for inaccurate tax filings related to forgiven PPP loans.
• Civil liability in lawsuits brought by lenders or government agencies.
• Debarment from the SBA preventing future participation in any SBA loan programs.

Defenses in PPP and EIDL Fraud Cases

Those facing charges related to PPP or EIDL loans do have some defenses available that an experienced attorney can pursue, such as:

• Lack of intent – One defense is to argue that any false statements were unintentional mistakes rather than intentional fraud.