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Rhode Island PPP – SBA – EIDL Loan Fraud Lawyers

March 21, 2024

Rhode Island PPP – SBA – EIDL Loan Fraud Lawyers

The Paycheck Protection Program (PPP) was supposed to be a lifeline for small businesses struggling during the COVID-19 pandemic. But this federal program ended up being a total disaster, with rampant fraud and billions wasted. What the heck went wrong?

They Rushed That Sucker Out So Fast

When COVID hit in March 2020, the government scrambled to set up the PPP as part of the CARES Act. The goal was to get emergency cash to small businesses quickly so they could keep paying their employees and bills when revenues crashed. But in the rush to get money out the door, they didn’t take the time to put proper controls in place.

The application process was a joke. You could basically self-certify you were eligible without much proof. It was all done on the honor system, which shady folks obviously took advantage of. With billions in free money on the table and nobody checking too hard, it was a fraudster’s dream come true!

All Kinds of Cheaters Jumped In

The Department of Justice has busted hundreds of scammers who did things like:

  • Apply using fake or stolen identities
  • Make up fake employees to get bigger loans
  • Create shell companies to apply multiple times
  • Collude with shady bankers to get loans approved
  • Spend the money on themselves instead of their business

While all government programs have some fraud, the PPP was an epic disaster. Experts say several factors created the ideal conditions for massive fraud:

  • Rushed launch without proper controls in place
  • Desperate times – businesses were hurting bad
  • Hundreds of billions available
  • Loans were forgivable if used on eligible expenses
  • Little vetting of applications and no verification
  • Honor system for applicants

When you combine free money, desperation, and no oversight, it’s no wonder scammers had a field day. The Small Business Administration’s own Inspector General estimates that over 80% of PPP funds went to fraudsters or ineligible recipients.

Impact of PPP Fraud

While fraud will never be fully eliminated, the government must balance proper oversight with expediency when responding to crises. Analysis after the fact showed billions could have been saved with simple validation steps like checking state records to confirm companies submitting PPP applications actually existed.

Christine Twomey
Christine Twomey
2024-03-21
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Brendan huisman
2024-03-18
Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!
Guerline Menard
Guerline Menard
2024-03-18
Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️
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Keisha Parris
2024-03-15
Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.
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Taïko Beauty
2024-03-15
I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!
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2024-03-12
Hey, how you guys doing? Good afternoon my name is Anthony Williams I just want to give a great shout out to the team of. Spodek law group. It is such a honor to use them and to use their assistance through this whole case from start to finish. They did everything that they said they was gonna do and if it ever comes down to it, if I ever have to use them again, hands-down they will be the first law office at the top of my list, thank you guys so much. It was a pleasure having you guys by my side so if you guys ever need them, do not hesitate to pick up the phone and give them a call.
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2024-03-12
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2024-02-28
Amazing experience with Spodek! Very professional lawyers who take your case seriously. They treated me with respect, were always available, and answered any and all questions. They were able to help me very successfully and removed a huge stress. Highly recommend.
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divesh patel
2024-02-24
I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.

The Scope of the Problem

The Paycheck Protection Program (PPP) was launched in 2020 as part of the CARES Act to provide emergency loans and grants to small businesses impacted by the COVID-19 pandemic. While the PPP provided a lifeline to millions of businesses and saved jobs, it was also exploited by fraudsters on an enormous scale. Experts estimate that over $100 billion was stolen through PPP loan fraud, making it potentially the largest fraud in generations.

Massive Scale of Estimated Fraud

The PPP program involved over $800 billion in loans, but oversight and controls were initially very weak due to the rush to get money out quickly during the pandemic. This lack of safeguards created an environment ripe for exploitation.

The Small Business Administration (SBA) Inspector General estimates that $78.1 billion in potentially fraudulent Economic Injury Disaster Loans were disbursed, along with another $20 billion in fraudulent PPP loans – over $100 billion total.

Independent analyses also point to huge fraud numbers. A 2022 study from the University of Texas-Austin estimates almost 5 times more suspicious PPP loans than the SBA Inspector General, totaling up to $117 billion.

In summary, PPP fraud ranges from $78 billion on the low end to over $100 billion on the high end, making it a staggering fraud epidemic. The Justice Department will be chasing these cases for years.

Common PPP Fraud Schemes

Fraudsters took advantage of the rushed PPP program in various ways:

  • Identity Theft – Criminals stole business owners’ identities to apply for loans under their names. Victims only found out when notified of default on a loan they never took out.
  • Fake Businesses – Fraudsters fabricated businesses with fake employee and payroll numbers to obtain large PPP loans. Some registered new sham companies while others revived dormant corporations.
  • Multiple Loan Applications – Scammers submitted multiple loan applications with identical information under different business names. Others applied for multiple loans for the same business.
  • Misuse of Funds – Business owners obtained PPP loans but used funds for prohibited purposes like personal expenses instead of payroll.

These schemes exploited the lack of verification and duplicative loan controls early in the PPP program.

Lack of Oversight and Safeguards

  • Minimal audits – Only 0.2% of loans received detailed SBA review. These gaps allowed widespread PPP loan fraud.
  • Weak front-end controls – The rushed PPP rollout lacked proper vetting of borrower eligibility. Lax verification enabled fraudsters to get approved with minimal scrutiny.
  • No pre-payment validation – Loans were funded upfront before the SBA reviewed any supporting documents. Scammers took the money and ran.
  • Self-certification – Borrowers simply had to certify they met eligibility criteria but weren’t required to show proof. This allowed fraudsters to make false attestations.
  • Online applications – The rushed online-only process made it easier for scammers to apply remotely with fake credentials.
  • Multiple lenders – With over 5,000 PPP lenders, it was challenging to detect duplicate loan applications filed across different banks.

This combination of minimal oversight, weak controls, and the frenzied pace of PPP lending produced an environment ripe for exploitation by fraudsters. Billions could have been saved with simple safeguards and verification procedures.

PPP Fraud Prosecutions Rising

The Department of Justice is aggressively prosecuting PPP fraud cases and charges are rising steadily. Recent cases include:

  • Rhode Island – Two men charged with seeking over $500,000 in PPP loans claiming to have employees at businesses that were not operating (DOJ release).
  • Texas – Businessman charged with seeking $13 million in PPP loans falsely claiming to have 250 employees (DOJ release).
  • Georgia – Man charged with seeking $300,000 in fraudulent PPP loans and using funds to purchase luxury items (DOJ release).

DOJ is partnering with agencies like the SBA Inspector General, FBI, IRS Criminal Investigation, and FDIC Inspector General to investigate and prosecute PPP loan fraud.

Anyone who falsely certified PPP loan eligibility or misused loan funds is at risk. Penalties can include criminal fraud charges, civil False Claims Act violations, treble damages, debarment from government contracts, and long prison sentences.

With billions stolen, prosecutors will likely be busy for years unraveling all the PPP fraud schemes. The flood of new cases shows this will be an enforcement priority for some time.

Defenses in PPP Fraud Cases

Those facing PPP fraud allegations do have potential defenses to explore with an experienced attorney:

  • No intent – The government must prove you knowingly intended to commit fraud rather than making an honest mistake on the application.
  • Ambiguous rules – Given the rushed nature of the program, the PPP rules were subject to shifting interpretations and confusion. It may have been unclear whether your business qualified.
  • Lender errors – Mistakes by the lender in processing your application may have led to incorrect information submitted to the SBA.
  • Loan forgiveness – If the loan has been forgiven based on eligible expenses, courts may take that into account in sentencing.

An attorney can analyze the facts of your case and determine if any of these defenses apply. The PPP rules were complex, and legitimate businesses may have gotten ensnared due to unclear requirements. An experienced legal team can argue your side of the story.

How an Attorney Can Help

Here are some of the ways an attorney can assist with PPP fraud cases:

  • Review the loan application and documents to identify potential defenses.
  • Challenge any weak points in the government’s evidence and case theory.
  • Raise plausible explanations for any red flags or discrepancies.
  • Negotiate with prosecutors for a favorable plea deal or pretrial diversion to avoid conviction.
  • Defend against criminal charges at trial if necessary.
  • Argue for mitigating factors to reduce penalties if convicted.
  • Appeal any issues with the case or court rulings if needed.

Having skilled legal counsel makes a huge difference in these complex fraud cases. Don’t go it alone against the full force of federal prosecutors and agencies. The stakes are too high.

Conclusion

The COVID-19 pandemic led to the hasty rollout of emergency stimulus programs like the PPP. While speed was understandable, this lack of safeguards left the door wide open for an epic wave of fraud.

With estimates ranging up to $100 billion stolen, the PPP suffered losses on a massive scale. The Justice Department is now playing catch-up, chasing down scammers months or years later.

For companies accused of PPP loan fraud, the stakes are high. Steep criminal penalties and treble damages could result without an aggressive legal defense. In this environment, experienced legal counsel is critical.

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Todd Spodek

Founding Partner

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RALPH P. FRANCHO, JR

Associate

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JEREMY FEIGENBAUM

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ELIZABETH GARVEY

Associate

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CLAIRE BANKS

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RAJESH BARUA

Of-Counsel

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CHAD LEWIN

Of-Counsel

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