What California Businesses Need to Know About PPP Fraud Defense

Thanks for visiting Spodek Law Group, a second-generation criminal defense firm managed by Todd Spodek, with over 50 years of combined experience defending federal fraud prosecutions nationwide. California businesses face uniquely aggressive PPP fraud enforcement because the Central District of California in Los Angeles and the Eastern District in Sacramento were selected by the Attorney General to jointly head one of three national COVID-19 Fraud Strike Force Teams – specialized prosecution units with enhanced resources, federal agent support, and mandates to pursue pandemic fraud aggressively. Since 2025, these strike force teams have charged dozens of cases across California: 14 defendants arrested in May 2025 for allegedly obtaining over $25 million in fraudulent loans, a Mid-City Los Angeles woman sentenced to 60 months in prison in February 2025 for $2.3 million COVID loan fraud, a California man pleading guilty in August 2025 to his role in a $15.9 million PPP and EIDL fraud scheme. These prosecutions demonstrate that California U.S. Attorneys’ Offices are prioritizing pandemic fraud cases, targeting both large organized schemes and individual business owners who allegedly made false statements on applications. If you’re a California business owner facing PPP fraud investigation or charges, you need defense counsel who understands the specific prosecution strategies used by California strike force teams and the federal courts where these cases are tried.

California Strike Force Prosecution Strategies

The California COVID-19 Fraud Strike Force brings resources and tactics that differ from standard federal prosecutions. FBI agents are embedded with prosecutors from the beginning of investigations rather than handing off cases after evidence gathering, creating coordinated investigations that build stronger cases. Strike force prosecutors specialize in pandemic fraud rather than handling diverse caseloads, making them extremely familiar with PPP and EIDL program rules, common fraud schemes, and effective prosecution theories. They coordinate across districts – a fraud scheme spanning Los Angeles, Orange County, and San Diego gets investigated jointly rather than separately, making it harder to exploit jurisdictional gaps. Strike force teams have enhanced data analytics capabilities, using sophisticated tools to cross-reference loan applications against IRS records, state unemployment databases, and business registration information looking for red flags that trigger investigation. This aggressive, coordinated approach means California businesses face higher audit rates and more frequent criminal referrals than businesses in districts without strike force teams.

High-Profile Cases Setting Precedents

Recent California prosecutions show the types of conduct triggering charges and the sentences defendants receive. A woman from Mid-City Los Angeles received 60 months – five years in federal prison – for fraudulently obtaining $2.3 million in COVID loans, with restitution exceeding $2.3 million. That sentence reflects the aggressive stance California judges take on pandemic fraud, showing little sympathy for economic desperation and viewing fraud amounts over $1 million as warranting substantial incarceration. The $15.9 million fraud scheme guilty plea demonstrates strike force focus on organized conspiracies involving multiple loan applications and sophisticated fraud techniques. The 14-defendant case with $25 million in alleged fraud shows prosecutors’ willingness to bring massive conspiracy cases charging numerous defendants jointly, which creates pressure for cooperators and makes trials extremely expensive and risky. These cases signal to California businesses that any PPP fraud exposure – even relatively modest amounts – carries serious risk given aggressive local enforcement.

Venue and Court Considerations

Where your case is prosecuted within California matters significantly because districts have different prosecution philosophies and sentencing patterns. The Central District of California, covering Los Angeles and surrounding areas, is the largest federal district with extremely busy dockets and judges who’ve seen hundreds of fraud cases. These judges are less likely to grant downward departures and more likely to sentence within or above guidelines because pandemic fraud cases are routine rather than exceptional in this district. The Eastern District covering Sacramento and the Central Valley has fewer pandemic fraud cases proportionally, but prosecutors there are part of the strike force and equally aggressive. The Southern District covering San Diego historically had more moderate prosecution and sentencing, but strike force creation increased enforcement intensity. The Northern District covering San Francisco and the Bay Area has significant pandemic fraud activity but wasn’t selected for strike force designation, potentially creating more favorable prosecution environment. We analyze venue issues carefully because sometimes we can argue your case should be transferred to districts where conduct occurred, where witnesses are located, or where you’ll face less aggressive prosecution.

Common California-Specific Issues

California businesses face certain fraud allegations that appear less frequently in other states due to California’s business environment and regulations. Multiple business entities under single ownership are common in California because business owners create separate LLCs for different projects, properties, or operations – prosecutors view this as suspicious and investigate whether you used multiple entities to obtain multiple PPP loans inappropriately. Independent contractor relationships dominate California’s gig economy, but PPP rules generally excluded contractors from eligible payroll – prosecutors scrutinize California businesses that claimed contractors as employees to inflate payroll expenses and maximize loan amounts. California’s high cost of living and business expenses led many business owners to believe they needed larger loans than traditional calculations suggested – prosecutors argue this reasoning doesn’t justify inflating numbers but rather shows consciousness that your business didn’t qualify for amounts you sought. State Employment Development Department investigations into unemployment insurance fraud often reveal discrepancies that trigger federal PPP investigations – if California EDD determines you misreported employee information for state purposes, federal prosecutors examine whether you made similar misrepresentations on PPP applications.

California Tax Law Intersections

California has unique tax treatment of PPP loans that can create issues in federal prosecutions. California initially didn’t conform to federal tax treatment of PPP expenses, requiring businesses to add back deducted expenses on state returns – this created confusion about reporting obligations that prosecutors sometimes interpret as evidence of fraud when businesses handled tax treatment inconsistently. California’s Franchise Tax Board conducts its own audits of PPP-related tax returns and occasionally refers suspicious cases to federal prosecutors, creating an additional source of criminal referrals beyond SBA and IRS. California’s strict labor laws and wage requirements mean payroll calculations for PPP purposes didn’t always align with what businesses thought constituted payroll – prosecutors argue these discrepancies show false statements rather than good-faith interpretation of complex rules. We navigate these California-specific complications by presenting evidence that confusion about state versus federal requirements, constantly changing guidance, and unique California business environment made compliance genuinely difficult and your errors were honest rather than fraudulent.

Defending in California Federal Courts

Defense strategies in California PPP cases must account for local court procedures and prosecution practices. Early intervention is more critical in California because strike force investigations move faster than standard cases – by the time you learn you’re under investigation, prosecutors often have substantial evidence and are close to charging decisions. We engage immediately to present evidence to strike force prosecutors before charges, demonstrating your business was legitimate, your loan application was substantially accurate, and prosecution isn’t warranted. Motion practice in California federal courts is sophisticated – Central District judges in particular expect detailed legal arguments supported by extensive case law, meaning we prepare comprehensive motions to dismiss, suppress evidence, or exclude testimony that give judges bases to narrow charges or dismiss weak cases. Trial strategy must account for Southern California juries in Central District who are skeptical of business fraud defendants but can be persuaded by evidence of pandemic economic impact, ambiguous guidance, and good-faith efforts to comply with complex rules. Sentencing advocacy is crucial because California federal judges routinely impose substantial prison time for fraud amounts exceeding $250,000 – we present powerful mitigation showing lack of sophisticated fraud, cooperation, restitution efforts, and compelling personal circumstances that justify below-guidelines sentences.

What Spodek Law Group Does

We defend California businesses facing PPP fraud investigation and charges across all California federal districts. We engage during strike force investigations to present evidence that charges aren’t warranted, negotiating with specialized pandemic fraud prosecutors who have discretion to decline prosecution before formal charges. We defend cases in Central District, Eastern District, Southern District, and Northern District courts, adapting strategies to each district’s procedures and judicial philosophies. We coordinate with California tax counsel when state tax issues intersect with federal fraud allegations, ensuring consistent positions across proceedings. We challenge venue when cases should be prosecuted outside California or in different districts within the state. At trial, we present evidence specific to California business environment – high costs, competitive pressures, complex regulations – that explains conduct prosecutors characterize as fraud. At sentencing, we argue for below-guidelines sentences based on mitigating factors and compelling personal circumstances. At Spodek Law Group, we’ve defended federal fraud cases nationwide for decades, including extensive experience in California federal courts. You can reach us 24/7 – because California strike force prosecution means aggressive enforcement, sophisticated investigations, and substantial prison exposure that requires immediate, experienced defense.