Entrapment Defenses in SBA Loan Fraud Cases

Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience defending federal criminal cases. If you’re facing SBA loan fraud charges and you believe government agents or informants pushed you into conduct you wouldn’t have otherwise committed, entrapment might be a viable defense. This article explains exactly how entrapment defenses work in PPP, EIDL, and other SBA loan fraud prosecutions.

Entrapment is rare, difficult to prove, and requires specific facts showing government overreach. But when it applies, it’s a complete defense to federal fraud charges. Understanding when entrapment works – and when it doesn’t – could determine whether you’re convicted or acquitted.

What Is Entrapment Under Federal Law

Entrapment occurs when government agents induce a person to commit a crime they weren’t predisposed to commit. Federal law recognizes two elements: government inducement and lack of predisposition. Both must be proven for an entrapment defense to succeed.

Government inducement means law enforcement officers, undercover agents, or cooperating witnesses actively persuaded you to commit fraud. Simply providing an opportunity to commit fraud isn’t enough – the government must have created the crime through persuasion, pressure, or deception. Lack of predisposition means you weren’t already inclined to commit SBA loan fraud before government involvement. If you had a history of fraud, showed eagerness to participate, or initiated the scheme yourself, you were predisposed.

The burden shifts during entrapment defenses. Once you present evidence of government inducement, the prosecution must prove beyond a reasonable doubt that you were predisposed to commit the crime. This is one of the few defenses that puts burden on the government to disprove rather than requiring you to prove your innocence.

How Entrapment Might Occur in SBA Loan Fraud Cases

SBA loan fraud investigations often involve cooperating witnesses – people already caught who agree to help prosecutors build cases against others in exchange for leniency. These cooperators sometimes cross the line from observing criminal conduct to creating it. If a cooperator repeatedly urged you to submit a fraudulent PPP application, provided false information for you to use, or convinced you that everyone was doing it and you’d be foolish not to participate, that might constitute entrapment.

Undercover agents can also create entrapment situations. If an agent posing as a PPP consultant actively encouraged you to inflate employee numbers, fabricate payroll records, or misrepresent your business – and you wouldn’t have done so without that encouragement – the government may have entrapped you.

The key distinction is between creating crime and detecting crime. Law enforcement can provide opportunities for people predisposed to fraud to commit fraud. They can’t manufacture criminals out of law-abiding citizens through pressure and persuasion.

Proving Government Inducement

Government inducement requires more than casual suggestion. Courts look for aggressive tactics like repeated solicitation, appeals to sympathy or friendship, promises of easy money, or assurances that the conduct is legal. One mention of PPP loans by an informant doesn’t constitute inducement. Weeks of pressure, multiple contacts, and active assistance in preparing fraudulent applications might.

We build inducement cases through recordings, text messages, emails, and witness testimony showing the government’s role in creating the offense. If a cooperating witness sent you dozens of messages pushing you to apply for PPP loans with false information, those messages become evidence of inducement. If an undercover agent offered to help you prepare applications and suggested what false information to include, that’s inducement.

The government will argue they merely provided opportunity. We counter by showing they went beyond opportunity into active persuasion that created conduct that wouldn’t have otherwise occurred.

Proving Lack of Predisposition

Predisposition is where most entrapment defenses fail. Prosecutors attack predisposition by showing your criminal history, evidence you initiated contact about fraud, eagerness to participate, or prior similar conduct. If you’ve committed fraud before, courts will likely find you were predisposed. If you immediately agreed to the scheme without hesitation, that suggests predisposition. If you proposed ways to make the fraud more successful, you were predisposed.

We prove lack of predisposition through character evidence, lack of criminal history, initial reluctance to participate, and evidence you believed the conduct was legal. One client initially refused to apply for a PPP loan when suggested by an informant. The informant contacted him repeatedly over weeks, assured him the application method was legal, and offered to prepare everything. The client finally agreed after substantial pressure. That reluctance and repeated refusals supported lack of predisposition.

Entrapment vs. Outrageous Government Conduct

Outrageous government conduct is a related but distinct defense. Even if you were predisposed to commit fraud, government conduct can be so extreme that it violates due process. This defense succeeds even more rarely than entrapment. Outrageous conduct might include government agents fabricating evidence or engaging in conduct that shocks the conscience – like creating fake businesses and fraudulent applications without your knowledge, then charging you based on their own fabrications.

When Entrapment Doesn’t Apply

Entrapment doesn’t apply when government agents merely provide opportunity. If an undercover agent mentions PPP loans and you decide on your own to submit a fraudulent application, that’s not entrapment. If a cooperating witness asks whether you’d be interested in SBA loans and you eagerly agree and begin fabricating documents, you were predisposed. Entrapment also doesn’t apply when you’re caught through passive investigation – FBI agents analyzing public PPP data or following up on bank reports isn’t inducement.

Raising Entrapment at Trial

Entrapment is an affirmative defense raised at trial. Once you present evidence of government inducement, the burden shifts to prosecutors to prove predisposition beyond a reasonable doubt. This typically requires your testimony about how the government convinced you to participate – creating risks since taking the stand exposes you to cross-examination. We evaluate whether the benefits outweigh the risks of testifying.

Entrapment in Plea Negotiations

Even if entrapment won’t succeed at trial, evidence of government overreach strengthens plea negotiations. Prosecutors know aggressive tactics create litigation risks and bad optics. If we demonstrate questionable investigative methods, prosecutors may offer better plea terms to avoid scrutiny at trial. We present evidence of inducement to reduce charges, lower sentencing recommendations, or negotiate alternative dispositions.

Why Experienced Federal Defense Counsel Matters

At Spodek Law Group, Todd Spodek has defended federal criminal cases for years, including high-profile prosecutions covered by the New York Post, Bloomberg, and Newsweek. Entrapment defenses require deep understanding of federal criminal law, investigative tactics, and trial strategy. Most SBA loan fraud cases don’t involve entrapment – but when they do, recognizing it and developing the defense properly can mean the difference between conviction and acquittal.

We analyze every investigation for signs of government overreach. We identify when cooperating witnesses crossed lines. We preserve evidence of inducement and reluctance. We evaluate whether entrapment is viable or whether raising it would backfire. If you believe you were induced to commit SBA loan fraud by government agents or informants, contact us immediately. We’re available 24/7 to review your case and determine whether entrapment defenses apply.