Federal Loan Sharking Charges: Illegal Lending Defense.

Yes. A key aspect of federal loan-sharking allegations is that defendants can be charged as conspirators under 18 U.S.C. § 1962(d), provided there are appropriate predicates. Under federal law, extortionate credit extensions, loan collection practices involving violence, or mail fraud or wire fraud can constitute RICO predicate offenses when the statutory elements are met. In practice, this means that even in the absence of a RICO prosecution, federal prosecutors can target individuals alleged to be participating in illegal lending schemes.

How does the federal loan-sharking statute, 18 U.S.C. § 892, define what constitutes “extortionate credit”?

18 U.S.C. § 891(6) defines an extortionate extension of credit as an extension made with the understanding that delayed or nonpayment could result in violence or other criminal means causing harm; § 891(7) defines an extortionate means as violence or other criminal means used or threatened to cause such harm, while § 892(b) identifies nonexclusive prima facie evidentiary factors.

What conduct does Section 892 target?

Under federal law, Sections 892 and 894 are primarily used to prosecute the intentional extension and collection of loan obligations. Specifically, these statutes make it unlawful for an individual to:

• Knowingly extend extortionate credit,
• Knowingly participate in the use of extortionate means to collect or attempt to collect an extension of credit, or to punish nonrepayment (18 U.S.C. § 894),
• Knowingly participate in the use of extortionate means to collect or attempt to collect an extension of credit, or to punish nonrepayment (18 U.S.C. § 894), or
• Knowingly participate in the use of extortionate means to collect or attempt to collect an extension of credit, or to punish nonrepayment (18 U.S.C. § 894).

Does my receipt of a loan qualify as “participating” in a loan-sharking scheme?

As a general matter, borrowing money, even from a private lender or outside the traditional banking system, does not establish liability for participating in a federal loan-sharking scheme under Section 892. As a borrower, you may not have knowingly participated in a credit extension or collection process involving violence or other criminal means. While borrowing alone will not make you liable, demonstrating a comprehensive understanding of the loan’s terms and conditions is just one potential defense. The specific facts and circumstances of each case will determine whether a borrower, or their family members, have potential defenses.

What does adding RICO change in an extortionate-credit prosecution?

Is RICO related to federal extortionate lending?

Yes. The RICO statute identifies extortionate credit transactions among its potential racketeering predicates. This means that a federal extortionate-credit prosecution may or may not be brought as a RICO prosecution. When the government believes there is sufficient evidence to establish a case for RICO, it may add to the statute the appropriate racketeering predicates. In turn, such evidence will trigger the substantial penalties that a RICO conviction can entail.

What constitutes a federal RICO prosecution?

To establish a case for RICO, the government must prove that a single “enterprise” engaged in a “pattern of racketeering activity.” Under 18 U.S.C. § 1961(5), a pattern of racketeering activity requires at least two acts of racketeering activity, with the last occurring within ten years after a prior act. The statute also lists several additional requirements that a prosecution must meet to be qualified as a federal RICO case.

What are the consequences of a RICO conviction?

The RICO statute lists prison, fines, and forfeiture of connected property among the potential consequences of a federal racketeering conviction. RICO fines can be up to $250,000 for individuals, while the amount of a fine for an organization is the greater of $500,000 or twice the gross gain or twice the gross loss. Additionally, the RICO statute allows for the “forfeiture” of property constituting, or derived from, proceeds obtained from racketeering activity or unlawful-debt collection.

Are federal extortionate-credit charges always pursued as RICO offenses?

Not necessarily. In fact, the vast majority of federal loan-sharking cases will be brought under the substantive federal extortionate credit statute (18 U.S.C. § 892) or other fraud statutes. RICO is generally reserved for larger-scale criminal syndicates and criminal organizations. However, if a RICO charge is added, it generally triggers the extensive fines and forfeitures detailed above.

When does a PPP loan problem become federal fraud rather than a repayment issue?

What is the Paycheck Protection Program (PPP)?

The Paycheck Protection Program (PPP) was a loan program created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The program is funded and administered through the U.S. Small Business Administration. Businesses that take out a PPP loan must comply with the program’s requirements, including loan repayments and forgiveness requirements. The loan forgiveness requirements include maintaining a specific amount of payroll employment.

Can Paycheck Protection Program Loans Be Forgiven?

Yes, PPP loans are forgivable if the borrower meets program conditions, such as spending funds for covered payroll costs and other eligible expenses. The PPP source also provides an example of meeting this requirement, which includes ensuring “at least 60 percent” of loan proceeds are used for employee payroll costs.

Note: At Spodek Law Group, our lawyers help business owners and executives ensure that they comply with the federal requirements for loan forgiveness. If you have questions about your business’s PPP loan obligations, our firm can assist with answers.

What Qualifies as Federal PPP Fraud?

According to the Department of Justice (DOJ), fraud under the Paycheck Protection Program can result from, among others, the following illegal activities:

• Knowingly and materially lying on a PPP application;
• Knowingly and materially lying on a PPP application certification;
• Spending PPP loan proceeds on ineligible expenses or using PPP loan proceeds for any purpose other than those authorized under the CARES Act;
• Filing multiple PPP loan applications under different business names;
• Knowingly using a shell company or creating a shell company to apply for PPP financing;
• Including ineligible employees in PPP applications or for loan forgiveness;
• Or knowingly which provide or intend to provide illegal financial assistance.

How is a Federal PPP Fraud Case Prosecuted?

The Department of Justice handles most criminal fraud charges. If the federal government decides to bring PPP fraud charges, it can rely on two primary statutes: 18 U.S.C. section 1343 (wire fraud) or 18 U.S.C. section 1344 (bank fraud). Both wire fraud and bank fraud have the potential to result in substantial prison sentences, and the federal government is eager to pursue those that do. As federal loan-sharking charges can result in similar sanctions, a substantial risk of incarceration is on the line for both.

How do investigators’ questions and collection conduct affect the defense?

Are False Statements to Financial Institutions Criminal?

False statements to financial institutions, including loan applications and loan certifications, can be criminal. If the government alleges that the statement was knowingly false and made for the purpose of influencing the action of a covered institution, it can charge the speaker under 18 U.S.C. section 1014. However, the government must prove criminal fraud beyond a reasonable doubt, and this is just one step in the government’s burden to prove that you are liable for federal loan sharking.

Can Federal Prosecutors Bring Charges Based on Financial Documentation Alone?

While the federal government needs financial documentation to prove loan transactions in these cases, it may not have sufficient evidence to prove that an individual committed federal loan sharking. To seek a criminal conviction for a federal offense, the government must prove that you engaged in a violation. Even if it is undeniable that you engaged in certain loan-related activities, this does not necessarily mean that your actions constitute criminal conduct.

When Should I Speak to Federal Loan-Sharking Investigators?

While some people may want to speak with the Department of Justice (DOJ) or a federal bank fraud task force, doing so is not necessary. If federal authorities have enough information to file charges against you, they will not be affected if you do not talk to them. In fact, talking to investigators is only going to introduce new and uncalculated risks. If you choose to continue talking to federal investigators, it is critical that you work closely with a skilled federal loan-sharking defense attorney.

Can the Government Use Statements I Made to Federal Agents to File Charges?

Federal authorities may seek to use statements made by a borrower (or other individuals involved) during the investigatory process, subject to applicable constitutional and evidentiary limits. Even if you spoke with the DOJ prior to being arrested or being formally charged, the government can use your statements to attempt to establish you are guilty of federal loan sharking or participating in extortionate credit transactions.

Are Prison, Fines, and Restitution Automatic?

No. While the penalties for federal loan sharking charges are substantial, none are automatic. A significant portion of loan-sharking defendants will successfully avoid these penalties. Not only do most defendants avoid prison, but most defendants avoid restitution, forfeit their property, and other penalties of federal loan sharking as well. If you have been charged or have concerns about your financial dealings, contacting a dedicated loan-sharking defense attorney can help you avoid these penalties.

How Much Imprisonment Time Can a Defendant Face for CARES Act Fraud?

According to the PPP source, the maximum prison time that can be ordered depends on the charged statute, not the CARES Act. Defendants can also face a fine under the charged statute, not a $10,000 CARES Act fine, but prosecutors can seek both imprisonment and fines in many cases. The government may seek restitution if the case qualifies for CARES Act fraud as a prosecutable offense and proves the amount for a restitution award.

What is the Maximum Prison Time for Wire Fraud?

The maximum prison time for wire fraud depends on whether federal prosecutors allege a substantive violation of 18 U.S.C. section 1343 or a conspiracy charge under 18 U.S.C. section 1349. As a standalone offense, a violation of 18 U.S.C. section 1343 carries a maximum federal imprisonment term of 20 years, or 30 years if the violation affects a financial institution or involves a declared major disaster or emergency. Conspiracy under 18 U.S.C. section 1349 carries a similar penalty.

What is the Maximum Prison Time for Bank Fraud?

The maximum prison time is 30 years for wire fraud involving a financial institution or declared disaster, and 30 years for bank fraud. Federal prosecutors will often seek bank fraud charges under 18 U.S.C. section 1344 in PPP fraud cases. Additionally, the federal government may seek charges under several other federal statutes and applicable laws.

Can the Government Seek Treble Damages Under the False Claims Act?

Yes. The False Claims Act authorizes treble damages against a person who knowingly presents a false or fraudulent claim or makes a false record or statement material to a false or fraudulent claim. The False Claims Act has been primarily used for financial relief for fraud involving federal funds. This federal statute imposes civil penalties and treble damages.

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 888 348 8028.