How to Fight PPP Fraud Charges Based on Honest Mistakes

Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience defending federal fraud charges. If you’re facing PPP fraud allegations based on what you believe were honest mistakes, you need to understand how federal prosecutors view errors versus crimes – and more importantly, how we defend the difference.

Not every mistake is fraud. The federal criminal code requires intent to deceive. If you made errors on your PPP application without knowing they were errors, or without intending to defraud anyone, that’s a defense. This article breaks down exactly how we fight PPP fraud charges when the truth is you just made mistakes.

The Legal Difference Between Mistakes and Fraud

Federal fraud requires willful intent. Under 18 U.S.C. § 1343 (wire fraud), 18 U.S.C. § 1344 (bank fraud), and 18 U.S.C. § 1001 (false statements), prosecutors must prove you knowingly made false statements with intent to obtain money you weren’t entitled to. An honest mistake – no matter how significant – doesn’t meet this standard.

The problem is that prosecutors don’t always care about the distinction. They see a discrepancy between your application and reality, and they assume fraud. Our job is forcing them to prove intent beyond a reasonable doubt. If we can show your mistakes were genuine errors made in good faith, the charges should be dismissed or you should be acquitted at trial.

Common PPP Application Mistakes That Get Charged as Fraud

Several categories of errors frequently lead to criminal charges, even when they were honest mistakes. Employee count errors top the list. Maybe you counted independent contractors because early guidance was unclear about 1099 workers. Maybe you included furloughed employees you planned to rehire. Maybe your payroll processor gave you the wrong number. All of these are legitimate mistakes – not crimes.

Payroll calculation errors happen constantly. The PPP formula for calculating loan amounts was confusing. Some borrowers used gross payroll instead of net. Some included owner compensation above the cap. Some miscalculated the 2.5x multiplier. If you made a math error or misunderstood the formula, that’s not fraud.

Revenue misstatements often stem from accounting method confusion. Did you use cash-basis or accrual accounting? Did you report gross receipts or net income? The application wasn’t always clear what it was asking for. If you reported numbers you genuinely believed were correct based on how you interpreted the question, that’s a mistake.

Documenting the Mistake Defense

Proving mistakes were honest requires evidence. We start by reconstructing exactly how you completed your PPP application. Who prepared it? What documents did you reference? What calculations did you perform? Did you consult anyone for guidance? Every step of this process becomes evidence that you were trying to comply – not trying to commit fraud.

Correspondence with lenders, accountants, and business advisors is critical. Emails with your bank asking about eligibility, accountant notes about payroll calculations, research you did on SBA guidance – all of this shows good faith effort. Application drafts showing corrections suggest you were fixing errors, not intentionally lying.

The Chaos of 2020 Works in Your Favor

The PPP rolled out in chaos. The SBA published initial guidance on March 31, 2020, and banks started accepting applications on April 3 – giving applicants days to understand complex requirements. Rules changed constantly throughout April and May. What was allowed one week was prohibited the next. What one bank said was fine, another bank said violated program requirements.

We pull every version of SBA guidance published during the application period. We identify contradictions, ambiguities, and changes in interpretation. If the rules themselves were unclear, how can the government prove you knew your application violated them?

Reliance on Professional Advice as a Defense

If you relied on accountants, attorneys, or other professionals when preparing your PPP application, that reliance demonstrates lack of fraudulent intent. We’ve defended clients who relied entirely on PPP consultants to handle the application process. If the consultant made errors without your knowledge, you’re not criminally liable.

Even informal reliance on lender guidance supports a mistake defense. Banks were processing thousands of applications under impossible time pressure. If you followed your bank’s guidance and it turned out to be wrong, that’s not fraud on your part.

Challenging the Government’s Evidence

Prosecutors build PPP fraud cases using bank records, tax returns, and payroll documents. They compare what you stated on your application to what these records show. Discrepancies become evidence of fraud. Our job is explaining those discrepancies in ways consistent with honest mistakes.

Take employee count discrepancies. Say you reported 15 employees, but your tax records show 12. We investigate why the numbers differ. Did you count independent contractors you believed qualified? Owners or family members? Part-time employees you counted as full-time? Each explanation transforms “evidence of fraud” into “evidence of a mistake.” Forensic accounting can identify exactly where numbers diverged and why.

The Role of Repayment

Some clients discover errors after receiving their PPP loan and immediately repay it. While repayment doesn’t erase criminal liability, it’s powerful evidence that mistakes were unintentional. People who commit fraud don’t voluntarily return the money. If you repaid your loan before any investigation started, that supports a mistake defense.

What Makes an Error “Honest”

Prosecutors distinguish between honest mistakes and convenient ones. An honest mistake is one you would’ve corrected if you’d known about it. The difference often comes down to whether you had access to information that would’ve revealed the error. If you claimed 20 employees based on what your payroll processor reported, and you had no reason to doubt that number, that’s an honest error.

Timing matters too. Mistakes made while rushing to submit an application before funds ran out look more honest than mistakes made on applications submitted weeks later. The context of 2020 – panic, uncertainty, rushed deadlines – supports characterizing errors as honest mistakes rather than calculated fraud.

Why Early Legal Intervention Matters

At Spodek Law Group, we’ve defended federal fraud cases for years – including high-profile prosecutions covered by the New York Post, Bloomberg, and Newsweek. PPP mistake defenses require building a complete factual record before prosecutors lock into their narrative.

Once the government indicts you, they’re committed to their theory of the case. Changing their minds becomes much harder. If we get involved during the investigation phase, we can present evidence of honest mistakes before charges are filed. Sometimes this results in declination – the government deciding not to prosecute. Even when charges can’t be avoided, early intervention positions us to negotiate better plea terms or prepare stronger trial defenses.

If you’re under investigation or facing charges, contact us immediately. We’ll review your application, identify what went wrong, and determine whether honest mistake defenses apply to your situation. We’re available 24/7 because federal investigations don’t wait for business hours.