How to Handle an SBA Subpoena for PPP Loan Records.

How to Handle an SBA Subpoena for PPP Loan Records (Section: What does an SBA subpoena reveal about a PPP borrower’s records and risk?)

An SBA subpoena can carry the appearance of a full-blown federal criminal case. However, even this alone does not necessarily imply a high risk of federal criminal charges or civil enforcement action. To begin responding to an SBA subpoena, business owners, executives, and their legal counsel need to ascertain what (if any) of the following it establishes about the government’s case. The answer may shape a thoughtful, strategic, and effective response. We can discuss this issue and others in detail in a confidential consultation.

No Establishment of Criminal Charges

Generally speaking, receipt of an SBA subpoena does not imply a presumption of liability or guilt. At this stage, an SBA subpoena establishes only the fact that investigators are seeking information about a PPP loan application or, in some cases, specific information about the PPP loan proceeds. This alone is sufficient evidence to warrant a federal inquiry, but it is by no means sufficient evidence to warrant criminal charges, civil enforcement action, or other legal action.

No Demonstration of Nearly Complete Case

An SBA subpoena does not mean prosecutors already have a nearly complete case. Although federal agents often work in teams, they do not possess the resources to conduct exhaustive investigations. They must often rely on the records and information that they can request. As a result, they may not have a nearly complete case against any individual or entity at this stage, and receipt of an SBA subpoena does not suggest otherwise.

No Proof of Possession of All Records

Furthermore, receipt of an SBA subpoena does not prove that federal investigators have already obtained all of the relevant bank records, tax documents, payroll documents, and other records. In fact, this does not rule out the possibility of a bank, payroll company, or other third party receiving its own subpoena to disclose records as well. Grand-jury subpoenas can also demand business records, communications, witness testimony, and other information from employers, employees, and the government’s other targets, as well.

Which Steps Protect PPP Records Before the Response Deadline?

Do Not Delete or Alter Records

An additional reason to engage experienced defense counsel immediately upon receiving an SBA subpoena is to ensure that you do not unintentionally compound the risk of getting into trouble with the government. For instance, deleting or altering any records once you know that you have become the target of a federal investigation can create unnecessary exposure to obstruction charges and other consequences. To avoid this situation, you will want to preserve any (and all) relevant emails, PPP loan applications, payroll records, financial statements, and other documents. While this could mean including records that you are not required to produce, it will protect you against the risk of making unwise preservation decisions and will also keep federal investigators from looking for gaps in your record-keeping.

Do Not Assume the Fifth Amendment Applies

Another reason to work with experienced defense counsel to handle an SBA subpoena for PPP records is that a witness’s Fifth Amendment privilege against self-incrimination generally only applies to compelled testimony, not to pre-existing documents. Thus, if an SBA subpoena is accompanied by a grand-jury subpoena compelling testimony, a witness might be able to assert the privilege as to particular incriminating questions. However, the witness cannot necessarily rely on the Fifth Amendment to refuse to produce documents for several different reasons.

Do Not Assume the Fifth Amendment Applies to Document Production

One of the primary reasons why the Fifth Amendment generally does not apply to document production is the fact that the mere act of producing documents in response to an SBA subpoena or grand-jury subpoena can take on a testimonial nature. In some cases, the act of production can prove that you have ownership, control, and possession of the records that you are being asked to produce. Therefore, the act of production itself can sometimes trigger the need to assert the Fifth Amendment privilege.

Do Not Assume that Asserting Your Rights Means You Will Not Have to Appear as a Witness

Finally, if a grand-jury subpoena commands you to appear as a witness, you must generally appear before the grand jury, even if you plan to assert your Fifth Amendment privilege as to incriminating questions. In many cases, this means that you will be testifying in front of a grand jury that does not include a judge or other impartial adjudicator to keep the prosecution in check. Also, while you will be able to meet with your defense counsel prior to testifying, defense counsel generally will not be allowed to accompany you into the grand-jury room.

If any of this describes your situation, it is worth talking through with counsel. Spodek Law Group can be reached at 888 348 8028.

How Do the SBA, FBI, OIG, IRS Criminal Investigation, and DOJ Develop a PPP Case?

Small Business Administration (SBA)

The Small Business Administration (SBA) has been very clear about its intention to review PPP loans as necessary. While it has also stated that it may review any PPP loan at any time, it has implied that loan applications and subsequent loan management practices may be a factor in its decisions. As a result, all PPP borrowers should expect the possibility of an SBA audit or inquiry at any time. PPP inquiries initiated by the SBA can focus on the borrowers’ application process, the use of PPP loan funds, the submission of PPP loan forgiveness requests, or any combination of these.

Federal Bureau of Investigation (FBI)

The Federal Bureau of Investigation (FBI) works with the SBA OIG, among other law enforcement agencies, to investigate alleged instances of PPP fraud. In addition to providing investigators and agents who work in the realm of fraud and white-collar crime, the FBI is able to leverage its extensive experience to investigate alleged criminal conduct and refer evidence to federal prosecutors, who decide whether to bring criminal charges. The FBI’s PPP-related allegations can take the form of criminal charges for PPP application fraud, misapplication of funds obtained through a PPP loan, and falsifying the documents submitted in connection with PPP loan forgiveness.

SBA Office of Inspector General (OIG)

The SBA’s Office of Inspector General (OIG) is the SBA’s chief oversight arm. To date, the OIG has taken the lead in handling a vast majority of PPP-related inquiries, and much of the OIG’s workload involves PPP fraud allegations. Once it has evidence sufficient to support charges, it refers matters to the U.S. Department of Justice (DOJ) for civil or criminal prosecution.

IRS Criminal Investigation (CI)

The IRS Criminal Investigation (CI) division investigates allegations of tax fraud and tax crimes. In many cases, this includes cases involving PPP application fraud, fraudulent use of PPP loan funds, and other crimes that trigger a federal tax-related offense. Often, CI works in coordination with other agencies, and its agents focus on the tax-related aspects of these crimes, including tax evasion, reporting violations, and other offenses.

U.S. Department of Justice (DOJ)

The U.S. Department of Justice (DOJ) is the federal government’s prosecutorial arm. U.S. DOJ prosecutors initiate civil and criminal actions involving fraud, including the fraud involved in mismanaging PPP loan applications, the use of PPP loan proceeds, and the submission of fraudulent PPP loan forgiveness applications.

Can Forgiveness, Repayment, or an Inaccurate PPP Application End the Exposure?

Can receiving forgiveness for your PPP loan or fully repaying the loan eliminate your exposure for a federal PPP-related crime? Unfortunately, it may not. A successful loan forgiveness application is not a shield against subsequent inquiry or prosecution, and it does not protect business owners and executives from scrutiny regarding the accuracy of their loan application or their later forgiveness certifications.

What are the potential consequences of a federal PPP investigation targeting the loan application, loan proceeds, or loan forgiveness application process? The answer depends on the scope and nature of the investigation. However, if federal investigators are looking into potential evidence of the following types of crimes:

Wire Fraud

Under 18 U.S.C. § 1343, the federal wire-fraud statute prohibits transmitting or causing the transmission, by wire, radio, or television communication in interstate or foreign commerce, of writings, signs, signals, pictures, or sounds for the purpose of executing a scheme to defraud or obtain money or property by false or fraudulent pretenses, representations, or promises. Wire fraud carries a maximum prison term of 20 years per offense, and a conviction can result in thousands of dollars in fines as well.

Bank Fraud

Under 18 U.S.C. § 1344, the federal bank fraud statute imposes a maximum prison term of 30 years for the crime of bank fraud. The crime of bank fraud carries a broad and potentially ambiguous definition, which describes both the unlawful execution of a scheme to defraud a financial institution, and the attempt to defraud a financial institution.

Making False Statements to a Financial Institution

Under 18 U.S.C. § 1014, the federal false-statements statute prohibits knowingly making a false statement or report, or willfully overvaluing property or security, for the purpose of influencing the action of specified federally connected institutions, including the SBA, in connection with an application, loan, guarantee, or related transaction. Making false statements to a financial institution carries severe penalties as well.

Prosecution of Fraud Claims

The government has a high burden of proof when seeking to convict individuals or entities of fraud-related crimes. Generally speaking, prosecutors must prove that a defendant acted with intent to deceive. While prosecutors generally do not have to prove that the act of fraud resulted in an unjust financial benefit, they must prove that the defendant acted with the intent to defraud the federal government, a bank, and/or any other victims of the alleged fraud. This requirement presents an opportunity for strategic negotiation, and this is a key reason why it is critical to work with experienced federal defense counsel to handle an SBA subpoena for PPP records.

Talk It Through With a Lawyer

Every case turns on its own facts. Todd Spodek is the managing partner of Spodek Law Group, a second generation firm his father opened in 1976, and the firm takes federal criminal and white collar matters nationwide. Call 888 348 8028 to talk it through.