Is There a Deadline for PPP Fraud Prosecutions??

The PPP and Bank Fraud Enforcement Harmonization Act of 2022 and the COVID-19 EIDL Fraud Statute of Limitations Act of 2022, both signed into law on August 5, 2022, extended the limitations period for specified PPP and EIDL borrower-fraud enforcement actions to ten years after the offense was committed. This statute change meant that the window for prosecutors to seek an indictment for these crimes would now be ten years from the date that the offense allegedly occurred. The legislation is presumed to cover both successful fraud and attempted fraud as well.

Beyond PPP and EIDL borrower-fraud, other fraudulent offenses that targeted financial institutions can also have a ten-year statutory window. For example, Section 3293 of Title 18, United States Code, prescribes a ten-year limitations period for specified financial-institution offenses, including bank fraud under 18 U.S.C. § 1344, certain mail and wire fraud affecting a financial institution, and other listed offenses. As with other crimes, the statute of limitations period established in Section 3293(c) runs from the date of the alleged offense.

While the 2022 legislative act and Section 3293 of Title 18 both establish a ten-year statute of limitations, not every federal fraud case that alleges wrongdoing involves a ten-year period. For most other federal criminal offenses, a five-year statutory limitations period is the default under Section 3282(a). For this reason, when defending a federal PPP fraud case, a critical first step is to determine what the limitation period is, i.e., is it five years, ten years, or something else based on the specific statute at play? With this in mind, money-laundering offenses, for example, generally fall under the five-year limitation period under the default provisions in Section 3282(a).

Finally, it is important to clarify that in each of these cases, the statute of limitations expires on the date of the indictment, not the date of a conviction. As a result, even if the statute of limitations period for a defendant has expired by the time their case is resolved in court, this will not come into play unless the prosecution is unable to hand down an indictment within the statutory limitations period (i.e., five or ten years, in these cases).

When does a PPP mistake become criminal fraud?

Just because an honest mistake was made does not necessarily mean that this mistake rises to the level of criminal fraud. The government must prove all elements of a fraud charge beyond a reasonable doubt in federal court. Thus, while the burden of proof is a low bar in some cases, PPP fraud prosecutions will require the government to prove each of the required elements in order to convict an accused individual. Along with these standards, there are various requirements for seeking an indictment for criminal fraud.

As a general rule, fraudulent offenses require a showing of both knowing conduct and intent to deceive, mislead, or defraud. While this differs from a civil fraud case, the requirement of fraudulent intent is essentially the same here, though it must be proven beyond a reasonable doubt in federal court. For instance, in a criminal fraud case involving a PPP application, the government would have to show that the accused individual made false statements or omissions during the application process and, through these statements and omissions, either knew that he or she was misrepresenting a factual detail to the lender or, through these acts, intended to deceive the lender.

Along with knowing conduct and fraudulent intent, fraud cases involving misrepresentations also require an alleged misrepresentation that is “material,” meaning it has the potential to affect a relevant decision. In PPP fraud, if a PPP loan officer receives a loan application with a statement in it that does not matter when deciding whether to approve a loan, this statement or omission would not rise to the level of fraud. This is why, once again, an honest mistake is not equal to fraudulent conduct, while the individual may have provided a factual detail that is not true, it would not be material to the loan approval process.

Finally, what makes a PPP fraud prosecution a PPP fraud prosecution is that it can be initiated at each stage of a business’s receipt of PPP funding. This means that, regardless of the specific amount or the specific reason a loan was denied or the funds were never obtained, federal authorities can still investigate and prosecute for alleged offenses including knowingly false statements made to influence a lender.

How do repayment, forgiveness denial, and inability to pay change PPP exposure?

Under the terms and conditions of the program, PPP loans were eligible for forgiveness when borrowers satisfied program-specific requirements and certified that they had used the funds appropriately. While individuals facing investigation or charges for alleged fraud may still be able to pursue forgiveness, this may not always be the most efficient or advisable option. For instance, while PPP-specific investigations and prosecutions involving loan applicants and recipients are handled by the DOJ, the SBA typically handles loan applications and loan forgiveness. This is a distinction that may influence the strategies and defenses that are most effective for a targeted individual or company.

In civil cases involving the False Claims Act (FCA), liability for knowingly making false, fictitious, or fraudulent claims to the federal government can include treble damages and statutory civil monetary penalties. Because civil False Claims Act proceedings use the preponderance of the evidence burden of proof, while criminal prosecutions require that the defendant’s guilt be proven beyond a reasonable doubt, it can be much easier for the government to prove liability in a civil fraud case. Conversely, after a criminal conviction for PPP fraud, restitution is generally mandatory under Section 3663A and the accused can be required to pay back any fraud-related losses. Additionally, federal prosecutors can seek forfeiture of assets that they believe are traceable to the fraud’s proceeds.

Finally, being insolvent, or otherwise lacking the ability to pay, does not negate criminal culpability in federal PPP fraud cases, although this is a potential defense in some cases. Rather, if a defendant is unable to pay a restitution order in full, the court may set a payment schedule based on the defendant’s finances, and the government may seek forfeiture of assets.

Todd Spodek cross-examined Alec Baldwin at the 2013 stalking trial in Manhattan.

Who investigates PPP allegations, and how can a case reach charges years later?

Federal law enforcement agents may contact an accused individual’s or business entity’s accountants, loan brokers, employees, vendors, and business partners as part of an investigation for alleged criminal activity. While it is generally recommended that recipients of inquiries from federal agents decline to have interviews, those who take these interviews do not have to answer federal agents’ questions prior to speaking with a lawyer. However, it is important to be mindful of federal agents’ questions, and, if you decide to answer, it is important to provide accurate information, as making false statements to federal agents is a separate crime under 18 U.S.C. § 1001.

With the DOJ-led COVID-19 Fraud Enforcement Task Force coordinating pandemic-fraud enforcement, federal investigations into PPP allegations may involve FBI special agents working alongside agents from the SBA’s Office of Inspector General (OIG) and the IRS Criminal Investigation division. These federal agencies investigate different aspects of pandemic-related allegations, such as PPP loan violations, EIDL fraud, or failure to fulfill tax obligations related to PPP loans.

Along with these agencies, federal prosecutors may also be involved in these investigations. Depending on the circumstances, federal prosecutors from the DOJ Fraud Section or at the local U.S. Attorney’s Office may get involved when the agents present their findings of potential wrongdoing to the prosecutors.

The DOJ will then decide if an indictment is warranted based on the evidence collected by the investigators and any other pertinent information. If an indictment is warranted, the DOJ will file criminal charges with the U.S. District Court, as long as it is still within the statute of limitations. In a PPP fraud case, the applicable limitations period generally runs for ten years from the commission of the offense, subject to the governing statute and any applicable tolling rules.

What federal charges and sentencing factors follow a PPP allegation?

In PPP fraud cases, federal prosecutors tend to rely on a handful of statutes. As a result, an accused individual or business entity can expect to face charges under one or more of the following statutes. These are the statutes most commonly used:

Bank Fraud (18 U.S.C. § 1344)

Bank fraud is one of the primary statutes prosecutors will use to pursue PPP fraud allegations. Because PPP loans were disbursed through banks and other federally insured financial institutions, lenders’ losses will make this a logical charge for prosecutors. As for the sentencing, under Section 1344, a maximum prison sentence of up to thirty years is on the table.

Wire Fraud (18 U.S.C. § 1343)

Many PPP loan applications were electronically submitted online. With this in mind, wire fraud under 18 U.S.C. § 1343 is a standard charge, and that is because it prohibits schemes to obtain money through false pretenses, representation, or promises by using interstate wire communications. With this statute, a maximum prison sentence of up to 30 years may apply if the statutory disaster-or-emergency provision applies; otherwise, the maximum is 20 years.

False Statements to a Bank (18 U.S.C. § 1014)

In PPP fraud cases, the False Statements Statute under 18 U.S.C. § 1014 is another key statute. This statute criminalizes knowingly and intentionally making false statements in connection with loan applications at any federally insured financial institution. Thus, if a PPP application contains false information, prosecutors can charge fraud under the False Statements Statute.

Conspiracy and Attempt (18 U.S.C. § 1349)

Prosecutors may also bring charges for attempt or conspiracy under 18 U.S.C. § 1349. The sentencing for an attempt or conspiracy charge is essentially the same as the sentencing for the underlying charge, and with that said, a defendant could face up to thirty years’ imprisonment if the primary charge they face is bank fraud under Section 1344.

Additional Penalties

While federal prosecutors will seek prison sentences as a common punishment, a conviction for PPP fraud also involves various financial penalties. These include fines, restitution, and forfeiture of the fraud-related proceeds. However, what specific penalties you face will depend on a number of factors.

In PPP fraud cases, these factors typically include:

• The fraud amount;
• The defendant’s prior criminal record; and,
• The specific type of fraud involved.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 888 348 8028 to speak with our team.