Kansas PPP Loan Fraud Lawyers.

In federal investigations into businesses or persons, investigators from the Department of Justice, IRS, Small Business Administration, or other agencies may seek access to payroll records, tax filings, bank statements, corporate documents, and other business records. As a result, in many cases, these documents will present an accurate picture of what occurred. However, in many cases, these documents will not be sufficient to prove a criminal case, and the investigators will need to obtain statements from involved persons.

In these circumstances, it is essential that you exercise your right to remain silent. The Fifth Amendment of the U.S. Constitution protects you from answering potentially incriminating questions during custodial interrogation; however, this protection is not automatic. Instead, you should clearly invoke your right to remain silent and request counsel before answering further questions.

When facing a federal investigation, it may seem natural to delete or reorganize records to reduce the possibility of prosecution, or even to simply prevent yourself from getting into trouble. However, doing so can increase the risk of prosecution, as it can appear to investigators as evidence destruction, or it can increase the possibility of a prosecution for evidence destruction in addition to the fraud charges. If you are in possession of any potentially relevant records, it is important that you preserve everything.

Crucially, for businesses that mistakenly thought they were eligible to participate in the Paycheck Protection Program (PPP), an inaccurate certification on an application is not necessarily indicative of criminal fraud. For a government investigation to be elevated to a criminal case, federal prosecutors must be able to prove the elements of the charged offense, including the required criminal intent.

Which Kansas PPP records test eligibility, use, and forgiveness rather than prove fraud?

We look at a broad range of documentation in addition to looking at the documentation used to support loan applicants’ requests for loan forgiveness. This includes:

• First-draw PPP eligibility records: Most first-draw PPP records focus on the time in early 2020 before the COVID-19 pandemic began to slow the U.S. economy. Generally, for businesses to qualify for the first round of PPP loans, businesses needed to demonstrate that they had been operating as of February 15, 2020.
• Second-draw PPP eligibility records: Many second-draw eligibility records focus on a business’s size, industry, and the amount of revenue it generated. Generally, a second-draw applicant had to have no more than 300 employees and demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020; eligibility was not limited to a short list of approved industries, and the employee-count rule was not generally applied separately at each location.
• Records relating to the use of PPP funds: Records that demonstrate how PPP loan funds were spent are also key pieces of evidence in a federal PPP investigation. In general, the government permits PPP loan funds to be used for:

- Payroll

- Employee benefits

- Mortgage interest

- Rent

- Utilities, heating, and other operational costs

• Records relating to PPP loan forgiveness: Records supporting your application for PPP loan forgiveness will also be closely scrutinized. To receive forgiveness, PPP loan applicants had to provide documentation proving they satisfied the program’s rules and regulations. If the record shows your application claimed you maintained your pre-pandemic employees, but your company’s payroll or Form 941 records indicate otherwise, this could be seen as evidence for fraud.
• Other Records: There are numerous additional documents that could affect eligibility and use determinations. However, while many of these records would not be enough to prove fraud on their own, they could be used by federal prosecutors and investigators to convince a jury that you committed fraud with intent.

How can a Kansas PPP matter shift from post-forgiveness review to federal civil or criminal action?

The most important thing that businesses need to understand is that receiving forgiveness does not create a safe harbor for future scrutiny. While your loan may have been repaid or your forgiveness request approved, this does not shield you from investigation into the veracity of your certification, how you used the funds, or your loan forgiveness application. If federal authorities develop evidence to suggest that you may have knowingly or recklessly induced the government to forgive an improperly drawn and/or disbursed loan, then a federal civil or criminal enforcement action could have significant consequences.

Generally, you will be able to tell a federal investigation from normal loan servicing by the appearance of a subpoena. A grand jury subpoena is a hallmark of a criminal investigative process. In many cases, a grand jury subpoena is one of the first signs of a criminal case, and it may arrive before you are informed that you are the target of a federal criminal investigation. By contrast, a Civil Investigative Demand (CID) is a powerful investigative tool used under the False Claims Act; however, a CID does not mean that a civil enforcement action is the government’s exclusive remedy.

Civil and criminal investigations of alleged PPP fraud can proceed concurrently. For example, the U.S. Department of Justice (DOJ) may employ its civil and criminal enforcement agencies to target the same fraudulent scheme. Although the two investigations focus on the same conduct, they each impose different procedural requirements, burdens of proof, and risks of future penalties for individuals and businesses.

The statute of limitations, or limitation period, is the amount of time that federal prosecutors and civil enforcement agencies have to file an action against you. While some PPP-related allegations would fall within a five-year period, the False Claims Act generally has a six-year limitation period, subject to a three-year discovery rule capped at 10 years. In many cases, multiple statutes of limitations apply.

Spodek Law Group states its position plainly on its own front page: we owe loyalty to only you.

What civil exposure can remain after PPP repayment or forgiveness?

While federal investigators will seek restitution from business owners and executives accused of PPP loan fraud, this does not protect against other forms of exposure as well. If the allegations involve a knowing or reckless falsification of records leading to an erroneous certification, this could also trigger civil enforcement action under the False Claims Act. The False Claims Act is a powerful statutory remedy that imposes treble damages, that is, three times the amount of the actual damages suffered, along with additional civil monetary penalties.

Restitution serves to compensate the government or other victims for their losses. By contrast, criminal fines have a different purpose in that they have a punitive nature intended to punish the defendant for their fraudulent conduct. While some criminal defendants can avoid some or all of their criminal fines by cooperating with prosecutors or by settling their criminal cases out of court, civil claims under the False Claims Act have a more limited scope of protection against the full range of monetary penalties that can be imposed by the government.

Additionally, even if a business owner or executive decides to repay their PPP loan in full before the DOJ becomes aware of any alleged falsification, this does not create any protection against criminal prosecution. In fact, repaying the loan is one way of avoiding the consequences of having sought or received forgiveness, but this does not erase criminal liability if fraud is proven. While the U.S. District Courts impose different types of criminal and civil penalties under various statutes, each carries different consequences for businesses and individuals targeted by government enforcement.

What are the penalties for PPP fraud and other federal offenses?

Criminal and civil penalties under various federal statutes impose wide-ranging, yet disparate, consequences for business owners, executives, and other corporate actors implicated in fraud. While some offenses may lead to substantial prison time, others may simply present the risk of fines, treble damages, or loss of benefits.

Which federal charges and Kansas sentencing facts matter in PPP fraud cases?

In many cases, alleging fraud with respect to PPP funds involves the imposition of various federal criminal charges in addition to any charges that might arise out of a civil investigative demand or a grand jury subpoena. Some of the most commonly cited statutes include:

• Section 18 U.S.C. § 1344: This statute addresses fraudulent schemes intended to defraud a financial institution. Under Section 1344, fraud schemes carrying a value of more than $1 million can lead to substantial prison time. Specifically, the statutory maximum sentence for PPP fraud under Section 1344 is 30 years.
• Section 18 U.S.C. § 1343: This statute addresses all types of fraudulent schemes carried out via the internet, phone lines, or any other method of interstate wire communication. While Section 1343, or the federal wire fraud statute, is a more general fraud provision than Section 1344, it is commonly cited in cases involving PPP fraud. Under Section 1343, the maximum prison sentence is generally 20 years, but it is 30 years when the violation involves a benefit authorized or paid in connection with a presidentially declared major disaster or emergency, or affects a financial institution.
• 18 U.S.C. § 371: This general statute prohibits conspiracy to violate the laws of the United States. If multiple individuals or companies are charged with participating in a PPP fraud scheme, Section 371 is likely to be among the charges filed.
• 18 U.S.C. § 287: Specifically, this section addresses claims upon or against the United States that the defendant knows to be false, fictitious, or fraudulent. Under Section 287, anyone who knowingly presents a false, fictitious, or fraudulent claim against the government can face criminal penalties, including up to five years' imprisonment and a fine.
• Other Federal Statutes and Ordinances: Other statutes, ordinances, and regulations can be invoked in order to seek restitution, fines, forfeiture, and imprisonment for PPP fraud, and each case will depend on the specific circumstances involved.

Where to Go From Here

If any of this describes your situation, the next step is a conversation rather than more reading. Spodek Law Group runs a fully online client portal and represents clients coast to coast, with offices in New York, Brooklyn, Queens and Los Angeles. The number is 888 348 8028.