Kentucky PPP Loan Fraud Lawyers.

Investigating how PPP loans were applied for is a primary focus for federal authorities, and, when necessary for conducting criminal prosecutions, many investigations will start with this aspect. Documentation such as payroll records, tax returns, bank statements, and articles of incorporation may be relevant. These documents, as well as many others, will provide information to determine whether a company, or companies, in Kentucky complied with federal laws and regulations governing eligibility.

These documents will have to be thoroughly reviewed to:

• Determine the borrower’s eligibility; and
• Determine if the borrower applied using accurate, truthful and complete information.

The allegations of providing false payroll, employee, tax, or business information are among the most common in PPP fraud investigations. While business owners might think that it does not matter whether they think they are eligible or not, and instead focus on whether they complied with the law, if they provided inaccurate, incomplete, or untruthful information on a loan application, this can still support allegations of program and bank fraud.

2. How were the PPP loan proceeds used?

Once a business owners’ eligibility has been scrutinized, investigators will then examine whether the loan proceeds were spent properly. This is because the primary purpose of the PPP loan is to help keep employees on the payroll. As a result, using loan proceeds for anything other than approved purposes could lead to civil or criminal investigations.

For example, any loan proceeds used for personal expenses can be a cause for investigation by federal authorities. Paying a business owner’s personal mortgage, personal credit card, and other bills with loan proceeds can also potentially lead to a fraud investigation.

PPP borrowers should preserve their records showing how loan proceeds were spent. Along with bank records, these records should include cancelled checks, vendor invoices, monthly statements, and other supporting documents.

Documentation showing that PPP loan proceeds were used to provide aid to the people who needed them most can be very important for the borrowers facing PPP fraud allegations.

3. Were sufficient efforts made to maintain compliance during the PPP loan application process?

Along with determining whether loan proceeds were used correctly and the eligibility for obtaining a loan, federal authorities also examine whether PPP borrowers were truthful during their loan application and forgiveness process. When seeking to maintain compliance, PPP borrowers should work with experienced counsel, who will advise on matters ranging from loan application to loan forgiveness.

Obtaining PPP loan forgiveness also presents risks for fraud allegations. The documentation for loan forgiveness, including payroll records, employee records, rent and mortgage statements, and utility bills, must support each of the claims made in the forgiveness application. PPP borrowers’ records should also include communications with their bank, loan administrator, and other relevant parties. If a business owner’s communications contain false statements, even if the statements were made in an effort to avoid fraud liability, this can still trigger a federal investigation and lead to prosecution.

Our firm defends PPP borrowers across the country. Our Kentucky PPP fraud lawyers can assist you with your PPP loan fraud investigation.

When can an SBA review become a federal investigation?

The SBA conducts PPP loan reviews and then refers cases suspected of fraud or other noncompliance to the SBA Office of Inspector General (OIG) or to a task force of investigators from federal agencies such as the DOJ, FBI, IRS, or state authorities. When this occurs, SBA investigators will compare borrowers’ PPP loan application information to payroll records, employee files, tax documents, and bank activity, comparing the loan application to the company’s 2019 tax returns and other records to see if the loan was obtained using false information.

They will also check for, and often find, inconsistencies between the original loan application and the business’s loan forgiveness application. PPP borrowers should never trust the fact that they received their loan forgiveness. When federal authorities begin conducting their investigations, and the banks and SBA submit their records, then all of the documents you have submitted will be scrutinized.

What does receiving a subpoena for PPP loan records mean?

Receiving a federal subpoena related to a PPP loan is a formal request for specific records. A subpoena compels you to respond; and failing to respond to a federal subpoena is to risk non-compliance charges. This could lead to civil judgments against you and your business, or even criminal charges.

A subpoena is one of the first signals that an investigation could have federal criminal prosecution as a potential outcome. If you are facing the possibility of federal criminal prosecution, you want to respond as quickly and accurately as possible. This is important to ensure that you don’t inadvertently increase your exposure, and it can also be an opportunity to resolve your case.

What are target letters and interview requests?

Similar to a subpoena, receiving a target letter or an interview request indicates that the federal authorities have already found evidence of a potential federal crime. A target letter from a federal prosecutor is more immediate, as it states that you are the target or subject of a grand jury proceeding. An interview request from federal agents like the FBI or IRS may indicate an investigation, but it does not by itself mean an indictment is imminent. In both cases, a target letter or interview request is an opportunity to work toward an affirmative, favorable resolution.

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Which Federal Charges and Civil Remedies Match the Alleged Conduct?

The specific federal charges and civil remedies that may result from an allegation of PPP loan fraud depend on the specific allegations at issue. Examples of common federal charges in PPP loan fraud cases include charges under:

• 18 U.S.C. § 1001, this federal statute prohibits “any materially false, fictitious, or fraudulent statement or representation,” as well as “any false statement” that someone knows is “materially false.” Under § 1001, the government must prove that a person “knowingly and willfully” made a materially false statement. The penalty for violating § 1001 is a fine and up to five years of federal imprisonment.
• 18 U.S.C. § 1343 (Federal Wire Fraud), the federal wire fraud statute, as paraphrased here, prohibits transmitting, by means of wire, radio, or television communication in interstate or foreign commerce any any writings, signs, signals, pictures, or sounds in order to Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice In many PPP fraud cases, the government has focused on how borrowers or loan recipients sent their loan applications and received their funds electronically, as using the Internet or electronic wire transfers are “interstate or foreign commerce” under federal law.
• 18 U.S.C. § 1344 (Federal Bank Fraud), the federal bank fraud statute, 18 U.S.C. § 1344, prohibits “Whoever knowingly executes, or attempts to execute, a scheme or artifice-(1) to defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;” and it also prohibits “to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution” of a financial institution “by means of false or fraudulent pretenses, representations, or promises.”
• 18 U.S.C. § 1028A (Aggravated Identity Theft), in cases involving accusations of PPP loan fraud, prosecutors often seek an enhancement under the aggravated identity theft statute, 18 U.S.C. § 1028A. This statute makes use of another person’s “means of identification” a separate crime, and it imposes an additional and consecutive two-year term of federal imprisonment for those who are convicted. A conviction under 18 U.S.C. § 1028A will also require proof that the defendant knowingly transferred, possessed, or used another person’s means of identification without lawful authority.

Where Does a Kentucky PPP Case Proceed, and What Determines the Potential Financial Consequences?

Kentucky is split between the Eastern and Western District of Kentucky for matters involving federal cases. Which district court the case will proceed in depends on where the parties are located, where you received your PPP loan, and where the alleged misconduct occurred.

What Determines a Defendant’s Potential Federal Sentence?

When facing allegations of fraud, a defendant’s eventual federal sentence will depend on a range of factors, including the U.S. Sentencing Guidelines, how the loss amount was calculated, whether you accepted responsibility, whether you provided assistance to federal investigators, and the length of your prior criminal record. While the statutory maximum sentences can provide a snapshot of what a defendant’s potential sentence could be, the same is rarely the case when a sentencing hearing is at issue. While statutory maximums are useful for understanding a defendant’s potential exposure, a defendant’s eventual federal sentence is determined by all of the factors listed above.

What Does It Mean to Pay Restitution?

Federal restitution generally requires payment of the victim’s losses caused by the offense, which may differ from the amount received from the PPP program. However, restitution can be more than just the original loan amount because interest and fees can be assessed. In a federal case, federal authorities may ask you to pay the total amount you received, and then have you deduct the amounts you repaid from this total.

While repaying your loan is important if there is evidence of wrongdoing, repaying a PPP loan does not automatically erase any liability for fraud, whether civil or criminal. If you obtained a PPP loan through deceptive or fraudulent means, paying back the loan will not negate the illegality of the act, and you can still face consequences for fraudulent acquisition, use, or attempts to obtain forgiveness.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 888 348 8028.