Maryland PPP Loan Fraud Lawyers.

The PPP loans provided to eligible Maryland businesses and other recipients were government-backed loans that were conditionally forgivable under applicable program requirements. This means that PPP investigations can cover conduct spanning from an individual or entity’s initial application to their certification for loan forgiveness. It is also not uncommon for authorities to pursue investigations targeting attempted PPP fraud involving loans that were never successfully disbursed. The scope of the federal government’s COVID-19 fraud investigations, however, has brought into focus the challenges of managing overlapping civil and criminal liability. Although the scope of an investigation can span the entire lifespan of a PPP loan, the questions that are asked will depend upon whether the loan is being scrutinized under criminal or civil statutes, or both. The federal agencies conducting these PPP investigations have the resources to scrutinize all aspects of the federal relief program’s administration. This includes both the initial certification of eligibility, whether based upon payroll certifications or other factors, and the subsequent certification of compliance in order to seek loan forgiveness. The federal agencies that have the authority to investigate, and in many cases prosecute, suspected PPP fraud include:

• Federal Bureau of Investigation (FBI)
• Internal Revenue Service (IRS) Criminal Investigation
• Small Business Administration (SBA) Office of Inspector General (OIG)
• U.S. Department of Justice (DOJ) The DOJ has also established pandemic-fraud strike-force teams tasked with aggressively pursuing cases related to COVID-19 fraud. One of these teams is located in Baltimore, Maryland, and is tasked with aggressively pursuing fraud perpetrated against all federal pandemic relief programs. As a result, recipients of federal PPP loans, and others whose eligibility, use of loan proceeds, and/or certification of forgiveness is being scrutinized, may be at risk of federal charges. At Spodek Law Group, our firm represents Maryland individuals and entities in all federal pandemic relief matters. We can provide urgent intervention in DOJ pandemic-fraud strike-force investigations.

How do application, payroll, and forgiveness records distinguish error from PPP fraud?

For example, one cited program summary identifies “At least 60 percent of the loan forgiveness amount had to be spent on payroll costs for full loan forgiveness, although borrowers using less could remain eligible for partial loan forgiveness.” According to the SBA’s program overview, “Part of the CARES Act, the Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.” While PPP loan forgiveness relied on recipients utilizing PPP proceeds for qualifying business expenses, many PPP recipients were not entirely sure if their use of the PPP loan proceeds qualified for forgiveness. This is especially true for PPP recipients that are now being charged with PPP fraud due to their use of the PPP loan proceeds.

Investigative agencies will scrutinize PPP loan applications, payroll records, federal tax returns, and other supporting documentation during their investigations into possible PPP fraud. Many of these records are created during the application for forgiveness process. However, the government has also discovered fraud through review of PPP loan applications and other documentation that was required to support an application to receive a PPP loan. Examples of fraudulent application and other documentation reviewed by PPP loan fraud investigators include:

• Inventions of nonexistent employees on payroll certifications and loan application certifications
• Inflated payroll figures on loan applications, tax returns, and other loan-supporting documentation

While some PPP loan recipients’ misuse of the federal government’s COVID-19 response efforts may warrant criminal investigation, some PPP fraud allegations should be a civil matter, and some allegations may not present any grounds for fraud liability. Whether a federal PPP loan recipient’s certifications about forgiveness eligibility and use of loan proceeds constitute fraud under a civil or criminal statute depends in large part upon the applicable statute’s knowledge and materiality requirements, any resulting government damages, and other factors.

While some recipients may mistakenly certify that they are eligible for loan forgiveness, certification about forgiveness eligibility that is false could expose an applicant to civil and criminal liability. Also, while some PPP recipients may have used loan proceeds for business expenses that are otherwise non-eligible for loan forgiveness, improper personal spending using PPP loan proceeds can trigger additional civil and criminal scrutiny.

A financial mistake does not, by itself, establish criminal intent. Many financial mistakes made during the PPP’s rollout can be remedied without criminal penalties. In fact, the PPP was developed and implemented extremely quickly in response to the economic crisis posed by the COVID-19 pandemic. As a result, many PPP recipients may have inadvertently made mistakes when applying for the program or seeking forgiveness based upon a complete understanding of the applicable federal rules and regulations. While the government will want to collect back any loan proceeds that were used improperly, an individual or entity’s lack of intent to defraud the federal government and/or the COVID-19 relief program will be critical to defense counsel’s ability to protect their client.

What can a Maryland PPP case cost under federal criminal and civil laws?

There are various federal criminal and civil statutes that can be charged in Maryland PPP fraud cases. If federal agents or prosecutors have questions about your de facto, or actual PPP recipient status, it is important to be prepared to provide knowledgeable and truthful answers. If you are the subject of a PPP fraud investigation or have charges pending, it is important to seek counsel experienced in defending fraud allegations under all relevant federal statutes. Some examples include:

18 U.S.C. Section 1344

18 U.S.C. Section 1344 prohibits knowingly executing, or attempting to execute, a scheme to defraud a financial institution or to obtain money, 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. This statute does not specifically cover attempts to defraud the U.S. government, the SBA, or other U.S. government agencies. With regard to federal criminal sentences, Section 1344 carries a potential maximum of thirty years of federal imprisonment.

18 U.S.C. Section 1343

18 U.S.C. Section 1343 prohibits using interstate or foreign wire communications to execute a scheme to defraud or to obtain money or property by means of false or fraudulent pretenses, representations, or promises. In PPP fraud investigations, this statute typically focuses on the application or certification process for loans and loan forgiveness. Similar to Section 1344, Section 1343 carries a potential maximum sentence of twenty years, or thirty years if the violation involves a presidentially declared major disaster or emergency or affects a financial institution.

31 U.S.C. Section 3729 (False Claims Act)

The False Claims Act contains two primary provisions that have been leveraged in investigations into PPP fraud. The first authorizes the federal government to recover treble damages from PPP loan applicants for losses suffered as a result of any false statement or fraudulent claim for government-owned property or money. The second provides for additional civil penalties in each false claim made under the Act. The “knowingly” standard under the False Claims Act includes:

• Actual knowledge
• Deliberate ignorance or willful blindness
• Reckless disregard of the truth or falsity of the information

How is Civil Fraud Distinguished from Criminal Fraud?

While the federal government can seek treble damages under the False Claims Act even if it cannot prove criminal intent to defraud, federal criminal prosecutors must prove all elements of any fraud statute they seek to charge beyond a reasonable doubt. Although the elements and burden of proof are different in civil cases compared to criminal cases, evidence and findings uncovered during a civil investigation can expose PPP recipients to criminal prosecution. In order to successfully prosecute, criminal prosecutors must prove that the defendant(s) acted with criminal intent to defraud. If no intent to defraud exists, then criminal fraud charges are not warranted.

What Are the Possible Outcomes of a PPP Fraud Case in Maryland?

The possible outcomes of a PPP fraud case in Maryland depend upon the facts, the allegations made by federal prosecutors, and whether the case is being handled in civil court, criminal court, or both. A skilled Maryland PPP loan fraud attorney will be able to explain how his or her client’s specific facts will influence the outcome of the case.

After agents contact a Maryland PPP recipient, which steps protect the record and response?

While criminal fraud cases can present significant risks for imprisonment, prosecutors may also seek restitution, forfeiture of assets, fines, and other penalties.

If a Maryland business or other PPP loan recipient has been contacted by FBI or SBA OIG agents or has been served with a grand jury subpoena, then his or her emails, accounting records, text messages, bank statements, loan applications, and other potentially relevant records may become evidence during the federal government’s investigation. In many cases, individual recipients can avoid these concerns by simply doing what is expected of them. In cases that do not meet the criteria for the False Claims Act, these concerns should be handled by the recipient’s legal representation. If a case presents criminal exposure, it is important for recipients to be careful about what they do (and what they don’t do). For example, while some recipients may be tempted to delete emails and other electronic communication or destroy accounting records, destroying or altering relevant records can lead to an obstruction of justice charge.

Do I Have the Right to Respond in a PPP Fraud Investigation?

While any contact from law enforcement agencies can be alarming, recipients can decline substantive questioning and can seek legal counsel before responding. If a case has been referred to the U.S. Attorney’s Office and it is not yet clear whether a criminal case is on the horizon, then a formal request for records and/or a grand jury subpoena may be issued. While a business or individual facing a grand jury subpoena cannot simply ignore the document, an experienced Maryland PPP fraud attorney will be able to advise his or her client about how to effectively respond (and/or effectively challenge) any subpoena received. This is critical both in order to help protect the client’s interests and to ensure that the client avoids any allegations that they are attempting to impede the federal government’s investigation.

If You Want Someone to Look at Your Case

Reading about a charge is not the same as having someone read your file. Spodek Law Group keeps an attorney on call around the clock, and the first consultation costs nothing and runs as long as your questions do. The number is 888 348 8028.