North Carolina PPP Loan Fraud Lawyers.

At North Carolina PPP fraud law firm Spodek Law Group, we approach PPP investigations from a data-driven perspective. This perspective is a key advantage in our cases, as federal agents and prosecutors will use a similarly data-driven approach when pursuing your PPP loan fraud case. To conduct their investigations, agents will try to obtain copies of your loan application, loan forgiveness application, payroll and tax records, bank statements, and other internal records. They will then try to find inconsistencies by comparing this information with each other and with information from external sources.

What Other Information Do Investigators Look at in a PPP Fraud Case?

Investigators can also acquire information by obtaining data or interviews from sources external to your business. This includes your financial institutions, employees, customers, vendors, clients, business associates, former associates, and the public. Even if you have confidentially agreements in place with these sources, this will rarely (if ever) be an obstacle to information gathering by the federal government.

What Other Agencies are Involved in PPP Fraud Investigations?

Numerous agencies, including the U.S. Department of Justice, Federal Bureau of Investigation, Small Business Administration, and Internal Revenue Service can participate in PPP investigations in North Carolina. The DOJ handles prosecutions through U.S. attorneys; the FBI handles the majority of criminal investigations; the SBA handles funding and oversight; and the IRS investigates any form of federal tax fraud, including tax evasion. The agencies are organized into field offices that cover entire regions or federal districts.

North Carolina contains three federal judicial districts. These are known as the Eastern, Middle, and Western Districts of North Carolina. Each district has its own federal district court that handles federal litigation for any federal investigation or enforcement action that originates within its boundaries. Each district also has its own U.S. attorneys and other investigative teams.

If You Have Been Contacted by Investigators, Do You Need to Preserve Your Records?

Yes. In fact, you should not delete, hide, alter, shred, or any other way to tamper with any documents, emails, messages, or any other record, data or information in your possession. This should start from the moment you become aware of a potential or actual investigation. These actions could lead to additional federal charges, including obstruction of justice and false statements. When the federal government investigates potential PPP fraud or other white-collar crimes, these charges often carry a larger criminal penalty than the underlying fraud charge.

Which PPP Records Expose Payroll, Eligibility, and Fund-Use Problems?

1. Payroll, Rent, Mortgage Interest, and Utility Expenses

Payroll spending records can expose issues with seeking PPP loan forgiveness, as at least 60 percent of forgiven PPP proceeds generally required payroll spending. PPP proceeds could also be used to cover eligible rent, mortgage interest, and utilities. For example, the loan program’s structure provides that borrowers seeking loan forgiveness must demonstrate use of loan proceeds for eligible expenses.

As mentioned, to have 100 percent of its loan forgiven, a borrower typically needed to show that it spent at least 60 percent of the proceeds on payroll costs. Non-payroll expenses covered include, without limitation, rent, mortgage interest, eligible utilities, and other approved costs.

Investigators will review payroll records such as your payroll journal or bank statements (in which individual deposits and/or withdrawals are clearly identified) in conjunction with your loan forgiveness form.

2. Undisclosed Affiliated Businesses

Undisclosed affiliated businesses are among the red flags that trigger PPP loan fraud investigations. There are two ways to get PPP eligibility issues from affiliated businesses: (i) from undercounting your company’s workforce; and, (ii) from providing incorrect employer identification numbers (EINs).

The SBA provides its affiliation rules in 13 C.F.R. § 121.301. These rules describe when a business is “affiliated” with another company for size determination purposes. Affiliation can stem from identity or control. This includes family ownership and other forms of related ownership, or control exercised or maintained through common management or joint ownership.

Affiliation analysis combines an applicant’s size with the size of affiliated businesses to see if the application still qualifies for funding. The investigator will examine various records and the public records to seek evidence of an affiliated business, then use any findings to seek evidence of the applicant’s non-compliance with the federal government’s rules for size determination.

3. Other EIDL Funding

Some investigators mistakenly assume that Economic Injury Disaster Loan (EIDL) funding is the same as a Paycheck Protection Program (PPP) loan. Both are pandemic-relief programs offered through the U.S. Small Business Administration, but EIDL and PPP differ in their eligibility requirements and purposes. EIDL is meant for general business losses and disaster recovery, and PPP was more about retaining the pre-pandemic workforce. EIDL funding can trigger PPP loan fraud investigations by raising questions about the eligibility and certifications on PPP loan applications.

How Do Investigators Tell an Honest PPP Error from Intentional Fraud?

1. False Certifications and Affirmations

False certifications and affirmations may expose borrowers to liability separate from that of their PPP loan applications. When you applied for PPP loan forgiveness (if you did), you signed the loan forgiveness application form. This form certifies certain payroll expenditures.

With loan forgiveness, false certifications are among the alleged issues that lead to PPP fraud investigations. If your payroll spending did not meet the federal government’s rules, this could cause your loan not to be forgiven, and you could still owe the full amount. The SBA may issue penalties, but false certifications and affirmations can also trigger criminal PPP fraud investigations with the Department of Justice.

2. Inflated Payroll and Falsified Tax Records

Common alleged PPP fraud issues include inflating payroll, including fictitious employees, falsifying tax records, falsifying bank statements, and falsely claiming to be “small businesses.” For example, when seeking loan forgiveness, federal agents may claim that your company inflated its payroll to meet the required percentage.

This is another alleged PPP loan fraud scenario that is often targeted in criminal cases. However, honest errors are also common, and even in the most egregious cases, proving criminal fraud can be challenging.

3. Applying for Financing Through Multiple Lenders

Applying for financing through multiple lenders is an issue that frequently comes up in PPP loan fraud investigations. If you applied through several lenders to see which one would give you a PPP loan, this is not a problem. However, receiving more than one unauthorized PPP loan is commonly called “loan stacking”; a first-draw and an eligible second-draw loan were distinct authorized program options. This can lead to criminal and civil litigation.

4. Other Allegations

Our North Carolina PPP loan fraud lawyers are available to handle various PPP investigations. We focus on a comprehensive, document-based defense strategy that addresses the specifics of your case and demonstrates your innocence.

When Does an Inaccurate PPP Loan Application Become Criminal Fraud?

Generally speaking, federal prosecutors must prove the elements of a crime beyond a reasonable doubt. In a criminal fraud case, proving that an application was inaccurate is not enough to show that criminal fraud has been committed. For an offense that requires intent to defraud, the prosecutor must also prove the statute’s required intent, in addition to any required showing that the defendant knew the statement was false. To qualify as a crime, the application must be false, and the applicant must be aware that it is false.

What Do a PPP Subpoena, Target Letter, Search Warrant, or Civil Demand Mean?

1. The Government Has a Search Warrant

An FBI agent has come to your office with a search warrant. An FBI agent can seize evidence while executing a search warrant, but this action does not itself establish guilt. A search warrant is based upon a judge’s determination of probable cause. It establishes that there was enough evidence to search the home or office of a suspect. When you have been targeted in a search warrant, you should speak with your North Carolina PPP loan fraud lawyer immediately.

2. Grand-Jury Subpoena for Records, Testimony, or Both

If you have been served a grand-jury subpoena, it is imperative that you immediately speak with your North Carolina PPP loan fraud lawyer. Federal grand-jury subpoenas can be issued for testimony, for records, or for both. If you have been served a subpoena to testify, the government wants you to tell the truth before a grand jury. If you have been served a subpoena for records, the government believes that you have records relevant to its grand-jury investigation.

3. Civil Investigative Demand (CID)

A Civil Investigative Demand (CID) may indicate that the government is investigating a false claim or another issue within the federal False Claims Act. As a result of a successful civil action under the FCA, the government can seek treble damages. The damages are generally three times the government’s damages, plus a civil penalty for each false claim.

4. Target Letter

A target letter generally means that federal prosecutors believe that you are a target for investigation. If you received a target letter, it is imperative that you immediately speak with a North Carolina PPP loan fraud lawyer who can speak to the federal government on your behalf.

5. Not Another Scenario?

If you have been contacted by a federal agent in an other scenario, your North Carolina PPP loan fraud lawyer will determine whether you have been served a subpoena, a search warrant, or target letter or civil demand. If none of these is true, we will determine whether your business needs to engage with the government by providing information or waiting for the federal government to pursue criminal or civil litigation or wait until you receive a demand to enter your business into a program.

What Could Be the Consequences of a Federal PPP Fraud Conviction?

1. Criminal Prosecution

As a result of a criminal conviction for federal fraud, fines, restitution, forfeiture, and imprisonment are possible consequences. The U.S. Supreme Court has held that the Eighth Amendment to the U.S. Constitution prohibits “excessive fines.” Federal criminal courts may impose fines as punishment, as well as restitution and forfeiture when authorized by law. However, this is not the only way that the federal government will seek financial recovery from the perpetrator of the fraud.

2. Civil Litigation

The federal government may pursue civil litigation in most federal fraud cases. The federal government may issue a civil demand to seek payment for a loan or other assistance or repayment, along with damages and fines. For example, under the False Claims Act (FCA), the federal government can seek treble damages (three times the government’s damages) in civil cases.

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.