Partial PPP Forgiveness: Do I Have Legal Options??

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Does Partial PPP Forgiveness Mean You Have No Legal Options?

What is PPP Forgiveness?

Rather than repay their loans in full, PPP borrowers could seek forgiveness for qualifying portions of their loans. To qualify for forgiveness, borrowers needed to use loan proceeds for eligible expenditures and maintain their payroll or staffing levels. Forgiveness could not exceed the outstanding principal amount of the PPP loan plus accrued interest.

What Happens When Your PPP Forgiveness Application is Denied in Part?

If the lender or Small Business Administration (SBA) did not forgive your loan in full, any unforgiven balance remained subject to repayment under your loan’s original terms. If the SBA is asserting that you must repay your loan in full, but you’ve already repaid a portion, the repayment dispute may be a debt collection matter, although repayment and fraud issues can coexist. If you believe that you should have qualified for PPP loan forgiveness, you may want to contact an experienced attorney to discuss the specifics of your case.

If the SBA is seeking to collect a payment from you, our attorneys can take action to protect you in your defense. We are available for a free and confidential consultation online or by phone.

Can Partial PPP Forgiveness Be Used to Support an Allegation of Fraud?

Generally, partial PPP forgiveness should not be sufficient on its own to support an allegation of fraud. For instance, many PPP borrowers received only partial forgiveness because they failed to maintain their staffing levels, but this was not due to fraud and their lenders generally did not pursue fraud enforcement. To support an allegation of fraud, federal authorities need to have more information than partial PPP forgiveness.

What Factors Make a PPP Forgiveness Dispute More Serious?

A discrepancy in a PPP loan forgiveness application usually becomes more serious when it is coupled with evidence of knowing falsity or fraudulent intent. If there is a reason to believe you are facing federal scrutiny for your PPP loan, we strongly encourage you to contact an attorney right away. You do not have to face this process alone. we are prepared to help you if you are being accused of defrauding the federal government.

What Calculations and Records Can Support a PPP Forgiveness Challenge?

What Counts as Payroll Costs for PPP Purposes?

Payroll costs included employee wages, tips, and commissions, as well as paid leave, employee benefit costs, and state and local taxes assessed on employee compensation and paid by the employer. The definition of payroll costs also included various other employee-related expenses, though exclusions applied to compensation above the annualized $100,000 limit, certain federal payroll taxes, and compensation of employees whose principal place of residence was outside the United States.

We can assess your documentation for payroll-related claims and help explain to the government why your documentation supports your claims. If you are facing scrutiny for your PPP loan, we encourage you to contact our attorneys to discuss your case in more detail.

How Do You Calculate PPP Payroll?

PPP payroll calculations generally capped employee compensation at $100,000 annually. This cap had direct implications for both calculating the initial PPP loan amount (which was usually calculated as 2.5 times average monthly payroll costs during the applicable 12-month reference period) and calculating how much spending counted toward PPP loan forgiveness.

If your loan is at risk of non-forgiveness, our attorneys can help you understand these requirements and address the SBA’s concerns in regard to your calculations.

How Much Forgiveness Can Be Supported by Payroll Costs?

At least 60 percent of the spending that counted toward PPP loan forgiveness had to support the loan applicant’s payroll costs. When PPP borrowers applied for forgiveness, they had to provide information used to calculate any reduction based on changes in full-time-equivalent employees during the covered period. If you have questions or concerns about whether you are facing an appropriate challenge, please contact an experienced attorney today.

What Counts as Nonpayroll Forgiveness?

Nonpayroll forgiveness categories included qualifying rent, mortgage interest, utilities, and various other operational expenses for PPP borrowers. Nonpayroll forgiveness was limited to 40 percent of the spending that qualified for PPP loan forgiveness.

What Does it Mean to Certify Forgiveness?

When PPP borrowers certified forgiveness, they represented that they complied with the applicable PPP requirements and that they had the necessary supporting documentation. If PPP loan borrowers are facing scrutiny for their PPP loan, demonstrating compliance with the PPP requirements is paramount, and demonstrating compliance requires documentation.

When Can Approved PPP Forgiveness Be Revisited, and Can the Balance Still Be Collected?

Can a Lender or the Government Investigate the Information in a PPP Forgiveness Application Even if Forgiveness Was Approved?

A PPP borrower’s receipt of partial or full forgiveness approval does not prevent its lender or the SBA from conducting an investigation into the information the borrower provided during the loan application and forgiveness processes. Loan forgiveness does not provide immunity for loan misuse, and it does not operate as a waiver of the government’s ability to conduct an inquiry, if and as necessary.

What Kind of Scrutiny Should PPP Loan Borrowers Expect When They Face a Forgiveness-Related Investigation?

Typically, when the SBA and federal prosecutors scrutinize a PPP loan for fraud, they compare the information the borrower provided in its original loan application and forgiveness application with records produced during the investigative process. This may include the borrower’s bank records, payroll data, tax filings, corporate documents, and other information.

Can Ineligible Spending Lead to Allegations of PPP Loan Misuse?

If a PPP borrower used its loan proceeds for personal expenses (i.e., non-qualifying uses), this would be a problem for the borrower’s loan repayment exposure, and potentially for its exposure to criminal prosecution if the borrower claimed such spending was eligible for forgiveness. If you have questions about your risks, please contact an experienced attorney to discuss your situation.

Can the Government Still Collect on an Unforgiven PPP Balance if Your Conduct Does Not Support Criminal Prosecution?

The government can still collect on an unforgiven PPP balance regardless of whether criminal charges are warranted in a borrower’s case. Although the federal government may pursue criminal charges for certain types of PPP loan misuse, there is a range of circumstances where a borrower’s conduct, while not warranting prosecution, would still necessitate repayment.

What is the Limitations Period for PPP-Related Offenses?

There is no universal limitation period for offenses related to PPP loan fraud. While a statute of limitations may apply to a particular offense in a borrower’s case, determining the specific limitation period will require a case-by-case analysis (and potentially an offense-by-offense analysis). If you have questions or concerns about your liability exposure, we strongly encourage you to contact an experienced attorney to discuss your situation in more detail.

Which PPP Discrepancies Can Lead to Civil or Criminal Exposure?

When Are Discrepancies a Concern for PPP Borrowers?

Discrepancies in PPP loan forgiveness applications generally aren’t a concern for PPP borrowers unless they establish evidence of known falsity. While federal investigators have a broad mandate to enforce the PPP program’s requirements, they typically only pursue criminal charges when they have evidence the loan applicant knowingly or willfully committed fraud.

What Federal Fraud Theories Support Scrutiny of PPP Borrowers?

Investigators may use various federal fraud theories to support scrutiny of PPP borrowers, and in attempts to establish criminal culpability. Two of the most common theories involve allegations of wire fraud under 18 U.S.C. 1343 and bank fraud under 18 U.S.C. 1344. In both cases, the government must establish that the borrower acted with the intent to commit fraud.

If you have questions about your exposure to criminal charges, we strongly encourage you to contact an experienced defense attorney right away.

What Are the Penalties for Wire Fraud?

Wire fraud under 18 U.S.C. 1343 carries a maximum prison term of twenty years. It also carries significant fines and other penalties. When facing scrutiny for wire fraud, experienced legal representation is a must. At Spodek Law Group, we are experienced federal defense lawyers. We can help protect your rights in the event that federal authorities are targeting you or your business for wire fraud related to your PPP loan.

What Are the Penalties for Bank Fraud?

Bank fraud under 18 U.S.C. 1344 carries a maximum prison term of thirty years. As with wire fraud, this is a serious federal offense that requires immediate intervention by experienced legal counsel. If you or your business are facing scrutiny from the U.S. Department of Justice, you should contact an experienced attorney right away to protect yourself and the future of your business.

What Are the Penalties for Providing Inaccurate Documentation Under the False Claims Act?

While most scrutiny of PPP loan borrowers involves allegations of criminal fraud, the False Claims Act (FCA) allows the federal government to seek treble damages against federal contracting fraud, including cases involving the making of qualifying knowing false claims. If you have questions about the applicability of the FCA to your situation, you should speak with an experienced defense lawyer who can help you understand your risks and responsibilities.

How Should a Borrower Respond to a PPP Subpoena, Warrant, or Inquiry?

What Are Potential Defenses to Allegations of PPP Loan Fraud?

Potential defenses to allegations of PPP loan fraud include, but are not limited to, the following.

• Good-Faith Reliance on Ambiguous Guidance: In some cases, PPP borrowers have raised defenses focusing on good-faith reliance on ambiguous guidance. PPP guidance was often unclear and subject to various interpretations, and in certain circumstances this can make it challenging for the government to prove knowingly false or fraudulent intent.
• Good-Faith Reliance on Professional Advice: Relying on the advice of an accountant, attorney, or other professional can also be a potential defense, in certain circumstances. If your PPP loan is under investigation, our attorneys can help determine whether any of these defenses, or others, apply to your situation.

Which Government Entities Are Investigating PPP Borrowers?

PPP loan borrowers are facing investigations by numerous different government entities. Various personnel from the SBA, OIG, DOJ, FBI, IRS, and other federal agencies have been active in PPP-related investigations, and these entities are often working together.

What Are the Different Investigative Methods, and What Are the Implications?

There are various investigative methods that federal authorities use when targeting PPP borrowers. While many of the methods that investigators use are similar in some respects, they tend to signal different investigative tracks. These methods include:

• Subpoenas, Search Warrants, and Target Letters: Subpoenas and target letters are common investigative methods used to request information or request production of records. Search warrants are used when federal investigators have probable cause that a location contains evidence of a criminal offense. When receiving a subpoena, search warrant, or target letter, a recipient should retain an experienced attorney who can advise in regard to the implications for the recipient’s case.
• Civil Investigative Demand (CID): A Civil Investigative Demand, also referred to as a CID, is a unique investigative method under the False Claims Act. Recipients of CIDs can, too, receive inquiries from investigators pursuing both criminal and civil charges in some cases. When receiving a CID, a recipient should retain an experienced attorney as well.
• Search Warrants, Raids, or Audits: Search warrants, criminal raids, and civil audits are common methods used by investigators when targeting PPP borrowers. When a search warrant or raid is used, the recipient and employees generally do not have to answer substantive questions; a civil audit or subpoena may require responses.

What Does Document Preservation Entail, and What Does it Require?

When targeted by PPP-related scrutiny, borrowers must take steps to protect their legal rights. These steps include preserving documents, resisting requests for voluntary interviews, and asserting the Fifth Amendment or other applicable constitutional and statutory protections.

Document preservation involves taking steps to make sure relevant documents, data, and materials are not deleted, altered, or reorganized. When targeted by an investigation, borrowers must preserve their records (i.e., not use computers or servers that contain potentially relevant records) and refrain from interfering with documentation and data that may be subject to subpoena or inspection.

Talk It Through With a Lawyer

Every case turns on its own facts. Todd Spodek is the managing partner of Spodek Law Group, a second generation firm his father opened in 1976, and the firm takes federal criminal and white collar matters nationwide. Call 888 348 8028 to talk it through.