PPP Fraud for Buying Personal Items: What Are the Penalties??

Buying personal items with PPP funds cannot by itself establish criminal PPP fraud. In order to establish the use of PPP funds for personal purchases as PPP fraud, the government needs additional proof. While personal expenditures may not constitute fraud by themselves, however, they can certainly support PPP fraud allegations. In a federal PPP fraud investigation, for example, personal purchases can support an allegation that PPP proceeds were improperly used.

While this can prove that you misused the loan and should pay it back, however, it does not automatically establish criminal PPP fraud. To pursue criminal prosecution, federal prosecutors must do more than just prove a PPP recipient misused funds. They must prove that the recipient committed a knowing fraudulent act. The government needs evidence showing that a fraudulent act, such as making false certifications to qualify for PPP loan or to keep the loan, was intentional rather than the result of negligence or good-faith misunderstanding of the program rules.

This distinction is important because some civil and administrative remedies do not require proof of criminal intent, although a False Claims Act claim still requires the statutory knowledge standard. Negligence or poor record-keeping can lead to civil prosecution, but generally not criminal prosecution.

What Statute Covers PPP Fraud?

There is no standalone federal criminal statute titled “PPP fraud.” Instead, prosecutors charge individuals and businesses under a variety of federal laws. Depending on the nature of the fraud, you could face charges under statutes such as:

• Bank Fraud (18 U.S.C. § 1344)
• Wire Fraud (18 U.S.C. § 1343)
• False Statements (18 U.S.C. § 1001)
• Conspiracy (18 U.S.C. § 371)

Depending on the specific facts of the investigation, you may be facing multiple charges. This means that it could be critical to show that the purchases in question were legitimate and not fraudulent, while also showing that they were not the result of an intentional attempt to mislead federal authorities or financial institutions.

What Evidence Makes Personal PPP Spending Look “Knowingly Fraudulent”?

PPP loan proceeds could be used for payroll costs and, subject to statutory conditions, certain nonpayroll expenses such as mortgage interest, rent, utilities, covered operations expenditures, covered property-damage costs, covered supplier costs, and covered worker-protection expenditures. PPP loan proceeds could also be used for additional categories authorized by statute, including covered operations expenditures, covered property-damage costs, covered supplier costs, and covered worker-protection expenditures., and all spending made with the loan must be clearly documented. If you spent your PPP funds on personal items, you must rely on the defenses discussed above.

How Does the Government Investigate Misuse of PPP Loans?

When investigating allegations of fraudulent use of PPP funds, federal prosecutors scrutinize any evidence and records that may indicate the use of PPP funds for personal or other ineligible purposes. The types of evidence they will seek to examine will include:

• PPP application documents
• Business bank statements and other financial records
• Payroll records and payroll documentation
• Loan application or certification records
• Documentation of loan forgiveness eligibility and efforts to achieve loan forgiveness, such as payroll certifications
• Business expenditure records
• Evidence that any misspent PPP proceeds were misappropriated, such as purchases made for non-business use

What Evidence will be Examined in a Federal PPP Fraud Case?

In order to pursue fraud charges, the federal government must prove an intentional misrepresentation. To establish this, federal investigators will look for evidence of deception, including proof that:

• Your payroll costs are not consistent with payroll records
• The number of employees that you claimed in your application is not consistent with your payroll records
• You listed individuals as employees in your PPP application or other documentation who were actually contractors
• You listed workers as employees when they do not work for your business
• Your business is not small enough to have qualified for a PPP loan
• Your company is ineligible for a PPP loan
• You applied for multiple PPP loans with different lenders
• You falsely certified loan expenditures or your ongoing loan eligibility when certifying to have your PPP loan forgiven or to receive an additional PPP loan

These are a few common allegations made by the U.S. Department of Justice (DOJ) against PPP fraud defendants. To fight these allegations, you will need to explain all aspects of your PPP loan application and expenditure certification, prove that any expenditures were legitimate business expenses, and show that there is no evidence of intentional deception.

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How Do Federal Agencies Build a PPP Personal-Spending Case?

If you face allegations of fraud in a federal PPP case, your criminal exposure will depend on several factors. The specific nature of the allegations against you, the evidence that investigators have gathered, and the amount of money involved are among several important considerations. While the federal government can potentially charge you with a wide range of different crimes, each federal crime has unique statutory elements that must be proven beyond a reasonable doubt at trial in order to support a conviction.

If convicted in a federal criminal case, you could face substantial penalties, including:

• A federal prison sentence
• Mandatory restitution
• Asset forfeiture
• Criminal fines

Importantly, if you are facing criminal charges, you are also entitled to the constitutional presumption of innocence. This means that you cannot be found guilty unless federal prosecutors can prove that you committed a knowingly fraudulent act beyond a reasonable doubt. On the other hand, this means that the SBA and other federal agencies will be encouraged to build civil fraud cases against PPP recipients, which carry a lower burden of proof.

How Do Federal Investigators Build Cases of PPP Fraud?

In PPP fraud cases involving the use of PPP funds for personal items, federal investigators will generally try to gather evidence by:

• Requesting to interview you and any individuals associated with your company (or anyone else who could provide information about your PPP loan application and/or loan forgiveness certification)
• Requesting copies of your business’s loan application and certification documents, tax returns, bank statements, payroll records, spending documentation, and other relevant records

In many cases, if you and your company do not voluntarily cooperate with federal investigators, this can lead to search warrants and subpoenas. Also, if you give federal investigators false information during your interactions, this can lead to additional criminal exposure, which increases the likelihood that you will have to face the full legal consequences of an investigation.

Which Federal Agencies Are Involved in PPP Fraud Cases?

The DOJ created “pandemic fraud strike-force teams” in U.S. Attorney offices nationwide to investigate cases of PPP fraud and other pandemic-related crimes. In addition to working with the DOJ, the SBA is also working with several federal law-enforcement agencies to investigate these allegations, including the FBI, HHS OIG, and IRS CI.

What Can a PPP Personal-Spending Case Cost in Prison and in Civil Damages?

If you have received allegations of PPP personal spending, you will need to assess your potential criminal and civil exposure. With PPP fraud allegations, this means weighing the types of charges you could face in a federal criminal prosecution against the amount of damages the government could recover in a civil PPP fraud lawsuit. While statutory maximums give you a range of what to expect, these maximum penalties will be subject to many factors, including whether you have committed a known violation of federal law. As a result, statutory maximums do not reflect the average prison sentence or civil damages for PPP fraud cases. Some examples of statutory maximum penalties for some of the most-common PPP fraud allegations include:

Criminal Penalties for PPP Fraud

If convicted for PPP fraud, your sentence could depend on the specific charges that you are facing. Some examples of statutory maximum criminal penalties for some of the most-common PPP fraud charges include:

18 U.S.C. § 1344, Bank Fraud

Bank fraud carries a maximum prison sentence of thirty years and a $1 million fine. Additionally, defendants convicted of bank fraud can be sent to prison for up to 30 years under 18 U.S.C. § 1344. The charges under this statute are common in PPP fraud cases, especially where there is evidence of a false certification or fraudulent loan application or certification.

18 U.S.C. § 1343, Wire Fraud

Wire fraud generally carries a maximum prison sentence of twenty years. However, in certain circumstances, the statute imposes greater penalties. 18 U.S.C. § 1343 is also a common statute used in PPP fraud cases, as applying for or certifying for loan forgiveness involves the use of electronic communications.

18 U.S.C. § 1014, False Statements in Connection with PPP Loans

Under 18 U.S.C. § 1014, this offense carries up to 30 years of imprisonment and a $1 million fine. Charges under § 1014 may apply when a PPP applicant knowingly makes a materially false statement to a covered financial institution for the purpose of influencing its action.

Civil Penalties for PPP Fraud

In addition to criminal fraud charges, the DOJ is pursuing civil fraud charges under the False Claims Act. If the government pursues civil litigation against you under the False Claims Act, the statutory penalties include:

• Triple damages, i.e. three times the amount that the government has lost as a result of the fraud
• Civil penalties for each false claim or certification, plus treble damages and litigation costs
• Other remedies may be available under separate federal statutes or in related criminal proceedings

Talk to Spodek Law Group

Every case turns on its own facts, and general information is no substitute for advice about yours. Todd Spodek, managing partner of Spodek Law Group, and the firm's attorneys defend federal criminal and white collar matters nationwide. Reach the firm at 888 348 8028.