Restitution Requirements in PPP Fraud Cases.

The federal restitution statute, codified at 18 U.S.C. § 3663A, provides that in cases involving PPP fraud, federal courts can (and sometimes must) order restitution if: (i) PPP loan fraud caused actual losses to an identifiable victim; and (ii) PPP fraud falls within the scope of the pertinent criminal statute(s).

2. To Whom is the PPP Restitution Owed?

A defendant’s restitution obligations for PPP fraud offenses can vary based on the circumstances of the offense and the facts at hand. Generally, if PPP fraud losses were unreimbursed by the SBA, the restitution obligation will lie to the PPP lender. If the lender was reimbursed by the SBA, then the SBA may be the proper restitution recipient. However, if a PPP loan is paid in full or properly forgiven, the lender generally has no remaining loan loss; PPP borrowers ordinarily owe the loan to the PPP lender, and forgiveness is available only if program requirements are met.

3. Does Misuse of the PPP Loan Amount Substantiate PPP Fraud and PPP Restitution?

Restitution in PPP fraud cases is contingent upon a criminal conviction. However, a criminal conviction is not guaranteed. PPP fraud is a very specific type of criminal offense. Improperly utilizing the PPP loan amount for a PPP-ineligible purpose is a mistake, but it does not rise to the level of fraud unless the borrower acted with fraudulent intent. Without fraud, the defendant does not face criminal charges and is not responsible for paying restitution.

4. What Are the Potential Penalties for a PPP Fraud Criminal Conviction?

If PPP fraud leads to criminal charges, criminal PPP convictions carry various penalties. However, the specific penalties imposed will depend on the defendant’s guilt and role in the PPP fraud scheme. Federal penalties for PPP fraud convictions may include restitution when authorized by statute and, depending on the offense and circumstances, fines, forfeiture, probation, or imprisonment.

5. Can I Avoid PPP Fraud Charges if I Paid Back the Full Amount of the PPP Loan?

For PPP loan applicants, repaying the PPP loan amount in full does not necessarily shield from federal prosecution. If you committed a federal PPP fraud offense, the DOJ can still pursue you for the underlying offense. However, pre-indictment repayment may reduce the amount of restitution owed but does not necessarily eliminate the possibility of a restitution order.

1. How is the PPP restitution amount decided?

When facing federal PPP fraud charges, you can contest the amount that the government says you owe. You have the right to challenge the government’s calculations and propose an amount that better reflects your circumstances. Additionally, you can present an affordable payment schedule to the court at the sentencing stage.

2. What factors does the federal court consider when determining a defendant’s PPP restitution amount and schedule?

When sentencing a defendant in a criminal PPP fraud case, the federal court must determine restitution in the full amount of each victim’s losses without considering the defendant’s economic circumstances. The court must consider the defendant’s financial resources, projected earnings, and financial obligations when setting the payment schedule under 18 U.S.C. § 3664(f)(2).

3. Is the restitution amount predetermined by the plea agreement in a PPP fraud case?

While a plea agreement can involve some discussion about the restitution amount, this does not necessarily mean that the restitution amount is predetermined. Although plea negotiations can touch on the restitution issue, the defendant remains free to contest the amount that is ultimately sought by the government, as the sentencing court has the final authority. Generally, when accepting guilty pleas in PPP fraud cases, the DOJ typically does not include a restitution provision as the provision is reserved to the sentencing court.

4. How are the restitution amount and payment schedule of a PPP fraud criminal conviction in conflict?

For defendants facing federal PPP fraud charges, this is where the calculations can get complicated. Typically, the restitution amount and payment schedule imposed by the sentencing court are based on the evidence presented at sentencing. In many cases, the government’s calculations and the defendant’s proposed calculations will be in conflict. This is usually done through a sentencing memorandum, and it is usually up to the sentencing court to make a final determination.

5. Can I still be responsible for the full amount of PPP restitution if someone else was also involved in the PPP fraud?

Yes, if you were involved in a PPP fraud case alongside others, you can still be held responsible for the full amount of the restitution. Under 18 U.S.C. § 3664(h), if more than one defendant contributed to a victim’s loss, the court may make each defendant liable for the full amount of restitution or may apportion liability based on each defendant’s contribution and economic circumstances. In other words, if you and another party have caused the same loss, the other party’s obligation to pay will not reduce your obligation to pay.

6. What happen if I fail to pay my criminal PPP fraud restitution?

A delinquency of the restitution obligation can lead to serious consequences, as federal agencies have several remedies at their disposal to recover the amount owed. These can include the filing of tax liens, salary garnishments, and other federal collection remedies through the DOJ.

How Does Criminal Restitution Differ from PPP Loan Debt and Civil Recovery?

1. How do criminal restitution, forfeiture, fines, and loan balances differ?

Restitution, forfeiture, fines, and loan balances are four distinct legal concepts that do not mean the same thing. Restitution is compensatory. It aims to make the victim of a crime whole by returning any loss suffered. Forfeiture is different: it focuses on recouping any gains the offender received from engaging in criminal activity. The purpose of a fine is different again. A fine is a punishment for an offender who has been convicted of a criminal offense. Finally, a loan balance is an obligation to pay back a loan to the lender, one that is contractual in nature.

2. What happens if I denied PPP loan forgiveness?

If a PPP loan applicant is denied PPP loan forgiveness for a misallocation or non-compliance, the effect of this denial is to leave an outstanding loan balance. While PPP loan recipients do not always have to repay their PPP loans (they are forgiveable loans), non-compliant recipients will be responsible for repaying their loan. Denial of PPP loan forgiveness does not automatically mean PPP fraud. It does not mean that a defendant will necessarily be obligated to pay criminal restitution, and it does not mean that the government must seek criminal penalties.

3. Can the government seek civil recovery for improperly disbursed PPP funds?

In addition to criminal enforcement proceedings, the government can also seek to recover improperly disbursed PPP funds in civil enforcement proceedings as well. A civil enforcement proceeding is one where the government pursues civil recovery for improper disbursement. Such civil proceedings could be initiated independently or alongside criminal prosecutions.

4. How does the False Claims Act apply to fraudulent PPP loan applications?

The False Claims Act is a federal statute providing for the recovery of treble damages when parties defraud the government. In a civil false claims action targeting a PPP loan recipient, the government can seek treble damages-three times the damages the Government sustains-plus applicable civil penalties. The government will generally pursue this remedy in circumstances involving false certification of loan necessity, or where the loan recipient improperly utilizes the PPP funds to enrich themselves, or where the loan recipient diverts funds to an ineligible party.

5. How is criminal forfeiture different from criminal restitution?

As mentioned above, forfeiture is a criminal penalty that strips the defendant of the proceeds of the defendant’s fraud. Criminal restitution makes victims whole; criminal forfeiture strips the defendant of a “windfall” by having the government take money the defendant obtained as a result of committing a crime.

6. What assets may the government seek to seize under criminal forfeiture?

Criminal forfeiture allows for a broad range of assets to be taken from a defendant, and this can include proceeds of a PPP fraud scheme, including funds directly obtained through a fraudulent application, or property and assets that were purchased using fraudulently-obtained funds.

Can repayment or cooperation change PPP charges, restitution, or sentencing?

1. How Does Prepaying a PPP Loan Affect Restitution Obligations for a Defendant?

If a defendant makes repayments before sentencing, this can influence their remaining compensable loss and their restitution obligations.

2. Can Pre-Indictment Discussions with the DOJ Help a Suspected PPP Fraudster Avoid a Criminal Charge?

This depends on the specific facts of your case, the scope of the DOJ’s knowledge, and the specific issues the DOJ is targeting in your case. However, in appropriate cases, it may be possible to secure a declination, lesser charges, or even a civil resolution to allegations of PPP loan fraud.

3. Is Cooperation Useful for Avoiding or Reducing Federal PPP Fraud Charges or Criminal Penalties?

In appropriate cases, cooperation with the DOJ can result in the government reducing charges or issuing a favorable sentencing recommendation. However, such agreements typically require a certain degree of truthfulness and responsibility.

4. What Does Acceptance of Responsibility Mean in the Context of a Criminal Sentencing Proceeding?

Acceptance of responsibility is a sentencing factor that takes into account a defendant’s willingness to take accountability for their crime. In a criminal PPP fraud case, acceptance of responsibility generally means that the defendant pleaded guilty and has shown some evidence that they are taking responsibility for their actions.

5. What Determines the Length of a PPP Fraud Offender’s Sentence?

In a criminal case, the sentencing court will make its decision based on the facts involved in the case and the pertinent statutory provisions. While statutory maximums establish an upper cap on how long a defendant can be incarcerated, the United States Sentencing Guidelines provide sentencing judges with advisory figures that can serve to reduce a defendant’s overall sentence. However, these figures can also serve to increase a defendant’s sentence in a PPP fraud case based on their role in the scheme and other circumstances.

Where to Go From Here

If any of this describes your situation, the next step is a conversation rather than more reading. Spodek Law Group runs a fully online client portal and represents clients coast to coast, with offices in New York, Brooklyn, Queens and Los Angeles. The number is 888 348 8028.