Proving Lack of Intent in Federal PPP Fraud Cases

Thanks for visiting Spodek Law Group – we’re a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience defending federal fraud cases. If you’re facing PPP fraud allegations, understanding how intent works in federal court could mean the difference between conviction and acquittal. This article explains exactly how we prove lack of criminal intent in PPP cases.

Intent is everything in federal fraud prosecutions. The government can’t just show you made a mistake on your PPP application – they need to prove you knew the information was false and submitted it anyway. That’s a high bar, and in the chaos of the 2020 PPP rollout, it’s a bar many prosecutors struggle to clear.

What Intent Means in Federal Fraud Law

Federal fraud statutes require specific intent to defraud. You can’t accidentally commit fraud. The government must prove beyond a reasonable doubt that you acted with knowledge your statements were false and with intent to deceive the lender or SBA. This is called “scienter” – a legal term for guilty knowledge.

Most PPP fraud cases charge wire fraud under 18 U.S.C. § 1343, bank fraud under 18 U.S.C. § 1344, or false statements under 18 U.S.C. § 1001. All three require proving you acted willfully and with intent. A mistake, no matter how costly or embarrassing, isn’t criminal if you didn’t intend to defraud anyone.

Program Confusion Negates Intent

The PPP was rushed into existence in March 2020 with minimal guidance. The SBA issued rules, then changed them. Banks interpreted requirements differently. Eligibility criteria shifted weekly. This creates a massive problem for prosecutors trying to prove you knew your application violated program rules.

We pull every version of SBA guidance, interim final rules, and FAQs published during the application period. Your loan application might’ve complied perfectly with the rules that existed when you submitted it – even if later guidance said something different. If the rules were unclear or contradictory, how can the government prove you knew you were lying?

One client applied in April 2020 claiming independent contractors as employees. The initial guidance was ambiguous about whether 1099 workers counted toward payroll calculations. The SBA clarified this weeks later, but at the time he applied, multiple lenders were telling borrowers different things. We showed the jury three different bank interpretations of the same rule. Not guilty.

Good Faith Reliance on Professional Advice

If you relied on accountants, attorneys, or lenders when preparing your PPP application, that reliance can demonstrate lack of intent. The key is documentation – emails with your accountant discussing payroll calculations, questions you sent your bank about eligibility, notes from calls about certifying economic necessity. All of this shows you were trying to comply.

We’ve defended cases where clients relied entirely on third-party consultants to prepare PPP applications. If the consultant made errors and you had no reason to know it was wrong, that negates criminal intent. You can’t intend to submit false information if you genuinely believed it was accurate.

Honest Mistakes vs. Criminal Fraud

Prosecutors love to argue that any discrepancy between your application and reality proves fraud. We push back hard on this. Discrepancies prove nothing without evidence of intent.

Say you reported 25 employees on your PPP application, but the government claims you only had 20. Was that fraud, or did you count seasonal workers who’d been laid off due to COVID? Did you include part-time employees you believed qualified? Did you rely on your payroll processor’s employee count? Each of these explanations is consistent with an honest mistake – not criminal intent.

We reconstruct exactly how you arrived at each number on your application. What documents did you reference? What calculations did you perform? Who helped you? If we can show a reasonable, non-fraudulent explanation for discrepancies, the government can’t prove intent beyond a reasonable doubt.

Building the Record of Good Faith Compliance

The best intent defenses start before charges are filed. If you’re under investigation, we immediately begin documenting your good faith efforts to comply with PPP requirements – gathering correspondence with lenders and accountants, collecting application drafts showing corrections you made, identifying witnesses who can testify about your state of mind.

What were you thinking in April 2020? Your business was probably hemorrhaging money. The government was encouraging businesses to apply for emergency relief. You rushed through the application because lenders said funds were running out. That context explains why you might’ve made mistakes without criminal intent.

Challenging the Government’s Evidence of Intent

Prosecutors typically try to prove intent through circumstantial evidence. They point to things like: you spent PPP funds on non-payroll expenses, you didn’t have employees, your business wasn’t operational, or you lied about revenue. But none of these facts alone prove you intended to defraud anyone when you submitted the application.

Take spending PPP funds incorrectly. Maybe you misunderstood the forgiveness requirements. Maybe your accountant gave you bad advice about what expenses qualified. Maybe you had a legitimate business need and believed the rules allowed it. Misusing funds doesn’t prove you lied on the application – it might just prove you misunderstood the spending rules.

We attack every piece of circumstantial evidence. Was your business actually operational? Define “operational” – the SBA never did. Did you have employees? Define “employee” – the guidance changed multiple times about independent contractors, owners, family members. Every ambiguity in the rules creates reasonable doubt about whether you intended to deceive anyone.

The Role of Character Evidence

Federal courts allow limited character evidence to show you’re not the type of person who would commit fraud. We present witnesses – business partners, clients, employees – who testify you’re honest and wouldn’t intentionally defraud the government. Your business history matters too. Operating a legitimate business for years, filing taxes honestly, and complying with regulations makes it less believable that you suddenly decided to commit fraud for a PPP loan.

When Intent Can’t Be Proven

Some PPP cases simply lack evidence of intent, no matter how suspicious the application looks. The government might prove your business didn’t qualify for the loan, but they can’t prove you knew it didn’t qualify. That’s reasonable doubt.

We recently defended a client who claimed he had 10 employees when he actually had none. Sounds bad, right? But he’d laid off 10 employees in March 2020 due to COVID and genuinely believed the PPP existed to rehire them. He misunderstood the program requirements – he thought he was supposed to report employees he planned to bring back, not current employees. The jury acquitted him because the government couldn’t prove he intended to lie. He just misunderstood.

Why You Need Experienced Federal Defense Counsel

At Spodek Law Group, we’ve handled federal fraud cases for years – including cases that made national headlines in the New York Post, Bloomberg, and Newsweek. Todd Spodek has built defenses around intent in complex fraud prosecutions throughout his career. PPP cases require deep understanding of both federal criminal law and pandemic relief programs.

Intent defenses require building a compelling narrative supported by documents, witnesses, and expert testimony. We know what prosecutors look for and how to create reasonable doubt about intent. If you’re under investigation or facing charges, time matters – evidence disappears and witnesses become unavailable. Contact us immediately. We’re available 24/7.