Should I Cooperate With Federal Agents About My COVID Loan??

If you are not under subpoena or another form of compulsion, your Fifth Amendment rights permit you to remain silent during a federal criminal investigation. Federal agents can, and do, contact individuals by telephone, at home, or at their businesses; and, at Spodek Law Group, we strongly advise borrowers never to answer agents’ questions about their federal loan programs without the consent of counsel. While there are exceptions to this advice, Remaining silent may protect you in many cases, but it can also have adverse consequences depending on the circumstances.

You should consider the implications of a target letter if you receive one. A target letter is not a criminal complaint; it is notice that you are a target of an investigation, and that a federal grand jury is considering bringing criminal charges against you. While target letters have the potential to cause unnecessary stress and fear, a target letter also has the potential to provide prosecutors with the information necessary to justify charges. This is because, to issue a target letter, prosecutors must be able to state that they have in their possession “substantial evidence” that you may have committed one or more federal crimes.

As a result, by the time you receive a target letter, prosecutors may already have all of the evidence they need to bring charges against you. This evidence may include:

• Your loan application
• Records related to your request for loan forgiveness
• Bank statements
• Tax filings and schedules
• Your loan origination and repayment/forgiveness documents
• Your financial records
• Your emails, texts, and other forms of correspondence

Because prosecutors can (and often do) rely on the evidence they have obtained, this means that you are not in a position where there are no options available to you. In other words, there is nothing to be gained from providing prosecutors with additional statements, and there is much to be lost by providing incorrect or incomplete information. While remaining silent will not erase existing evidence, it will prevent you from supplying additional statements that prosecutors could use against you. This is the only reason why we strongly advise against answering federal agents’ questions before you have given your defense counsel the opportunity to assess the facts and explain why remaining silent is your safest bet.

What makes one PPP, EIDL, or forgiveness allegation harder to prove than another?

At trial, federal prosecutors must prove criminal fraud beyond a reasonable doubt. While the specific burden of proof for fraudulent conduct can be difficult to meet, once prosecutors establish a suspect’s culpability beyond a reasonable doubt, criminal convictions will follow.

Generally, federal fraud prosecutions require prosecutors to establish that the deceptive conduct at issue was knowing, rather than accidental. In most cases, this means that prosecutors must prove that you knowingly made misrepresentations to obtain PPP, EIDL, or COVID-19 forgiveness funding, and that you did not act based on a good-faith belief in the veracity of the information you supplied.

It is also important to understand that prosecutors need not prove that every single statement on a loan application, request for forgiveness, or certification was false to establish fraud. Even one material misstatement can lead to criminal charges. This is why it is imperative to preserve your right to rely on the professional advice you received prior to taking affirmative action. When professional-advice reliance is raised as a defense in a federal COVID-loan fraud prosecution, the borrower must generally demonstrate that their reliance was objectively reasonable under the circumstances.

The requirements for pandemic relief eligibility and funding shifted repeatedly during the early stages of the public health emergency. From interim rules and frequently asked questions to policy updates and guidance letters from the Small Business Administration (SBA) and other federal agencies, borrowers and their advisors alike were frequently left wondering when, why, and how certain requirements and restrictions were to be applied.

While the frequent changes to pandemic relief rules may make it easier to show that relying on professional advice was objectively reasonable in many cases, the ultimate answer to this question will depend on the facts at hand. There is no universal answer to this question, and no authority is likely to identify what constitutes the hardest case for a borrower to win at trial. The factors involved include everything from the specific evidence available to prosecutors’ theories of guilt and the specific relief program, and ultimately, a defense team must be able to evaluate the risk of criminal charges based on the specific circumstances at hand.

If any of this describes your situation, it is worth talking through with counsel. Spodek Law Group can be reached at 888 348 8028.

How should counsel test whether an interview or proffer will actually reduce federal risk?

While a loan accountant, loan broker, tax preparer, or business partner who is also a target of investigation may agree to serve as a cooperating government witness, these individuals may have personal incentives to minimize their own criminal exposure. This could potentially lead them to mischaracterize or misstate key facts. While these cooperating witnesses can potentially lead to charges and convictions, their testimony may be challenged in court on the basis of bias or reliability.

Ultimately, if you decide to participate in an interview or a proffer, the extent of your protection will be a key issue. A proffer agreement typically promises that your statements cannot be used directly against you in the government’s trial case; however, such statements may still be used to rebut affirmative defenses in some cases.

Also, while a proffer agreement may prohibit investigators from taking direct action based on your statements, it may still allow them to pursue leads derived from your statements.

It is also important to be aware that, depending on the agreement, prosecutors may be allowed to consider statements made during the interview or proffer during sentencing.

When evaluating whether cooperation has the potential to benefit you in a pandemic relief fraud case, your defense counsel should evaluate whether the information you can offer is already in the government’s possession, or whether it is information that the government does not have and wants to obtain.

The more valuable your information is to federal prosecutors, the more likely you will be able to negotiate a favorable plea agreement, a deferral, or other form of leniency. And, while federal prosecutors may rely on this value when negotiating with you, they can also rely on it when deciding whether to offer you the chance to participate in a proffer interview in the first place.

This means that, while you must be able to explain how you can assist the government in its investigation, you should be careful not to provide all of the information the government does not currently have. In doing so, you may eliminate any incentive for prosecutors to give you a deal, and you may inadvertently open yourself up to prosecution.

When can prosecutors still charge after repayment, forgiveness, or years of silence?

As a general rule, the statute of limitations period for federal financial fraud offenses is either five years (including for most federal program fraud offenses) or ten years (including for bank fraud). The PPP and Bank Fraud Enforcement Harmonization Act of 2022 extended the limitations period to ten years for fraud involving covered Paycheck Protection Program loans, while a separate 2022 law extended the period to ten years for certain COVID-19 Economic Injury Disaster Loans and advances. Importantly, the ten-year extension applies retroactively in cases where the prior limitation period (i.e., five years) had not yet expired. So, while prosecutors are not able to charge you with pandemic fraud if the prior limitations period had already lapsed, a scenario that is unlikely in many cases, they have ample time to investigate, indict, and prosecute you for offenses committed under the PPP and EIDL programs.

While the statute of limitations clock starts at the end of the crime, it may be years before prosecutors obtain the evidence necessary to indict a suspect. As a result, just because you have not been charged after three or four years (or even five or six years) of silence does not mean that you are “safe.” If the fraud at issue falls under the extended ten-year limitation period, prosecutors will still be able to secure a conviction even if you have not faced charges yet.

Importantly, this means that prosecutors’ clocks will not necessarily begin running on loan disbursement dates, but rather on the date of the last allegedly fraudulent act. While the original application for PPP or EIDL funding is one potential fraudulent act, loan applications are often just the first in a sequence of fraudulent conduct. For example, a forgiveness application can represent the final alleged act in a government’s case. This means that if you applied for forgiveness in 2021, prosecutors could potentially use your forgiveness application as the starting point for the statute of limitations, effectively extending the statute of limitations period to 2031.

Similarly, even if a borrower has fully repaid the amount of the loan at issue, federal prosecutors are still able to charge with criminal fraud. Under federal law, a successful prosecution does not require the perpetrator to have a financial interest in the transaction or benefit from the transaction, and repayment can not “cure” the commission of federal crimes. Federal criminal liability, if it attaches, attaches at the moment the offense is committed. Further repayment doesn’t erase the offense, and it doesn’t create a barrier to prosecution.

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.