Should I Take My PPP Fraud Case to Trial??

Federal prosecutors have to prove criminal charges “beyond a reasonable doubt” at trial. This creates two unique opportunities for defendants to fight the government’s case.

1. Intent vs. Honest Mistakes

The government has to prove that a defendant made material false statements knowingly. However, this is an intent-based offense, so “The good faith of a defendant is a complete defense to the charges contained in this indictment; good faith on the part of a defendant is simply inconsistent with the intent to defraud or deceive, which is involved in every count. While the term ‘good faith’ has no precise definition, it means, among other things, a belief or opinion honestly held, an absence of malice or ill will, and an intention to avoid taking unfair advantage of another. A person who acts, or causes another person to act, on a belief or opinion honestly held is not punishable under the criminal law merely because the belief or opinion turns out to be inaccurate, incorrect, or wrong. An honest mistake in judgment or an honest error in management does not rise to the level of intent to defraud.” With a skilled defense attorney, many times an honest mistake is all it takes to beat a charge in court.

2. Disputing the Loss Amount

Under a fraudulent PPP claim, prosecutors typically rely on a Defendant’s representation of payroll costs to establish the total amount claimed in advance. The government does not, in most cases, assume that a Defendant received a check for the full amount that he or she requested. Defendants should also be aware that they can fight the loss calculations at trial with the goal of reducing the potential sentence for a convicted defendant.

What Are the Risks of Taking My Case to Trial?

Deciding whether or not to take a case to trial is never a straightforward issue. There are always two sides to every story, and there is a possibility of proving oneself innocent. However, there are several major risks to taking your case to trial that you need to consider. These include:

• The Strength of the Evidence Against You
• Exposure to a Long Federal Prison Sentence
• Pressure to Cooperate in an Ongoing Investigation
• The Possibility of a Negotiated Resolution with the Government
• Collateral Consequences of a Conviction

Are There Any Defenses or Options for Pretrial Litigation?

Federal defenses start with a comprehensive investigation. Often, this involves pretrial litigation to challenge the government’s evidence. For example, if you made incriminating statements to federal agents during an investigation, you may be able to suppress those statements as the product of an unlawful interrogation.

Which PPP Records and Witnesses Could Decide Whether Prosecutors Can Prove Fraud?

1. The Role of Third Parties

The defense begins by examining the role of third parties. In many cases, an applicant will rely on an accountant or broker to prepare their application for them. While the fact that a third party prepared an application does not automatically excuse the applicant, but it may provide relevant evidence as to the applicant’s knowledge and intent.

2. Disputed Applications and PPP Borrowers’ Applications

Federal investigators compare PPP application data with tax forms, payroll records, bank records, and other available documents to identify discrepancies. Applicants often claim that they made mistakes on their application, but federal prosecutors can point to information obtained from a third party to show that the applicant knew the information was false.

When a PPP applicant is under federal investigation, investigators look for evidence of any violations of the law. This means not just fraudulent loan applications, but also fraud during the loan acceptance process. This includes spending PPP funds on personal expenses or not maintaining adequate records of expenditures, which are both violations of the law.

3. Bank Records and Digital Evidence

Bank records are critical pieces of evidence in PPP fraud cases. Investigators compare applications with records from employers’ banks. As in a PPP application fraud investigation, they look for evidence that PPP loan proceeds were spent on personal expenses.

In addition to bank records, federal investigators will look at any other available evidence. This includes emails, text messages, metadata, social-media posts, and any other form of communication. All of these can prove that a defendant knew the information they presented to the government was false.

4. The Testimony of Cooperating PPP Loan Preparers, Brokers, Accountants, and Others

In addition to third-party records and other documents, federal PPP fraud investigators will try to gain the testimony of witnesses to provide evidence of a defendant’s intent. Cooperating preparers, brokers, accountants, and other third parties can provide evidence that their clients knowingly submitted false information in order to qualify for a loan. Business partners and other employees will also have to worry about the possibility of them cooperating in order to seek a more favorable resolution for themselves.

How Do Disputed PPP Losses Affect Statutory Penalties and Federal Sentencing?

If you decide to fight your PPP fraud case in court, then you’ll need to understand the statutory penalties involved in your case. While the judge will determine your actual sentence based on a variety of factors, federal prosecutors will be able to seek sentences up to the statutory maximum for each offense that you committed.

1. Max Sentences for Bank Fraud and Wire Fraud

Many defendants who take PPP fraud cases to trial face charges of bank fraud under 18 U.S.C. § 1344 and wire fraud under 18 U.S.C. § 1343. These are serious offenses with steep penalties. For example:

• The maximum sentence for a bank fraud conviction under 18 U.S.C. § 1344 is thirty years in federal prison.
• While the general maximum sentence for a wire fraud conviction under 18 U.S.C. § 1343 is twenty years, this penalty increases to thirty years when the offense affects a financial institution or involves a benefit connected to a presidentially declared major disaster or emergency.

Although there are several factors that can lead to longer federal sentences, these are some of the biggest ones. This can make defendants want to take a settlement offer even if they think they can fight the charges in court.

2. Sentences for Aggravated Identity Theft

In addition to bank fraud and wire fraud, aggravated identity theft under 18 U.S.C. § 1028A is another criminal charge that federal prosecutors can use in PPP fraud cases. Along with fines and other penalties, a conviction under 18 U.S.C. § 1028A will also carry a mandatory sentence of two years in federal prison. This is, in addition to any other sentencing terms, and the sentence must run consecutively to the underlying felony sentence.

3. The Role of Financial Loss in Federal Sentencing

Under the federal sentencing guidelines, financial loss is one of the most important factors that judges consider when sentencing. The larger the losses, the greater the sentencing exposure. In other words, the larger the PPP funds involved, the greater the potential for a prison sentence. This is why defendants must consider the likelihood that a judge will find that the loss amount exceeds $6,500.

Spodek Law Group takes federal matters nationwide, coast to coast, and runs a fully online client portal so a case can be handled from anywhere.

When Do Forgiveness, Repayment, or Civil Recovery Change a PPP Fraud Case?

The fact that a PPP loan was forgiven does not protect applicants from criminal prosecution if the government has enough evidence of criminal fraud. Indeed, false information in an application for forgiveness can support a separate federal charge, and applicants may also have been ineligible for loan forgiveness under the federal regulations of a program in which they improperly obtained a loan.

Although, for an applicant to receive PPP loan forgiveness, the lender must review the borrower’s forgiveness application and supporting documentation and determine the amount of eligible forgiveness, that determination does not establish whether the applicant made material false statements knowingly. Rather, forgiveness is more about repaying the funds properly and in good faith.

What Are the Alternatives to Criminal Prosecution in PPP Fraud Cases?

Depending on the facts and circumstances at hand, there may be a possibility that a federal prosecutor will be unable to obtain a criminal conviction in a PPP fraud case. With a criminal conviction being far more serious for borrowers than with a civil recovery, this can be an important consideration in your defense strategy, and we encourage you to discuss this and any other questions you have with us.

In cases where the government decides not to prosecute a criminal fraud charge, the federal government can pursue civil recovery. Along with treble damages under the False Claims Act for qualifying false claims, the government can seek various additional penalties in civil PPP fraud cases. This will ultimately be decided by the federal prosecutor in charge of your case.

What Can a Borrower Do While Federal PPP Scrutiny Remains an Investigation?

1. Prepare for the Possibility of Civil, Criminal, or Administrative Enforcement

The U.S. Small Business Administration (SBA) and the SBA’s Office of Inspector General (OIG) have auditing authority, and they have the authority to refer audit matters to the appropriate agencies for civil, criminal, or administrative enforcement. The federal government is continuing to send out numerous audits, so anyone who received pandemic relief funds should be aware of the possibilities.

While many cases are being referred to the DOJ for criminal prosecution by federal prosecutors and federal agencies like the FBI, IRS Criminal Investigation, SBA OIG, and the Department of Labor, some are being referred for civil litigation, administrative fines, or exclusion from future government contracts. These civil and administrative enforcement are still very real possibilities and can lead to substantial financial penalties, so it is still important to prepare for the potential consequences of an investigation.

2. Engage an Experienced Federal PPP Fraud Defense Attorney as Soon as Possible

Our research shows that investigations for pandemic relief-fraud offenses will remain active through 2026. This means that the government will continue to investigate current and new allegations of fraud related to the CARES Act and other pandemic relief legislation. These investigations can take months or even years, and we encourage you to speak with our lawyers as soon as possible.

Along with the possibility of facing federal charges, targets of investigations must also deal with the fact that their time and money are being spent on defending themselves. We do not believe that there is any shortage of ways to limit your exposure in this scenario, but it is not something that will happen automatically. The sooner you engage the help of an experienced federal PPP fraud defense attorney, the better your situation will be.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 888 348 8028.