Small Business Loan Conviction.

The short answer is, no. For example, the Paycheck Protection Program provided forgivable loans to businesses that certified they spent the funds on eligible expenses. If the certified amount is not eligible for loan forgiveness, it becomes a repayable business loan. The business’s failure to qualify for loan forgiveness is a civil matter and, on its own, does not prove that the business owner committed any type of fraudulent activity. With the Economic Injury Disaster Loan (EIDL) program, these loans are repayable by nature. While defaulting on a loan may lead to collection attempts, negative credit consequences, and litigation initiated by the federal government, this does not prove criminal activity.

Defaulting on a small business loan, or failing to repay the loan, does not prove fraud, either. While it is possible that defaulting may lead to questions about the legality of the funds received, criminal fraud must be proven by federal prosecutors. In civil litigation, the government can prove fraudulent activity with a preponderance of the evidence. This is a much lower burden of proof, and this evidence is often not sufficient to secure a criminal conviction.

Similarly, simply making a mistake on a PPP, EIDL, or small business loan application does not prove criminal fraud. While a mistake can still lead to civil penalties (such as returning the loan funds), civil penalties and criminal convictions are very different. In general, federal prosecutors must prove that a business owner intentionally or knowingly lied on their application for PPP, EIDL, or other small business loan funds. Even if it appears a business owner knowingly lied, prosecutors cannot secure a conviction unless they can prove all elements that are required in order to prove the offense for which the defendant is facing federal criminal charges.

In addition to providing proof of the elements that are involved in a specific federal criminal offense, prosecutors must also prove that the defendant’s conduct met the federal government’s standard of “willful” or “knowing” or “fraudulent” intent. To secure a federal fraud conviction, the prosecution typically must provide evidence of the defendant’s intent, such as evidence that they knew they were ineligible for a PPP loan or EIDL but chose to apply and/or falsely attested to the loan’s requirements.

Which PPP application details and financial records distinguish an honest mistake from intentional fraud?

The federal government’s ability to establish criminal intent when pursuing a small business loan conviction will depend on the specific facts involved. While the government will evaluate evidence from a broad range of sources, particular types of evidence can trigger increased scrutiny. For example, loan “stacking” can raise red flags for federal prosecutors. “Loan stacking,” or “double dipping,” refers to the practice of applying for and/or receiving multiple loans from the Small Business Administration (SBA) and/or other lenders without disclosing those applications and/or receipts.

This practice can trigger criminal investigations and criminal charges for the various alleged fraud violations that have been filed in recent years. Additionally, a history of personal luxury purchases made using EIDL funds can support allegations of criminal fraud. The federal government will typically use bank records and transaction histories to establish the purchases of luxury vehicles, designer clothing, vacations, and other lifestyle expenditures. Again, this evidence will be used to support allegations of criminal fraud by attempting to show that the defendant converted the loan proceeds for personal use. Along with false certifications on loan applications, loan forgiveness applications require additional certifications. If a business owner’s loan forgiveness application certifications are later determined to be materially false, this can provide grounds for additional criminal exposure separate from any claims regarding the defendant’s loan application.

When evaluating allegations of criminal fraud in PPP, EIDL, or other small business loan cases, prosecutors will generally rely on evidence such as:

• Payroll records, including IRS Form 941 filings
• Tax filings
• Bank statements
• Email, text, and other communications
• Social media posts and other evidence of personal expenditures
• Business bank records and small business loan records

When reviewing PPP-related allegations, prosecutors will put particular emphasis on IRS Form 941, which is a payroll tax form that employers must file with the IRS every quarter. Form 941 reports employers’ federal income tax withholdings, employee tips, and other forms of compensation. As a result, the government will compare the information contained in a defendant’s loan application with the information contained on his or her Form 941 (or other payroll records).

However, the fact that a business owner’s payroll figures were not consistent with his or her Form 941 filings does not prove criminal intent. For example, a business owner may have reported payroll for 1099 independent contractors rather than employees, or payroll information may be listed differently for owners, partners, and officers. Another possibility is that the reporting period on a loan application differed from the reporting period on the corresponding Form 941. In such circumstances, federal prosecutors must prove that the defendant’s conduct was criminal and that the defendant knowingly misrepresented his or her eligibility for a PPP or other small business loan.

How can an SBA OIG inquiry turn PPP or EIDL records into federal charges?

The Small Business Administration Office of Inspector General (SBA OIG) is the SBA’s in-house law enforcement and oversight arm. The SBA OIG has the authority to conduct audits or investigations into PPP and EIDL borrowers that qualify as “investigations” under federal law. This means that the SBA OIG can investigate and refer criminal fraud allegations to the Department of Justice.

If the SBA OIG uncovers evidence supporting allegations of criminal fraud, the SBA OIG can refer the matter to the SBA’s criminal investigators or directly to federal prosecutors (i.e., the Department of Justice). In both cases, the referral is likely to trigger an investigation by the Federal Bureau of Investigation (FBI).

During an SBA OIG investigation (or an FBI investigation if referred), federal investigators may seek records pertaining to the business, the business owner, and the PPP, EIDL, or other small business loan. Federal investigators may seek these records through means such as search warrants, interviews, and subpoenas.

Once an investigation is referred to federal prosecutors, it may result in a grand jury subpoena. This is a powerful tool used by the U.S. Attorney’s Office to obtain records before a criminal indictment is issued. Like all grand jury subpoenas, a grand jury subpoena generally requires compliance regardless of whether the U.S. Attorney’s Office has filed criminal charges against the recipient.

Along with making a mistake or making a false certification on a PPP or EIDL loan application, lying to federal investigators can also expose a business owner to federal criminal charges. Again, if a business owner lies to an SBA OIG agent, FBI agent, or other federal investigator during a PPP, EIDL, or other small business loan fraud investigation, the business owner could also face criminal charges. Lying to an investigator can constitute a violation of 18 U.S.C. § 1001 independently of the underlying criminal investigation. In order to qualify as a violation of this federal statute, the lie must be material.

Families retain Spodek Law Group on behalf of someone they love every week of the year.

What can a PPP or EIDL case cost beyond the unpaid balance?

If you are facing charges of fraud involving any form of a small business loan, there are several different types of financial and nonfinancial penalties you could face in the event of a conviction. First, federal fraud convictions can result in restitution, forfeiture, fines, and/or federal imprisonment. The U.S. Sentencing Guidelines apply specific ranges of incarceration based on calculations involving financial or material fraud loss. For example, U.S. Sentencing Guidelines § 2B1.1 applies “ a base offense level of 7.... The offense level increases by the amount in the following table:” if the amount of fraud loss involved in the case meets certain financial thresholds. However, these Guidelines are advisory. In other words, they apply ranges of incarceration rather than mandatory sentencing outcomes.

Under the Guidelines, when determining the appropriate offense level to apply, “ a court should consider any restitution ordered... Or a monetary penalty imposed.... And other relevant factors that affect sentencing.... Including personal characteristics and obligations of the defendant.” Again, while judges typically base their sentences on the U.S. Sentencing Guidelines, the Guidelines are advisory.

In addition to facing penalties under the False Claims Act (as discussed below), borrowers can also face civil liability if they receive PPP or other small business loans under fraudulent circumstances. For example, if you receive multiple PPP or other small business loans under different business entities, you may need to prove that you have made appropriate repayments.

Under the False Claims Act, “any person who-(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;” is liable to pay the United States three times its damages, plus a civil penalty for each violation. Additionally, if the government can show that the borrower “ knowingly.... Knowingly presents or knowingly causes to be presented, a false or fraudulent claim for payment or approval... A court may award “ trebled (3x) damages of the amounts involved.... Plus five thousand dollars ($5,000) to twenty-two thousand five hundred dollars ($22,500).... For each violation of the False Claims Act.”

For this reason, PPP and EIDL borrowers, and applicants, who do not properly disclose certain facts on their loan applications should rely on the advice of an experienced federal criminal defense lawyer to determine what (if anything) steps they need to take.

How much does a PPP or EIDL defense lawyer cost?

Research does not indicate a uniform national price for federal defense lawyers. Defense lawyers’ fees typically vary by region, years of experience, attorney-client relationship, and other relevant factors. While many firms’ hourly rates range from three to five hundred dollars to four or five hundred dollars, some attorneys charge more than $600 per hour.

If You Want Someone to Look at Your Case

Reading about a charge is not the same as having someone read your file. Spodek Law Group keeps an attorney on call around the clock, and the first consultation costs nothing and runs as long as your questions do. The number is 888 348 8028.