Target Letter from DOJ for COVID Loan Fraud.

A purported target letter from the DOJ for a COVID-loan investigation purportedly identifies its recipient as a target of a federal criminal investigation. However, it is important to understand that target status does not automatically mean you are being charged with a federal crime. It certainly does not mean you are guilty of a crime. It means that you have been targeted in a federal criminal investigation, and that the federal prosecutors conducting that investigation think they may have evidence to support charges. As prosecutors target individuals and companies suspected of fraud in COVID-benefit programs, there is little room for guesswork. In these cases, federal prosecutors may have identified what they consider to be substantial evidence linking a person or a business to one or more suspected violations of federal law. This evidence may be the product of ongoing scrutiny of the government’s disaster relief and pandemic response efforts. Some target letters include a request for the target to get in touch with the DOJ, to appear for an interview, or to engage in discussions about the target’s criminal liability. Often, target letters contain time-sensitive requirements as well. If the letter contains a deadline (or multiple deadlines), this may add pressure for the recipient to act quickly. However, it does not have to be taken as a given that a response is required within 10 to 30 days. Every target letter will be different, and it is important to determine the urgency of the situation while taking the time to make informed and strategic decisions.

How Can a Recipient Verify the Letter and Avoid Creating New Evidence Problems?

A target letter may (and in many cases, will) identify the government agency or agencies conducting the investigation into your COVID-benefit program participation. If applicable, it will likely reference specific statutes (and potentially specific sections of statutes) that you are suspected of violating. It will also reference grand jury proceedings. This information provides valuable insight into the DOJ’s case against you, but it is critical not to assume the DOJ has all the information it needs. If you are identified as a target in a COVID-benefit program fraud investigation, a target letter is an opportunity for you to make informed and strategic choices about the next steps in your defense. While a target letter may suggest a need for legal counsel, this does not mean that you will be assigned a court-appointed lawyer, at least not at this stage. There is a lot to consider, and it is essential to make sound decisions. When engaging defense counsel at the target-letter stage, a target can begin having discussions with prosecutors on an informed basis that may help to shape the DOJ’s perspective of the case prior to an indictment request in federal court. A target has the option of having their counsel communicate with prosecutors rather than responding personally to the target letter. This is generally the safest course of action; and it also gives the lawyer a strategic window to try to clear up any misconceptions that the DOJ has. Target letters often contain requests for the target to answer questions about their COVID-benefit program participation, appear before a grand jury, or appear at DOJ offices for interviews. When responding to these requests, a target has the option to invoke Fifth Amendment protection against compelled self-incriminating testimony. However, invoking this protection is a decision that requires experience. In federal cases, as in state cases, having an experienced lawyer involved early on can help to build a defense and navigate the investigation.

Which records distinguish PPP, EIDL, and forgiveness allegations?

When facing a target letter for a PPP loan, several key records come into play. If your PPP loan application included a payroll or employee count that federal agents are now questioning, your payroll and employment records will be scrutinized. If the allegations go further and question not only whether you were eligible to receive PPP funds, but also whether you used them to pay allowable business expenses, your records will be scrutinized then, too. If federal agents are investigating your COVID-relief loan application for an EIDL loan, your payroll, employment, and business records, as well as your tax records, will all be relevant. Specifically, investigators will want to ascertain how much of an economic injury you claimed when you applied for the loan and how you used the loan proceeds during the pandemic (or spent the loan proceeds after the pandemic; COVID-19 EIDL loans generally must be repaid, although certain EIDL advances did not have to be repaid). In addition to reviewing these records, federal agents will also scrutinize the veracity of your loan application itself by comparing it with information you provided to the federal government when filing your federal tax and payroll returns. In federal loan investigations, bank records play a crucial role. Investigators look at records from your business bank account and your bank accounts for personal use. They’re looking for proof that you spent your loan proceeds the way you said you would. This means they’re going to be looking for post-disbursement transfers and spending patterns that may indicate personal use of the funds, such as transfers to personal accounts, transfers out of the country, and spending on high-end luxury goods. If the investigation target is focused on PPP loan forgiveness fraud, the investigator’s priority is to uncover evidence to show that you obtained and used PPP funds as an ineligible recipient. Their primary tool for this is the government’s own records. They are going to compare the funds you received with the funds you spent, and they’re going to contrast these records with the certifications you made in your loan application and your loan forgiveness request.

When Could COVID-Loan Allegations Become Federal Criminal Charges?

How long do the DOJ and federal investigators have to charge you in connection with a COVID-relief loan application? While the charging limitation period for most federal fraud offenses is five years, a later law extended the limitation period to ten years for those committed against certain COVID-relief programs. This means that, notwithstanding the time that has elapsed since the launch of the CARES Act and the early pandemic response, a person or business that submitted an application in 2020 or 2021 could still be lawfully chargeable in federal court through 2030 or 2031. With this in mind, if you received a purported target letter, any efforts by federal authorities to use 18 U.S.C. § 1343 (federal wire fraud) or 18 U.S.C. § 1344 (federal bank fraud) must be taken seriously. These are two of the federal government’s primary tools for prosecuting suspected fraud. If you received a target letter related to these statutes, or any other statute in connection with your PPP loan application or COVID-loan application, your goal should be to make informed decisions in order to work toward a defense that prevents charges from being filed. If you have questions about the possibility of being charged with federal COVID-loan fraud or if you have received a purported target letter, our federal defense attorneys are available to help. Contact our law firm, Spodek Law Group, to speak with a federal criminal defense lawyer immediately. While we offer a free and confidential case assessment, we provide an immediate and direct conversation with a defense lawyer who has experience defending business owners and individuals.

How Might Repayment Affect Sentencing, Restitution, and Loss Calculations?

Restitution, forfeiture, and supervised release are three additional penalties that are common after a federal criminal conviction for fraud in relation to pandemic relief programs. If you’re facing criminal charges in connection with your PPP loan or EIDL application, these three penalties are likely to play a role in your federal sentencing, regardless of the recommended sentence. Federal sentencing recommendations depend in large part on the amount of the alleged loss. Prosecutors will generally attempt to calculate the loss amount based on information available to the government. However, defense lawyers can use their clients’ data to challenge the prosecution’s calculations. This can potentially reduce the sentencing recommendation, which makes it imperative to find legal representation that can take an aggressive approach to minimizing the defendant’s criminal exposure. Repayment of funds from a federal relief program can have an impact on sentencing and restitution in some cases. Repayment can also be a condition of supervised release and determine the amount for which a defendant becomes subject to a forfeiture order. But, as a general rule, repayment of relief funds does not eliminate criminal liability. Maximum imprisonment terms depend on the statutes charged as well as the applicable counts. While several statutes have been used to charge suspected pandemic relief program fraud, the specific charges

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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.