Tennessee PPP Loan Fraud Lawyers.

As discussed above, the Paycheck Protection Program (PPP) had a two-step process: (i) obtaining a PPP loan and, (ii) obtaining PPP loan forgiveness. Obtaining a PPP loan did not involve dealing with the federal government directly; rather, the PPP was administered by participating lenders whose loans were backed by a guarantee from the U.S. Small Business Administration (SBA). By contrast, obtaining loan forgiveness required borrowers to demonstrate compliance with program requirements. The key requirements for forgiveness included ensuring that a sufficient percentage of loan proceeds were used for payroll or other permissible expenses.

The second step (i.e., the PPP forgiveness process) presented its own fraud risks. Forgiveness fraud allegations often focus on the accuracy of the certifications borrowers submitted after loan disbursement. For example, if a borrower fraudulently certified their payroll expenses, the government could potentially bring charges for both loan receipt fraud and loan forgiveness fraud. As a result, when facing federal scrutiny, determining whether the investigation centers on a PPP loan repayment dispute, a civil inquiry, or a criminal investigation is a critical first step.

A government inquiry can take any number of forms. However, if you have received any of the following documents, your PPP loan is likely being scrutinized as part of a criminal investigation:

• A search warrant;
• A “target letter”; or,
• A grand-jury subpoena.

None of these are routine in the context of a PPP repayment dispute or civil inquiry. These documents can indicate a federal investigation, but they do not necessarily mean that federal agents are targeting you personally.

On the other hand, if you have received a Civil Investigative Demand (CID) issued under the False Claims Act, your PPP loan is likely the subject of a civil inquiry.

Knowing what you are facing is essential for determining the appropriate next steps. Civil attorneys at the U.S. Attorney’s Office and the Department of Justice have different goals and different motivations than criminal prosecutors. As a result, the best approach for handling a civil inquiry differs from the best approach for handling a criminal investigation.

Which PPP Records and Interview Choices Matter After a Subpoena, Target Letter, or Search?

When federal investigators examine records related to a PPP loan, they will examine the loan application that the business submitted, the forgiveness application that was submitted (if applicable), and the supporting documentation that was submitted to substantiate the business’s payroll expenditures. They will also look for evidence of inconsistency and contradictions between the documents that the business submitted, as well as any relevant external records, such as payroll data, tax filings, bank records, and employee information. If you have received a federal subpoena for PPP loan records and you are facing a criminal investigation, there are several other issues to take into consideration. For example, federal investigators will look for evidence of any use of the loan’s proceeds for personal expenses. If investigators are able to prove that the proceeds from the business’s PPP loan were used to purchase luxury items, such as a car or a house, or even just used for daily living expenses, then they will have sufficient evidence to proceed with pursuing charges.

Another issue that can pose a substantial problem during the investigative process is the destruction or alteration of relevant records. This can expose a business’s owners to additional criminal charges under the federal obstruction statute, and it is also possible for investigators to prove spoliation of records based on circumstantial evidence.

Crucially, business owners facing the risk of criminal prosecution also need to be careful about providing false information during questioning. As a result of the way they are trained to approach interviews, federal agents may scrutinize statements for materially false information, whether or not those lies may be a direct excuse. If business owners are dishonest when questioned, they can face a separate criminal charge under federal law, and this may present a challenge that can lead to a criminal conviction and a prison sentence.

How Can Affiliation and Forgiveness Certifications Turn a PPP Repayment Issue Into Fraud?

The process of obtaining loan forgiveness under the PPP also presented several significant risks of fraud allegations. In order to qualify for forgiveness, borrowers were required to certify that they used at least 60 percent of their loan proceeds on payroll and that the remainder was used for permissible expenses. The types of permissible expenses that qualified for loan forgiveness included: - Payroll expenses;

• Rent or lease payments;
• Mortgage interest;
• Utility expenses. By design, many PPP borrowers were not eligible to have their loans forgiven. When these borrowers have difficulty repaying their loans, this can (and often does) trigger an inquiry from the lender and/or the SBA.

To determine if the business loan application was fraudulent, federal investigators will also determine if the business was actually “small enough” to qualify for a PPP loan. Under the regulations that govern PPP loans (including 13 C.F.R. § 121.301), affiliated businesses may be counted together when determining PPP size eligibility.

When calculating a business’s size for PPP purposes, either the regular size standard or the alternative size standard can be used. The latter limits eligibility to businesses with not more than: - $15 million in tangible net worth, or,

• $5 million in average annual receipts. In order to determine whether a business was actually affiliated with one or more other entities, federal investigators will review the business’s corporate formation records and interview the business’s owners and operators. Ultimately, determining whether two businesses are affiliated involves an analysis of issues including ownership, control, and operating independence. This means that even if a Tennessee business has only a single location and a few employees, its loan application can still be fraudulent if it is affiliated with another business that pushes it over the threshold for size eligibility.

When facing federal scrutiny, there are several key issues at issue that we address in order to determine if you may face criminal charges. These issues include: - Affiliation between the business and other entities

• Forgiveness certifications and accuracy of expense claims
• Documentary evidence and potential for spoliation of records
• Parallel civil liability under the False Claims Act
• Federal sentencing guidelines

Which Federal Charges and Civil Recoveries Can a Tennessee PPP Case Bring?

PPP-related civil cases are frequently pursued under the False Claims Act, which appears at 31 U.S.C. § 3729. The False Claims Act (or “FCA”) allows for treble damages for qualifying losses incurred by the federal government. In the context of a PPP loan, this would mean that the borrower or business could be liable for three times the damages the Government sustains, plus applicable civil penalties. This is, again, not the same as a loan repayment dispute; the treble-damage provision exists to deter fraud against the federal government. In addition to this, it is also possible for a defendant in a PPP-related civil inquiry to be liable for separate civil monetary penalties under the FCA.

Several different types of federal charges are commonly pursued in cases involving fraud on the PPP. The following are some examples:

• Bank Fraud under 18 U.S.C. § 1344. This criminal statute carries a stated maximum sentence of up to 30 years.
• Wire Fraud under 18 U.S.C. § 1343. This criminal statute generally carries a maximum sentence of up to 20 years.

Both of these federal crimes generally require proof of a “scheme or artifice” and proof of intent to defraud. Both of these crimes also generally require that the alleged fraudulent activity occurred “in connection with” the bank or federal wire system, as the case may be.

If you have recently received a subpoena, target letter, or search warrant, these are the types of allegations that need to be addressed. If you are facing civil liability under the False Claims Act, these are the types of potential recoveries that need to be negotiated. At Spodek Law Group, we represent Tennessee businessmen and businesswomen in matters involving alleged PPP loan fraud, and we craft custom-tailored defense strategies.

How Do Tennessee Venue, Federal Deadlines, and Guideline Loss Affect a PPP Case?

When facing federal criminal prosecution for PPP loan fraud, Tennessee business owners have to pay attention to several factors as they consider the steps to take next. PPP-fraud prosecutions are governed by the Federal Rules of Criminal Procedure and other applicable procedural protections. From a criminal defense perspective, this is a very unusual situation, and business owners need to deal with it. When facing federal charges, it is possible for guilty pleas and other potential case outcomes to become available. However, these options remain available after a case moves into federal court, subject to the Federal Rules of Criminal Procedure. and there are various factors (including the federal rules of procedure) that place strict limits on timelines for these outcomes.

For example, the amount of time that passes before the government chooses to file charges can affect a business owner’s ability to negotiate his or her case as well. In addition to this, the Tennessee venue (Eastern District of Tennessee, Middle District of Tennessee, and Western District of Tennessee) and the judge assigned to the case may also influence the outcome.

Federal Sentencing Guidelines

When sentencing under the federal sentencing guidelines, several factors will play a role as well. These factors include: - Loss amount

• Criminal history
• Acceptance of responsibility At the base level, fraud charges under the federal sentencing guidelines can carry an offense level six or seven, depending on the circumstances. With this in mind, if you are facing charges for defrauding the federal government, there is a strong chance that your sentence will depend largely on your prior criminal history and the amount that the government alleges you have stolen from the PPP.

For example, if the government alleges that you have stolen between $250,000 and $550,000 from the PPP, then twelve levels are added to your sentencing level calculation under the applicable Guidelines loss table. At offense level 19 and Criminal History Category I, the federal sentencing-guidelines range is 30 to 37 months before any acceptance-of-responsibility reduction. However, if you take responsibility for your actions and plead guilty to the charges, then you may receive up to a three-level reduction under the federal sentencing guidelines, subject to the requirements of § 3E1.1.

Speak With Counsel Before You Answer Anything

If agents have contacted you, the order matters: counsel first, answers second. Spodek Law Group has been practicing since 1976 and defends federal matters nationwide, coast to coast, from offices in New York, Brooklyn, Queens and Los Angeles. Call 888 348 8028.