Virginia PPP Loan Fraud Lawyers.

When the U.S. Attorney’s Office for the District of Columbia opens an investigation into an alleged PPP fraud violation, the specific type of alleged fraud can depend on the circumstances involved. The broad category of “Paycheck Protection Program fraud” includes a wide range of potential offenses, with allegations that can arise in each phase of obtaining a PPP loan. Common categories of allegations handled by Virginia PPP loan fraud defense lawyers include:

1. The PPP Application

A large portion of federal PPP fraud investigations focus on the initial loan application process. The Justice Department investigates and prosecutes various fraud schemes, and federal authorities may also launch inquiries under different federal programs and statutes. The PPP is no exception, with a high prevalence of payroll-inflating, employee-inventing, and other deceptive practices.

2. The PPP Forgiveness Application

Even if a PPP loan recipient initially qualifies for a forgivable loan, the submission of the PPP loan forgiveness application or the making of representations during the repayment and forgiveness process can create new, additional grounds for investigation.

3. Other PPP-Related Fraud Allegations

Other forms of PPP fraud include ineligible business owners that receive forgivable loans under the Paycheck Protection Program and recipients that utilize their forgivable loan funds for non-qualifying purposes.

4. Business Interest Disclosures

Recipients must also disclose their sources of forgiveness funds. Improperly using PPP forgiveness funds can trigger additional scrutiny in some cases as well.

These are examples of the grounds upon which a federal PPP fraud investigation can be initiated. Importantly, however, an honest mistake alone will not by itself establish the knowledge or intent elements of a federal fraud offense. Similarly, a PPP loan that has already been forgiven by the federal government will not insulate the loan recipient from the possibility of further government scrutiny.

How Should a Virginia Business Respond When Federal PPP Investigators Make Contact?

There are several factors that can potentially provide a substantial defense for Virginia PPP loan fraud allegations. Among other arguments, good-faith reliance on accountants or attorneys, or a good-faith misunderstanding of guidance issued by federal authorities regarding loan eligibility or repayment and forgiveness, can support a federal PPP fraud defense against allegations of “knowingly” defrauding the government.

Which Federal Agencies Investigate Alleged Violations of the Paycheck Protection Program (PPP)?

The FBI, U.S. Small Business Administration Office of Inspector General (SBA OIG), Internal Revenue Service Criminal Investigation (IRS CI), and U.S. Department of Justice (DOJ) all play a role in investigating alleged PPP fraud. These allegations can stem from initial loan application inquiries, repayment and forgiveness applications, and other alleged violations. An honest mistake alone does not by itself establish the knowledge or intent elements required for a federal fraud offense.

How Do I Know if My Virginia Business is Being Investigated for PPP Loan Fraud?

If you or your Virginia business is under investigation for PPP fraud, you likely know it. You will have received a federal grand jury subpoena, FBI search warrant, or target letter, and your business’s records are now in the hands of the SBA’s Office of Inspector General (SBA OIG). Some individuals and businesses may still be in the dark, but will soon learn about their situation.

What Should I Do Once I Am Informed that the Department of Justice Is Investigating Me or My Virginia Business for PPP Loan Fraud?

Once individuals and businesses reasonably anticipate that an investigation is on the horizon, they must promptly work with their legal counsel to make informed decisions. This is especially true regarding the preservation of records. Deleting, destroying, or altering records relevant to a federal PPP fraud inquiry can create separate concerns.

Which PPP Eligibility, Calculation, Spending, and Forgiveness Issues Must Be Separated?

To obtain full PPP loan forgiveness, applicants generally must use at least 60 percent of their loan proceeds on payroll costs, including employee wages, benefits, and payroll taxes. Additional expenses may also be reimbursable for purposes of forgiveness, including rent, mortgage interest, and utilities. However, the analysis of whether loan proceeds spent on these items qualify for reimbursement can be highly complex, especially when it comes to determining whether specific expenditures qualify as “necessary” to maintain business operations.

PPP loan eligibility also can present significant challenges, particularly for closely held businesses and those with interconnected structures. In many cases, an applicant’s eligibility will depend on whether any of its owners has an ownership interest in an affiliated business. The SBA’s affiliation analysis (13 CFR 121.301) includes a wide range of potential scenarios based on common ownership, joint control, and other corporate relationships between the applicant’s business and its affiliates.

Along with employee counts, businesses have the possibility of qualifying under an alternative SBA size standard if they did not qualify based on employee counts alone. For PPP-era eligibility, this alternative size standard used the applicant’s maximum tangible net worth and average net income after federal income taxes, excluding carry-over losses, for the two full fiscal years preceding the application, with thresholds of no more than $15 million in tangible net worth and $5 million in average net income. With these financial-based thresholds, accurately calculating a business’s eligibility depends on closely examining the relevant entity’s tax returns, and the tax returns of all affiliated businesses as well.

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What Must Prosecutors Prove in Virginia PPP Charges, and How is Punishment Calculated?

For individuals and business owners facing allegations of PPP fraud, two aspects of an investigation can be especially stressful. As a first step, you need to determine the potential penalties for being convicted of fraud, and then, with an experienced federal PPP fraud defense attorney, build an effective defense based on these allegations. While a legal team is developing your defense, you also have the opportunity to make decisions about the potential consequences of your situation.

How Are Penalties for PPP Fraud Determined?

Penalties for PPP fraud depend on the statutes that the prosecution is attempting to prove. However, all of the following are commonly used as a means of addressing suspected instances of Paycheck Protection Program fraud:

18 U.S.C. § 1344, This federal statute prohibits anyone from knowingly executing a “scheme or artifice” intended to defraud a “financial institution” or “to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;” While a PPP loan recipient may argue they do not own a “financial institution,” they are likely deemed to have tried to “obtain … funds … under the custody or control of” one under Section 1344. This provision can carry up to thirty years imprisonment, and a million-dollar fine (or fine equal to twice the value of the funds illegally taken).

18 U.S.C. § 1343, This statute covers schemes involving wire fraud and similarly targets individuals who “knowingly or with intent to defraud, execute… any scheme or artifice, to obtain… by means of false or fraudulent pretenses… any property... By means of wire communication in interstate or foreign commerce.” 18 U.S.C. § 1343 carries a sentence of up to twenty years of imprisonment.

18 U.S.C. § 1014, This statute targets “Whoever knowingly makes any false statement or report... for the purpose of influencing in any way the action of... an institution the accounts of which are insured by the Federal Deposit Insurance Corporation... upon any... loan...” that includes knowingly and falsely making statements to a financial institution including the Small Business Administration in connection with the Small Business Act or an institution whose accounts are insured by the Federal Deposit Insurance Corporation. Under Section 1014, the penalty for a conviction can be up to 30 years’ imprisonment and a fine of up to $1 million, or both.

18 U.S.C. § 1001, When federal agents attempt to interview an individual suspected of fraud, the agent has no motive to listen to the individual’s “side of the story.” If an individual knowingly and willfully makes a materially false, fictitious, or fraudulent statement in a matter within the jurisdiction of the federal government, Section 1001 may apply even if the underlying fraud allegations are not provable.

Where Can Virginia PPP Matters Proceed, and How Do Parallel Tracks Change the Case?

All PPP loans were administered by the SBA in close partnership with commercial lenders. This means that while commercial lenders (such as banks and other credit unions) processed the applications and disbursement of PPP funds, loan recipients were essentially dealing with the SBA. This dual-layered involvement increases the risk for any recipient as federal agencies may try to hold them accountable for any alleged errors or misconduct.

For example, under the False Claims Act, “the party who knowingly presents… a false or fraudulent claim for payment or approval” is liable “is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990..., plus 3 times the amount of damages which the Government sustains because of the act of that person.” This is civil liability, including a civil penalty and treble damages. However, the False Claims Act also establishes civil liability for false or fraudulent claims.

This duality gives federal authorities at the Department of Justice (DOJ) a lot of room to choose their approach. They can investigate a potential civil False Claims Act case (including through a Civil Investigative Demand), or pursue a criminal case. In many cases, the government pursues both, even though the criminal case and the civil case may be over the same behavior and the parties involved. The most important thing is to have experienced legal counsel to help you protect your rights when you face these complex, and often interrelated, legal proceedings.

Where to Go From Here

If any of this describes your situation, the next step is a conversation rather than more reading. Spodek Law Group runs a fully online client portal and represents clients coast to coast, with offices in New York, Brooklyn, Queens and Los Angeles. The number is 888 348 8028.