What Is the Penalty for Lying on a PPP Loan Application??

Could a False PPP Loan Application lead to charges if no funds were received?

• PPP fraud is not a separate criminal offense.
• Criminal charges for false PPP loan applications come from other laws.
• Consequences can be severe, with potential prison sentences of up to 30, 20, and 5 years.
• The penalties depend on the specific law cited and the evidence against the defendant.

II. Article:

Could a False PPP Loan Application lead to charges if no funds were received?

The CARES Act created the Paycheck Protection Program (PPP), but it did not create a separate federal criminal offense known as “PPP fraud.” Instead, federal prosecutors use existing federal fraud laws to charge PPP-related conduct. This means that a false PPP loan application can lead to criminal charges under various statutes, regardless of whether funds were received. Bank fraud, wire fraud, and conspiracy to defraud the United States are among the primary laws prosecutors use to pursue criminal penalties in PPP cases. Depending on the statute cited, the penalties can be significant:

3. Bank Fraud

Under 18 U.S.C. Section 1344, bank fraud carries a potential prison sentence of up to thirty years, along with substantial fines. This statute covers fraudulent attempts to obtain money or property owned by, or under the custody of, a financial institution, and PPP loans fit this definition because they were processed by banks.

4. Wire Fraud

Under 18 U.S.C. Section 1343, wire fraud generally carries a potential prison sentence of up to twenty years, but the maximum is up to thirty years if the violation affects a financial institution or involves a benefit connected to a presidentially declared major disaster or emergency, as well as substantial fines. This is another common charge in PPP cases because loan applications were typically submitted online, and the U.S. Supreme Court has interpreted the definition of “wire” in this statute very broadly.

5. False Statements and Other Statutes

Section 1001(a) of Title 18 to the United States Code also carries a potential prison sentence of up to five years. While this statute contains various carve-outs, it has often been cited in PPP-related criminal investigations. Prosecutors may also cite statutes addressing criminal contempt, identity theft, and others, depending on the circumstances involved.

The potential consequences of a false PPP loan application are severe, but the penalties imposed in each case will depend on various factors. With these penalties on the table, prosecutors in the U.S. Department of Justice have the ability to pursue a variety of potential penalties, and the specific penalties imposed in a particular case will depend on the law(s) cited, the defendant’s intent, the evidence presented at trial, the amount of money lost, and other factors.

Which PPP Loan Conduct and Evidence Support Charges?

The crimes of bank fraud, wire fraud, and false loan applications all have statutory definitions. Here are some examples of how they apply in the context of PPP loans:

1. Bank Fraud

Under Section 1344, criminal charges of bank fraud can be brought based on evidence of “knowingly executing or attempting to execute a scheme or artifice, (i) to defraud a financial institution, or (ii) to obtain any of the money, 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.” PPP loan applicants generally must work with a bank, and false PPP loan applications are processed at banks, so bank fraud charges are commonly brought in PPP fraud investigations.

2. Wire Fraud

Under Section 1343, there are two elements to a criminal charge of wire fraud: (i) evidence of a “any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises,” and (ii) evidence that the means or instrumentalities of “interstate wire communications” are used “for the purpose of executing such scheme or artifice” Because these loans were applied for and processed online almost exclusively, establishing the “interstate wire” element will present few, if any, difficulties for prosecutors in virtually all PPP cases.

3. False Statements on Loan Applications

Under Section 1014, the following constitutes a criminal offense: Whoever knowingly makes any false statement or report for the purpose of influencing in any way the action of the Small Business Administration in connection with any provision of the Small Business Act shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both. Because the Small Business Administration (SBA) administered and guaranteed the Paycheck Protection Program while participating lenders approved and issued PPP loans, providing false information to a PPP loan servicer can, and does, lead to charges for criminal violations of Section 1014.

4. False Statements to Federal Agents

Section 1001(a) also criminalizes making material false statements to the U.S. Department of Justice, the Internal Revenue Service, the Small Business Administration, and other federal agencies. Unlike Section 1014, which applies to material falsehoods on loan applications and documents, Section 1001 targets material falsehoods in matters within the jurisdiction of the federal government.

5. Common Forms of Fraud and Evidence Used

In many PPP fraud investigations, bank and government officials look for signs of fraud in several areas. Two of the most common examples are false employee counts and payroll figures, which can falsely increase the amount requested by the loan applicant. But other common examples of fraudulent statements in loan applications that are often used to trigger criminal investigations and prosecutions include:

• Lying about the existence of an office or business location
• Lying about having employees and payroll records
• Lying about business licenses and registration documentation
• Lying about tax records
• Lying about the status of a for-profit business

Todd Spodek defended Anna Sorokin, the case Netflix later dramatised as Inventing Anna.

How do Sentencing Factors Turn an Intended PPP Loss into Prison or a Noncustodial Sentence?

Federal judges consider several factors when imposing prison time, and the amount of time will vary from one case to the next depending on the charges, the losses involved, the role the defendant played, and the defendant’s history. In general, federal sentencing follows a formula that takes into account the statute, the amount at issue, the defendant’s role, their history, and various other “sentencing factors.”

1. Section 2B1.1 of the Federal Sentencing Guidelines

This brings us to Section 2B1.1 of the federal fraud sentencing guidelines. If a federal judge or prosecutor applies these guidelines to a case, the calculations begin with the base offense level, which is seven for this type of case. Then, the guidelines call for an increase based on the amount of money sought in a scheme or artifice to obtain money or property by false means. If the fraud involves more than $6,500 to $15,000, the offense level is increased by two levels; and if the fraud involves more than $15,000 to $40,000, the offense level is increased by four levels.

2. Intended Loss vs. Actual Loss

As noted above, federal fraud sentencing generally takes into account the intended loss, not just the amount of money received. Under Section 2B1.1, the amount involved is the ““Actual loss” means the reasonably foreseeable pecuniary harm that resulted from the offense. “Intended loss” means the pecuniary harm that the defendant purposely sought to inflict.” and the Application Notes state that, “Loss is the greater of actual loss or intended loss.” This means that, if the court finds an intended loss of $500,000, a loan applicant who receives $500,000 and a loan applicant whose application is denied may receive the same loss-based enhancement.

3. Organizer and Leader Role

Defendants who play an organizer or leader role in a conspiracy to obtain multiple PPP loans in furtherance of the scheme can face additional penalties as well. If a defendant’s role was an organizer or leader of a criminal activity involving five or more participants or otherwise extensive, then the guideline offense level can be increased by four levels.

4. Acceptance of Responsibility

However, defendants who voluntarily assist federal authorities can offset these factors. For example, under Section 3E1.1, defendants can get a reduction of two levels in their guideline offense level if they accept responsibility.

In addition to sentencing factors that are taken into consideration under the federal sentencing guidelines, federal judges also take into account each defendant’s criminal record (if any), provide substantial assistance to law enforcement agencies, and other relevant factors.

When Can Later PPP Conduct and Evidence Create Additional Criminal Exposure?

While a false PPP loan application can lead to criminal charges, other types of conduct can lead to additional criminal exposure in PPP fraud cases. Some examples include:

1. Aggravated Identity Theft

The use of another person’s means of identification, without lawful authority, during and in relation to certain predicate felonies can lead to charges for aggravated identity theft under 18 U.S.C. Section 1028A. The penalty under this statute is two years of imprisonment, and these two years must be imposed consecutively (not concurrently) to the prison time imposed for the underlying fraud.

2. Money Laundering

The use of funds from a PPP loan can lead to charges for money laundering under 18 U.S.C. Section 1956 and Section 1957. While a charge under Section 1957 carries a maximum penalty of 10 years of imprisonment, a charge under Section 1956 carries a maximum penalty of 20 years.

3. “Loan Stacking”

In many federal PPP fraud investigations, federal prosecutors seek to bring multiple counts against defendants who submitted applications to multiple lenders. While prosecutors refer to this conduct as “loan stacking,” it may constitute a criminal conspiracy when the elements are met.

4. Unauthorized Use of Loan Proceeds

While the majority of PPP fraud investigations are targeted toward business owners that are accused of lying on their PPP loan applications or certifications for loan forgiveness, these investigations also target candidates who allegedly diverted loan proceeds into personal spending such as luxury vehicles, vacations, home improvements, and jewelry.

5. Fraudulent Certification for Loan Forgiveness

The Paycheck Protection Program also provides for forgiveness of loans that are used for eligible costs. This can, and did, provide a second opportunity for both fraud and criminal exposure for many business owners. Applicants that sought loan repayment waivers by falsely certifying how they spent the proceeds they received from their lenders can face criminal charges for the underlying fraud scheme, as well as separate charges under the statutes that were applicable to their specific certification fraud.

Why Can Forgiven PPP Claims Still Trigger Liability Under the False Claims Act?

The U.S. Government has several options for pursuing civil liability in PPP cases, and the False Claims Act provides an additional means of federal enforcement under the government’s broad antifraud provisions. PPP recipients and non-recipients can face liability under the False Claims Act, and this liability can lead to additional monetary consequences regardless of whether or not a recipient’s claim was denied, a recipient’s loan was forgiven, or whether the individual or entity has a prior criminal conviction.

1. Treble Damages for Fraud in Federal Program Claims

The False Claims Act provides for treble damages in cases involving allegations of a “claim for payment” to any federal agency, including the Small Business Administration. This includes fraudulent claims for PPP loan forgivness. Under the False Claims Act, government contractors and loan recipients can face monetary liability in cases involving a fraud-related violation of federal benefits, with defendants facing the risk of paying up to three times the amount that the government lost.

2. No Requirement for Criminal Prosecution or Prior Criminal Conviction

Unlike criminal cases, which require prosecutors to provide evidence proving the defendant’s guilt beyond a reasonable doubt in order to convict and impose a sentence of imprisonment, False Claims Act cases are handled as civil enforcement matters. As a result, the False Claims Act permits civil liability in cases without a requirement for the underlying fraud to have led to a criminal conviction.

3. Preponderance-of-Evidence Standard

With a preponderance-of-evidence standard of proof that makes it significantly easier for the government to establish liability in False Claims Act cases, many loan applicants’ concerns regarding loan forgiveness and denial are entirely misguided. For defendants facing civil fraud allegations, it is imperative to know what types of defenses may be available to avoid monetary liability.

4. Whistleblowers and Qui Tam Actions

The False Claims Act contains unique mechanisms allowing private individuals and entities to bring fraud allegations to the government and directly file lawsuits on behalf of the United States. While “qui tam” lawsuits are most commonly filed by government contractors, whistleblower lawsuits alleging fraud in federal benefit programs are also common.

5. Qui Tam Recovery Percentage

Successful qui tam whistleblowers may also be entitled to a recovery percentage, which can create incentives to come forward with allegedly fraudulent claims made under the federal government’s benefit programs.

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.