What to Expect During a Federal PPP Fraud Investigation.

Who Is Involved?

Various federal entities are involved in PPP fraud investigations, as are individuals and private organizations. The FBI, DOJ, IRS, SBA, and SBA-OIG can be involved in all aspects of the process; and, federal law enforcement agents, federal investigators, prosecutors, and civil attorneys within these agencies can play a role. Private organizations can also be involved in PPP fraud investigations, as government agencies can issue subpoenas (such as Grand Jury Subpoenas and Civil Investigative Demands) to private organizations that hold records, such as banks and lending institutions, that could be used to build a case against a borrower who is suspected of fraudulently obtaining PPP loan funds or loan forgiveness.

What Is the Evidence That Investigators Collect?

Federal investigators can collect various forms of evidence from multiple sources when investigating a PPP loan recipient for fraud.

• Loan Applications: Investigators review records for misrepresentations, fraud, or other grounds for rejecting a loan application.
• Bank and Lending Records: Investigators search for discrepancies between bank deposits and reported loan use, and they examine lenders’ records to find signs of fraud or misrepresentation.
• Other Records and Data Sources: Investigators search other records and data sources for signs of fraudulent spending, fraudulent loan forgiveness applications, or other evidence of fraud.

What Does it Mean to Decide to Press Charges in a PPP Fraud Case?

When federal agencies decide to move forward with a PPP fraud case, it typically means they believe they have sufficient evidence to convince a judge and jury of the recipient’s guilt beyond a reasonable doubt. However, investigations are resolved before prosecutors file formal criminal charges in most cases. In civil cases, the Department of Justice (DOJ) has a lower burden of proof, and the decision to proceed with a civil enforcement action is typically based on the government’s belief that the recipient’s PPP loan usage was improper or fraudulent, though not necessarily intentional.

When and How Will Investigators Contact Me?

Investigators can contact subjects at their homes or businesses, and they can contact subjects’ banks, employers, accountants, and other financial institutions. Investigators do not necessarily notify subjects when they are initiating an investigation, and they do not always notify subjects when they issue subpoenas and warrants to third parties.

Does Improper Use of PPP Loan Funds Automatically Count as PPP Fraud?

Improper use of PPP loan funds does not automatically establish PPP fraud. Determining fraud requires proving that the recipient knowingly and intentionally misapplied loan funds to improper uses.

Which PPP Loan Records Can Help Distinguish Fraud from an Innocent Mistake?

How can I show the government my use of PPP funds complied with the program’s rules and regulations?

In most cases, the best way to show that you complied with the program’s rules and regulations is to provide the government with access to your internal business records. Payroll records, tax returns, receipts, and account statements can all help substantiate a claim of compliance and show how you calculated the amount you received, and how you spent it.

Why is the government accusing my business of inflating its payroll figures?

Inflating payroll figures is a recurring allegation in PPP fraud cases. If the government is accusing your business of inflating your payroll figures to inflate the amount of the loan you received, you can use payroll records to prove that your payroll numbers were accurate as of the time you applied for the program.

Why is the government accusing my company of paying “ghost employees” or people who do not work for my business?

Similar to allegations of inflated payroll figures, allegations of paying “ghost employees” are common in both criminal and civil PPP fraud investigations. If the government thinks that you reported fictitious employees or paid individuals who did not actually work for your business, you may be able to disprove the government’s allegations by providing proper tax filings, benefit records, and other documentation.

If you have a pending PPP fraud investigation, our attorneys are available to help you defend your business today. We represent businesses nationwide in criminal and civil PPP fraud investigations, and we are available to assist you no matter where your business or you are located.

Why is the government accusing my business of “loan stacking”?

“Loan stacking” occurs when the owner of a single business applies for a PPP loan through multiple lenders. If the government thinks your business may have engaged in loan stacking, you may be able to defend against the allegation by showing that you did not understand how to apply for a PPP loan and thought you were applying for different loans from different lenders.

Why is the government saying my business applied for a PPP loan under multiple different business names, EINs, and company identities?

This is another form of “loan stacking.” In this scenario, the government believes the loan recipient knowingly applied for multiple loans under a set of different company names, EINs, and identities, or mistakenly believed they would qualify for multiple loans.

If your business is being investigated for “loan stacking” or any other form of PPP fraud, contact our experienced federal law firm today.

Why does using PPP funds for personal expenditures constitute fraud?

Spending PPP funds for personal expenditures is generally considered outside of what was permitted under the program. If you are under investigation for personal spending of PPP loan funds, we can discuss the possible defenses and mitigation strategies available to you.

How did a PPP loan forgiveness application lead to an investigation of fraud?

Forgiveness applications can bring about PPP fraud investigations and allegations on several levels. In many cases, banks and lending institutions do not carefully review applicants’ documentation when awarding PPP loans. However, if a recipient makes inaccurate certifications on a PPP loan forgiveness application, this can be enough to trigger an investigation.

Spodek Law Group is transparent about its fees, and says so before a client signs anything.

When can a PPP Allegation lead to a Criminal or Civil case?

PPP fraud is not itself a specific federal criminal charge, but it is the label applied to investigations targeting loan recipients’ use of funds and loan forgiveness applications. When an investigation leads to criminal charges, it can fall into one of several categories. Examples of possible charges include wire fraud, bank fraud, false statements to a federal agency or a federally insured bank, and illegal acts that violate the PPP Program.

When can a PPP Allegation Lead to a Civil Action?

Criminal investigations can, and often do, lead to civil enforcement actions under the False Claims Act, 31 U.S.C. §§ 3729-3733. Under the False Claims Act, a treble damage award can be pursued in cases of “knowing, or willfully-blind” fraud, and additional civil penalties can apply in addition to treble damages. Some PPP fraud cases are prosecuted as civil cases alone. In these cases, the government typically targets the recipient’s use of loan funds, loan forgiveness certifications, or other apparent false statements. For example, recent cases brought under the False Claims Act have targeted companies that claimed that no other funding options were available to support their operations.

When can a Criminal or Civil Case be Avoided?

Federal prosecutors and civil attorneys may be willing to negotiate a resolution. If negotiations are successful, the recipient can avoid an indictment, trial, or the imposition of civil or criminal penalties. This means that it is crucial for recipients to be involved in the investigative process from the beginning. When able to make informed and timely procedural decisions, recipients are much more likely to obtain favorable outcomes for their companies.

What is the Procedure in a Criminal PPP Fraud Case?

If a criminal case is not resolved before an indictment, the typical procedural sequence is as follows:

• Investigation
• Indictment
• Arrest/Summons
• Discovery
• Plea Offer (Negotiation)
• Trial
• Sentencing
• Appeal

What do PPP Fraud Penalties Actually Tell You About Your Potential Exposure?

Which PPP Fraud Charges Can Result in a Prison Sentence?

Several PPP fraud charges can lead to a prison sentence. In a criminal case, the government may target a business’s use of PPP loan funds, loan forgiveness application certifications, or other apparent false representations. For example, prosecutors may pursue charges of:

• Wire Fraud Under 18 U.S.C. § 1343 (30-Year Maximum)
• Bank Fraud Under 18 U.S.C. § 1344 (30-Year Maximum)
• False Statements Under 18 U.S.C. § 1001 (5-Year Maximum)

In these cases, the government will typically call in a jury of your peers to determine whether the evidence it presents is sufficient to convict you for intentional PPP fraud beyond a reasonable doubt.

Are Financial Penalties Also Possible in a PPP Fraud Case?

The U.S. Department of Justice Website Notes that “Benlevi was convicted of bank fraud, false statements to a financial institution, and money laundering. He is scheduled to be sentenced on June 27 and faces up to 30 years in prison for each of the bank fraud and false statement charges, and up to 10 years in prison for each count of money laundering.”

In criminal cases involving allegations of intentional PPP fraud, criminal charges may be coupled with restitution, forfeiture, and monetary fines. Civil charges generally are not pursued in the same cases.

How Can PPP Fraud Allegations be Resolved?

Whether you are facing a PPP fraud investigation, an indictment for criminal charges, or a civil case involving allegations of fraudulent receipt or use of PPP loan funds, there is no reason you can’t reach out to the legal representation you need. At Spodek Law Group, we represent clients in federal criminal and civil cases nationwide. We can explain what you need to know and help you make informed and timely procedural decisions.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 888 348 8028 to speak with our team.