Will PPP Fraud Cases Continue After 2030??

PPP-related fraud offenses (Many offenses, including conspiracy to execute a scheme or artifice to defraud and making false statements related to PPP loans)

• Limitation period (Five or ten years, depending on the offense and whether a financial institution is affected)
• PPP funding period and loan dates (The PPP ended on May 31, 2021, and Second Draw PPP loans were available only during the PPP’s 2021 funding period.)
• The 2030 date (A common misconception is a 2030 deadline, but offense-specific limitations apply)
• Loan-disbursement dates (Loan dates are important but not sufficient to determine all deadlines)
• Determination of exposure (Limitation period calculation is required for accurate assessment)
• Consequences of PPP-related fraud charges (Substantial prison time, fines, and restitution)
• Loan repayment and loan forgiveness disputes (Repayment and disputes over forgiveness do not exempt or insulate from criminal prosecution)
• Federal criminal defense strategies (Avoidance of PPP-related criminal charges and prosecution)
• PPP fraud investigations and charges (Increasing awareness and scrutiny of PPP-related financial transactions in federal criminal cases)
• PPP criminal statutes (18 U.S.C. §§ 1343, 1346, 1349, 1001, 1014)
• Avoiding PPP-related charges as a strategy (Avoiding charges should be a priority due to the potential impact on criminal outcomes)
• Federal prosecutors’ awareness (Prosecutorial awareness and pursuit of PPP-related charges as part of broader criminal cases)
• Legal representation
• Government’s efforts to combat PPP fraud (DOJ’s focus on pursuing fraudulent loan applicants and misuse of funds)
• PPP fraud cases are common (PPP fraud has been a significant focal point in recent years)
• Criminal fines and prison time (Serious consequences for PPP-related fraud convictions)
• Restitution (Requirement to repay the amount of PPP loan funds obtained through fraudulent means)
• Potential for PPP fraud charges in other criminal matters (PPP fraud charges can appear in unrelated federal criminal investigations)
• Need for focused federal defense representation (Need for a lawyer who understands the full scope of PPP fraud and potential issues)

Which PPP conduct creates distinct fraud theories?

The U.S. government’s ongoing scrutiny and enforcement efforts are primarily focused on two areas: (i) misuse of PPP loan proceeds and, (ii) application or forgiveness fraud (or both). Each of these conduct scenarios presents substantial opportunities for federal prosecutors to seek criminal charges in various PPP fraud cases.

Misuse of PPP Loan Proceeds

Generally, PPP loan proceeds were to be used for payroll and other specified business expenses. Thus, using PPP proceeds for ineligible expenses will frequently trigger investigative scrutiny, and using the funds to commit unrelated crimes can certainly give the government the ability to pursue separate charges in addition to PPP-related fraud. Examples of misuse include:

• Personal spending (vacations, luxury automobiles)
• Luxury purchases
• Unsupported transfers to individuals or other businesses
• Transfers to or from offshore bank accounts

Application Fraud

PPP applications often involve numerous representations and certifications. Fraudulent representations in an application can constitute application fraud. Such allegations often involve business payroll and employee counts, annual revenue, business eligibility, or business existence. Additionally, fraudulently alleging that the PPP proceeds were needed in order to avoid “covered payroll” cuts that would lead to layoffs, business closure, or permanent reduction of payroll is another basis for an allegation of PPP loan application fraud.

Forgiveness Fraud

The PPP program’s loan forgiveness process also provides an opportunity for alleging fraud. In addition to eligibility criteria, the loan forgiveness process involves multiple certifications and support documents, and making inaccurate or fraudulent representations in connection with these certifications can constitute forgiveness fraud. These include falsifying certifications that the business used the PPP proceeds as required.

Application Fraud and Forgiveness Fraud

The primary difference between application fraud and forgiveness fraud is when and why the fraudulent representations were made. Application fraud generally involves the business’s eligibility to apply for the PPP loan and makes representations to obtain funds under the loan program. Forgiveness fraud generally involves the business’s certification of use of loan proceeds as required in order to make the loan forgiveable and eliminate the obligation to repay.

What changes when a PPP borrower cannot repay or seeks forgiveness?

Whether or not a PPP borrower is able to (or chooses to) repay their PPP loan, or if they are able to (or choose to) seek forgiveness of their loan, depends on various factors. If seeking forgiveness is out of the question, the same is true with regards to repaying the PPP loan. The focus of the government’s investigation can vary depending on whether seeking forgiveness or repayment is feasible for the borrower, and in PPP fraud cases, the ability to (or decision to) repay the loan can present various complications.

PPP Loan Forgiveness

PPP loan forgiveness involves meeting specific program requirements. Contrary to some beliefs, PPP loan forgiveness is not automatic, and simply receiving a loan below $50,000 (e.g., a $20,000 PPP loan) does not entitle a borrower to automatic forgiveness. As we discuss in more detail in a subsequent section of this article, making inaccurate certifications and certifications regarding ineligible loan expenditures are common themes in allegations of PPP loan forgiveness fraud.

However, if a borrower cannot meet the requirements for PPP loan forgiveness, they must repay any portion of the PPP loan that is not eligible for forgiveness in accordance with the loan agreement.

When seeking forgiveness is not a viable option (because the borrower does not meet the program requirements), this does not mean the borrower is entitled to automatic forgiveness. Again, the only exception is when the borrower does not have any remaining PPP loan amount owed.

Voluntary and Involuntary Repayments

Repaying the PPP loan is a separate consideration from pursuing forgiveness. Voluntary repayments can and should be handled by the borrower’s counsel, and repayment decisions can be made based on various factors including, the borrower’s ability to repay the loan or loan amount. Restitution or forfeiture can also be required in federal criminal proceedings for PPP fraud, including by plea agreement or sentencing order. When repayment is voluntary, it can affect federal prosecutors’ decisions; however, this is a nuanced issue that requires a focused approach to discussing the repayment with federal prosecutors or any other relevant federal agents.

Voluntary repayment does not necessarily preclude prosecution if there are also issues regarding false statements in a loan application; and in many cases, federal prosecutors will view repayment as a positive sign that the borrower may not have intended to commit a crime, rather than seeing it as an effort to make the government’s recoupment efforts moot.

How do federal agencies prove knowledge before bringing a PPP charge?

The federal government has been aggressive in prosecuting cases involving the alleged misuse of PPP loan funds. The SBA’s Office of Inspector General (OIG) has conducted audits and issued evaluations concerning PPP loan eligibility and forgiveness. As stated, while the OIG itself will not prosecute, the DOJ Fraud Section, various U.S. Attorneys’ Offices, and federal prosecutors, such as the U.S. Attorney’s Office for the Northern District of Illinois, are actively prosecuting pandemic-related fraud cases. Along with the federal prosecutors, agencies such as the FBI, IRS Criminal Investigations, and SBA’s OIG are conducting investigations to prove the underlying allegations in PPP fraud cases. When establishing these allegations, federal investigators have various tools at their disposal, including tracing PPP funds and conducting thorough financial reviews.

• In cases involving allegations of falsified loan applications, federal investigators compare PPP application data with records from the IRS, Social Security Administration, financial institutions, licensing boards, and state and local agencies.
• In cases involving allegations of loan misuse, federal investigators may compare information from payroll records or certifications submitted by the PPP borrower in order to demonstrate a violation of PPP-specific requirements and to substantiate allegations of a PPP-related criminal charge.
• To substantiate allegations of PPP fraud involving allegations of making inaccurate representations to obtain loans, federal investigators will trace PPP funds from the time of receipt. These investigators use records from banks, brokerage accounts, financial transaction networks, and electronic statements to review the PPP borrower’s financial transactions and to compare them against the representations made in their loan application.
• In order to prove allegations of using PPP funds for personal purposes or prohibited expenditures, federal investigators have additional tools at their disposal to prove these allegations. These includereviewing the target’s social media accounts, tracing electronic payments, comparing PPP expenditures against business expenses, and conducting interviews with other individuals associated with the business.

As a result of conducting their investigations, the federal government can initiate criminal charges in PPP fraud cases in various ways. These include:

• The issuance of a target letter
• A request from an agent to “come in and talk”
• Subpoena issued to the target
• Grand jury subpoena requesting documents or testimony
• Charges filed against a target who is not aware of the investigation

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 888 348 8028.