Federal Investigations for PPP Loan Fraud Are Rising: Are You at Risk?
When the COVID-19 pandemic hit the United States early in 2020, it caused widespread lockdowns. Small businesses were the most severely affected. Fortunately, lawmakers acted quickly. They signed the Paycheck Protection Program (PPP) into law as a part of the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act).
The government reserved $349 billion for small business loans. A month later, they added another $310 billion. The purpose of PPP loans was to keep businesses operating, people employed, and the economy afloat during the pandemic. All companies with less than 500 employees were eligible to apply for them.
With a finance rate of only 1 percent and the possibility of loan forgiveness, many viewed these loans as free money. So, many applicants didn’t understand the loans came with several caveats on how to spend them. Unfortunately, even when a person unknowingly spends a PPP loan improperly, it’s still a crime and not considered a valid excuse in U.S. Law.
PPP loan investigations are rising, and countless business owners are currently under investigation. This article will explore how some business owners unwittingly committed a crime connected to PPP Loans. So, you may want to consider how likely you are to be charged with a crime involving a PPP Loan?
What is PPP loan fraud?
PPP loan fraud can involve several infringements of the law. To begin with, the applicant may falsify information on the application or submit forged documents to qualify for the loan. Or, they might distribute funds inappropriately once the loan is received.
The government imposed strict guidelines on spending PPP Loans to cover payroll and operating costs only. It is a criminal offense to misappropriate the distribution of PPP Loan funds.
The most common charges in connection with PPP Loan Fraud are:
- Wire fraud
- Bank fraud
- Identity theft
- Money laundering.
On May 17, 2021, the Attorney General established the “COVID-19 Fraud Enforcement Task Force.” Their task is to collaborate across government agencies to combat and prevent pandemic-related fraud. To date, they have charged nearly 600 defendants involving over $600 million. The threat of an investigation for PPP Loan Fraud is real and should be taken seriously.
Are you at risk of getting charged for PPP loan fraud?
In July 2021, the Department of Justice announced they charged 22 people with an $11.1 million PPP Loan Fraud scheme. The defendants had falsified information on applications, and purchased luxury vehicles, jewelry, and other personal items.
It’s important to understand that the government rewards banks for reporting suspicious transactions. Banks closely monitor accounts that receive any kind of government funding. For instance, the bank observes a deposit of $1 million and then sees a significant amount debited for purchasing a luxury vehicle, a boat, property, or a transfer to a personal account. They will report these kinds of transactions as suspicious or fraudulent.
Everyone who took money through a PPP loan should be concerned about a government investigation. They need to ask themselves several questions:
- Am I vulnerable?
- What were the rules of the PPP Loan program?
- How did I use the funds?
- Did I use funds in compliance with PPP Loan stipulations?
The more a person knows about the PPP Loan process and why people are prosecuted, the easier it is to take a proactive approach. Sometimes, it may make more sense to pay the loan back preemptively, but it is crucial to seek legal counsel for advice on such matters.
Honesty and preemptive action may help
First of all, it is essential to be open and honest with your legal counsel or anyone helping with the case. When legal counsel is apprised of the facts, chances for a better outcome will substantially increase.
A person facing a criminal charge is likely to focus on what a great citizen they have been. (It’s the denial factor). But to prosecutors, it’s irrelevant because they have committed a crime no matter how good they’ve been. They’re viewed as defendants. Nonetheless, prosecutors are more likely to treat them with leniency if they admit culpability. Then legal counsel will have the leverage to negotiate a pre-indictment plea agreement.
The individual might qualify for deferred prosecution or even a non-prosecution agreement. However, if they wait until after the indictment, the chances or conditions of a plea deal will reduce significantly.
The American justice system’s standard practice is to negotiate plea deals. Often, innocent people plead guilty to a lesser charge that promises a shorter sentence. It’s better than risking a harsher punishment, especially for a white-collar crime, with a jury who may find them guilty.
How will I know if I’m under investigation?
If you are the target of a federal investigation, you may not know until agents knock or break down your door with a warrant for arrest. Investigators work covertly, and it can take months or longer before they notify or apprehend an individual.
A friend, a business associate, or the bank may notify you if agents have approached them.
What is the first thing to do when an investigation is underway?
The first thing to do is admit that you are vulnerable and be honest with yourself and everyone involved.
Next, take the following proactive steps:
- Retain legal counsel.
- Plan a mitigation strategy
- Audit your personal and internal business financial accounts.
- Compile and make copies of application paperwork and supporting documents.
- Write details about the steps taken during the application process.
- Control your narrative.
It is essential to be open and honest with everyone who is retained or helping with the case. Remember, the decisions made at the beginning will determine whether the outcome will be successful in the end.
What kind of attorney to retain
You may go for a large law firm, but large firms can come with a six-figure price tag. Perhaps a family member recommended a friend who’s an attorney. If you go with a friend’s recommendation, be sure you do your homework. Make sure they have federal law experience. Then again, you might qualify for a federal public defender.
Do not undervalue a federal public defender. Typically, they graduated at the top of their class and joined the public defender office to make a difference. They are well versed in federal law and have the added bonus of being FREE! Going with a public defender will help to release funds for other expenses you may need during the process.
Whatever the case may be, you should retain a seasoned federal criminal defense attorney who can navigate through the federal indictment process.
What to expect during a PPP loan fraud investigation
Investigations are conducted in secret. There may be many things happening in the background. The investigation could involve several agencies that report to the prosecutor:
- The Department of Justice (DOJ)
- The Federal Bureau of Investigation (FBI)
- The Internal Revenue Service (IRS)
- The Small Business Administration (SBA)
- The Federal Deposit Insurance Corporation (FDIC)
Every case has a unique set of circumstances, so prosecutors may wait for reports from all the agencies involved before presenting evidence to the Grand Jury.
Keep in mind; the Grand Jury is a body of citizens, typically teachers, nurses, and firefighters. They are people who are likely to have a cynical view of entrepreneurs and business people — those who take enormous sums of money from the government and spend it inappropriately.
Prosecutors will have the grand jury’s undivided attention. They will present evidence with the sole purpose of getting an indictment or criminal charge. It is vital to understand there will be no defense or alternative viewpoint presented to the grand jury. The prosecutor will control the narrative with no rebuttal or excuse for the defense.
You might then receive one of the following:
- A subpoena
- A target letter
- A criminal complaint
Depending on the evidence gathered, a charge or indictment might follow. Alternatively, the prosecutor may contact you to get a pre-indictment plea.
Part of the defense mitigation strategy may be to organize a proffer session with the Attorney General to present the reasons NOT to indict.
Provided a plea deal has been reached, the next steps will be:
- A plea hearing
- Change of plea from not guilty to guilty
- Pre-sentence investigation report
- Preparation for sentencing
- The sentencing
- Preparation for prison
The entire process could take anywhere from a few months to several years. During this time, it’s crucial to live a productive life. It is an opportunity to rebuild your reputation and could help to mitigate your sentence.
Sadly, a prison sentence may be inevitable. Sadly, a prison sentence may be inevitable. So, it would be best to prepare for that. You’ll also need to help your family members prepare as they too will be affected.
In conclusion
Practicing patience is essential throughout the entire investigation. No matter where you are in the legal process, it is never too late to take a proactive approach. It would be best for you to control the narrative and one way to do that is to write down the details of the PPP loan process honestly. Own up to any mistakes or misguided actions. Arm your legal counsel with the truth, so they can effectively negotiate a plea deal. Ultimately, the person under investigation is responsible for holding everyone involved accountable, including you.
