Paycheck Protection Program Loan Fraud | Criminal Dense Lawyers for PPP Fraud Charges in Philadelphia, PA

The Coronavirus Aid, Relief, and Economic Security Act, commonly called the CARES Act, was created by Congress to provide emergency financial assistance to the millions of Americans suffering the economic effects of the COVID-19 pandemic. 

• The Paycheck Protection Program (“PPP”) authorized banks to provide forgivable loans to small businesses for the specific purpose of enabling the businesses to meet payroll expenses and retain employees. If businesses used the loans for certain approved purposes, then the loans could be forgiven in their entirety.

• Under the EIDL program, the Small Business Administration (SBA) provided low interest loans for small businesses to obtain financial relief due to any disruption or harm to their business resulting from the COVID-19 pandemic. The loan proceeds were required to be used on normal operating expenses, such as working capital and payroll.

• The Pandemic Unemployment Assistance (“PUA”) program provided emergency unemployment compensation to workers who were unemployed as a result of the pandemic but who were not eligible for regular unemployment compensation. These payments were often easier to qualify for and for greater amounts than the typical unemployment benefits provided by the Commonwealth of Pennsylvania.

Recently, the federal government has become very aggressive in cracking down on allegations of fraud relating to these three programs. For example, on May 17, 2021, the United States Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts.

The Fraud Section of the Department of Justice leads investigations and prosecutions of fraud, false statements, and money laundering related to the CARES Act passed by Congress in the wake of the COVID-19 pandemic. Working alongside law enforcement partners and U.S. Attorneys’ Offices, the Fraud Section has charged over a hundred defendants with fraud connected to the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). These efforts have helped to protect the integrity of Small Business Administration programs and deter wrongdoing during the COVID-19 pandemic.

More recently, the United States Attorney’s Office for the Eastern District of Pennsylvania announced charges against 19 individual defendants for allegations of fraud relating to these programs. Many others remain under investigation, and others have received grand jury target letters or been summoned to testify before federal grand juries. The most important thing to remember is that if you are under investigation or facing allegations of PPP Fraud, you should speak with an experienced federal criminal defense attorney immediately. We can help protect your rights and provide a strong defense against unfair criminal charges that could have catastrophic consequences for you and your business.

Types of PPP Loan Fraud

Our Philadelphia federal criminal defense attorneys have seen federal prosecutors aggressively bringing criminal charges for a wide variety of conduct relating to the Paycheck Protection Program. Investigations and indictments often relate to the following types of alleged conduct:

• PPP Application Fraud

The CARES Act required a business that applied for a PPP loan to provide accurate and truthful information on the application. The Small Business Act, 15 U.S.C. § 632, provided various requirements that businesses had to meet in order to qualify for a loan and eventually loan forgiveness. For example, businesses had to be of a certain size and be able to show that that they had been negatively impacted by the pandemic. The money could also be used for limited purposes. Under the act, providing false information as part of a loan application could result in an investigation or criminal charges. The federal government is particularly interested in false information relating to:

1. The number of employees working for the company (companies with more than 500 employees were not eligible for PPP funds)

2. Accurate Employee Payroll Numbers - if a company submitted an application which overstated the number of employees or the amounts that employees would make in order to get more money, then that could result in criminal charges.

3. Companies that categorized a number of its employees as independent contractors to qualify as eligible applicants.

4. Salary and Revenue Numbers for the Company and its Employees

5. Using someone else’s information to apply for a loan.

• Fraudulent Use of the PPP Loan Funds

The Paycheck Protection Program provided limits on the use of the funds from the PPP loans. For example, Congress required that the loans be used for the following expenses:

• To pay for interest and rent under current leases.

• To pay a company’s payroll expenses.

• To pay insurance premiums.

• To pay for utility costs.

The funds were not supposed to be used for other purposes, and the use of the funds for other purposes would result in the funds not being eligible for loan forgiveness. Therefore, if the funds were used for personal expenses or luxury items rather than legitimate business expenses, those expenditures could attract the attention of federal prosecutors in the United States Attorney’s Office or Department of Justice.

• Fraud in the Loan Forgiveness Certification Process

The PPP allowed for the complete forgiveness of many of the loans provided that certain requirements were met. Providing false information in connection with a forgiveness application, however, could lead to criminal charges. Companies that sought forgiveness of the loans had to comply with the terms of the program and prove that they were in fact eligible for forgiveness. Some companies were also required to provide supporting documentation. If a borrower submitted fraudulent or inaccurate documents, attested to statements that were not true, or provided incomplete information, those submissions could attract federal attention.

In order to obtain loan forgiveness, borrowers were required to certify that:

1. The loan was needed due to economic uncertainty related to the pandemic.

2. The funds were in fact used for the intended purposes such as retaining employees or paying rent, leases, or utility bills.

3. The business only received one loan (or two loans for qualifying businesses) and did not receive loans from multiple lenders,

4. And that the documents and information submitted is in fact accurate and truthful.

• Obtaining Multiple PPP Loans From Different Lenders

Finally, the PPP allowed for up to two loans for some companies. Companies that applied for more than one loan with multiple lenders for which they were not eligible could be investigated by the government and criminally charged. As the federal government has records of who received funds under the program, any business that borrowed from more than one lender should contact a criminal defense attorney immediately.

Potential Criminal Charges Relating to PPP Loan Fraud

There are numerous potential criminal statutes would could be implicated by PPP loan fraud. For example, federal prosecutors could bring charges under some of the following federal statutes:

• Bank Fraud

A fraudulent application for a PPP loan could qualify as an attempt to defraud a lending institution using a false representation under 18 USC § 1344. A violation of § 1344 can result in a prison term of up to 30 years and/or a fine of up to one million dollars, although actual penalties are serious but often not that high. The statute provides:

Whoever knowingly executes, or attempts to execute, a scheme or artifice—

(1)to defraud a financial institution; or

(2)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;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

• Aggravated Identity Theft

Under 18 USC § 1028(A), an individual accused of using someone else’s information to apply for a PPP loan could face a charge of aggravated identity theft. Aggravated identity theft is a serious charge which can carry a two year mandatory minimum prison term in federal prison. The statute provides:

(a)Offenses.—

(1)In general.—Whoever, during and in relation to any felony violation enumerated in subsection (c), knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.

• False Claims Act

Submitting false documentation in a PPP loan forgiveness application could attract false claim act violations under the 31 USC §§ 3729 – 373.

The statute provides:

(a)Liability for Certain Acts.—

(1)In general.—Subject to paragraph (2), any person who—

(A)knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B)knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(C)conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);

(D)has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

(E)is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(F)knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

(G)knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals orknowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,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 (28 U.S.C. 2461 note; Public Law 104–410 [1]), plus 3 times the amount of damages which the Government sustains because of the act of that person.

• Wire Fraud

Wire fraud under 18 USC § 1343 is a commonly charged statute when prosecutors file indictments relating to PPP Fraud. The statute provides:

Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation occurs in relation to, or involving any benefit authorized, transported, transmitted, transferred, disbursed, or paid in connection with, a presidentially declared major disaster or emergency (as those terms are defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122)), or affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

Prosecutors could also bring charges under other statutes, as well. For example, if you lie to the investigating agents while being questioned, you could be charged with a false statements charge. It is also common to see money laundering charges in connection with these investigations.

Defenses to PPP Fraud Charges

The most important thing to remember is that if you are arrested, contacted by federal agents or prosecutors, or receive a federal target lawyer, you should speak with an experienced federal criminal defense lawyer immediately. There are often defenses to these charges, and nothing that you say to the investigators without a lawyer is likely to help. Instead, the prosecution will use your statements against you in court and may be able to bolster their case against you through your statements even if you have done nothing wrong. The government has the burden of proving any case beyond a reasonable doubt, and it is not enough to show that someone simply received money that they should not have received. Instead, the government generally has to show a fraudulent or criminal intent - meaning that you intentionally made false statements in connection with a pandemic assistance loan rather than an honest mistake. Potential defenses to these charges include:

• Sufficiency of the Evidence. There are a number of elements that the prosecution must prove in order to obtain a criminal conviction in any case, and the prosecution must always be able to prove the defendant's guilt beyond a reasonable doubt.
  
  In many cases, the prosecution may not have sufficient evidence that the defendant committed the crime charged. For example, when dealing with a fraud case, the prosecution may bring charges where the defendant did not act with criminal intent but instead simply made a mistake. If the government cannot prove that the defendant intentionally lied, then that could be a defense to a fraud prosecution. Likewise, the government must prove that it was actually the defendant who committed a potential fraud. If someone else could have used the defendant’s information, that could also be a potential defenses to these charges. Each statute has very specific elements which must be proven beyond a reasonable doubt, and so you should always speak with a defense attorney prior to speaking with agents for the government.
  
  

• Credibility of the Witnesses. The credibility of the witnesses is always at issue in any criminal trial. If witnesses give inconsistent statements or say things which can be proven false, then the prosecution may not be able to prove the case beyond a reasonable doubt.
  
  

• Valuation of the Goods and Services Involved. One of the most important factors in whether federal prosecutors decide to bring charges and the potential consequences for a conviction is the loss amount or the amount at issue in the fraud. The federal sentencing guidelines provide the sentencing judge with a recommended sentencing range in months for what a defendant should receive should they be convicted at trial or following a plea. The amount of money involved in the fraud is generally the biggest factor in determining whether federal prosecutors think the case is worth their time and in determining the recommended sentence following a conviction. The larger the loss, the more interested prosecutors will be, and the more potential time that you could be facing. Therefore, in some cases, it may be possible to show that some or all of the money was used for legitimate purposes and the loss is not nearly as big as the prosecution thinks it is. This could result in a drastically reduced sentence or even a acquittal at trial.
  
  

• Pre-Trial Motions. There are a number of pre-trial motions which may be used to challenge the evidence in any given criminal case. The merits of bringing pre-trial motions like Motions to Suppress, Speedy Trial Motions, and Motions in Limine depends on the facts of the case. For example, if the agents illegally interrogate the defendant without providing Miranda Warnings and obtain a confession, it may make sense to bring a Pre-Trial Motion to Suppress the confession.

Facing criminal charges relating to pandemic assistance? We can help.

If you are facing criminal charges or under investigation by the police or federal agents, we can help. We have successfully defended thousands of clients against criminal charges in state and federal courts throughout Pennsylvania and New Jersey. We have successfully obtained full acquittals and dismissals in cases involving charges such as Conspiracy, Aggravated Assault, Rape, Fraud, Theft, and Murder. Our award-winning Philadelphia criminal defense lawyers offer a free criminal defense strategy session to any potential client. Call 267-225-2545 to speak with an experienced and understanding defense attorney today.