How Do The Feds Investigate?

What Do Company Owners And Executives Need To Know About PPP Application Fraud?

If you are concerned about the accuracy of your company’s PPP loan application, what else do you need to know? Here are five key pieces of information for companies and individuals that may be at risk for criminal liability for PPP loan fraud:

1. This is How the Federal Government is Uncovering False PPP Loan Applications

In addition to whistleblower claims, one of the federal government’s primary sources of information for uncovering PPP application fraud is the SBA’s audit program. The SBA is auditing the applications of all companies that received PPP loans of $2 million or greater, and it is auditing the applications of many recipients of smaller PPP loans as well.

The SBA is conducting these audits at the time companies submit their requests for loan forgiveness, “following the lender’s submission of the borrower’s loan forgiveness application.” If the SBA determines that a loan recipient’s application was false, not only can it deny forgiveness, but it can potentially refer the borrower for a civil or criminal fraud investigation as well.

2. These are the Agencies that are Investigating PPP Application Fraud

Multiple federal agencies are investigating PPP loan application fraud. These investigations are being triggered by whistleblower claims, SBA audits, information obtained from PPP lenders, and other sources. Investigations conducted by each of these agencies have the potential to lead to federal charges; and, as discussed below, the penalties for federal fraud can be severe. The agencies that are investigating PPP loan application fraud include:

• U.S. Department of Justice (DOJ) – The DOJ has already launched numerous criminal investigations targeting allegations that individuals and companies fraudulently obtained PPP loans by submitting false applications. As the nation’s chief law enforcement agency, the DOJ is heavily involved in all aspects of enforcing PPP compliance, and agents and prosecutors across the country are targeting PPP borrowers for loan application fraud.
• U.S. Small Business Administration Office of Inspector General (SBA-OIG) – The SBA-OIG is investigating PPP borrowers in tandem with the SBA’s auditing initiative. Allegations of PPP loan application fraud from the SBA-OIG have the potential to lead to civil or criminal prosecution, and the SBA-OIG is working closely with the DOJ in many cases.
• Federal Bureau of Investigation (FBI) – The FBI is also working closely with the DOJ to investigate cases of suspected PPP loan application fraud. Agents in FBI field offices nationwide are involved in the government’s effort to uncover and deter fraud under Paycheck Protection Program, and they have a wide variety of investigative tools and techniques at their disposal.
• Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG) – The FDIC-OIG is involved in investigating PPP application fraud in its capacity as the federal agency tasked with preventing and detecting waste, fraud, abuse, and misconduct under FDIC programs and initiatives. The banks that are lending PPP funds are FDIC-insured and this means that fraud perpetrated through the submission of false applications to these banks falls within the FDIC-OIG’s scope of authority.
• Internal Revenue Service Criminal Investigations (IRS-CI) – The fraudulent receipt and use of PPP loan funds can puts companies at risk for various tax-related offenses as well. Criminal tax fraud is investigated by IRS-CI, and many companies accused of fraud under the PPP are finding themselves facing federal tax fraud and tax evasion charges as well.

3. These are the Possible Charges and Penalties

Companies and individuals (including company owners and executives) accused of submitting false PPP applications can face a multitude of federal charges. While the statute that created the PPP (the Coronavirus Aid, Relief, and Economic Security (CARES) Act) does not itself impose criminal sanctions, federal prosecutors can use a variety of existing statutes to prosecute companies and individuals that obtained (or attempted to obtain) funds under the PPP by submitting false applications. These statutes include:

• False Claims Act (31 U.S.C. §§ 3729 – 3733)
• Making False Statements to the SBA or an FDIC-Insured Bank (18 U.S.C. § 1014)
• Bank Fraud (18 U.S.C. § 1344)
• Wire Fraud (18 U.S.C. § 1343)
• Aggravated Identity Theft (18 U.S.C. § 1028A)
• Tax Evasion (26 U.S.C. § 7201)
• Attempt (18 U.S.C. § 1349)
• Conspiracy (18 U.S.C. § 371 and 18 U.S.C. § 1349)

The penalties imposed under these statutes are substantial. Minimally, individuals charged with one or more of these crimes will be at risk for years of federal imprisonment and hundreds of thousands of dollars in fines. Business entities can face substantial fines as well. However, several of these statutes carry the potential for 20 or 30 years of incarceration, and individuals and businesses charged with multiple offenses can face millions of dollars in criminal penalties.

4. This is What Will Happen if You are Charged with Criminal Fraud

Individuals and businesses charged with criminal fraud as a result of allegedly submitting false PPP loan applications will be subjected to intensive scrutiny, and they will face aggressive prosecution. Facing criminal charges in federal court is very different from facing charges in a state-level proceeding, and avoiding criminal liability requires a strategic and targeted defense. At Oberheiden P.C., our former federal prosecutors and former federal agents have extensive experience on both sides of federal criminal cases, and many served the federal government for decades prior to entering the private sector.

When facing criminal fraud charges at the federal level, it is imperative to execute a proactive defense. This means engaging experienced defense counsel to take control of the process and steer your case toward a favorable result prior to trial. Our attorneys have handled thousands of federal cases; and, with a 95% success rate, the vast majority of our clients have had their cases resolved without any civil or criminal liability.

5. These are the Mistakes You Need to Avoid

If you are potentially at risk for federal criminal prosecution, there are many critical mistakes you need to avoid. Each of these mistakes has the potential to not only increase your risk of prosecution, but also to increase the penalties that are on the table. Mistakes to avoid if you are concerned about facing federal allegations of PPP loan application fraud include (but are not limited to):

• Ignoring the issue and waiting to see if federal authorities investigate;
• Voluntarily returning PPP loan funds to the federal government without the advice of legal counsel;
• Continuing to make use of PPP loan funds that may have been fraudulently obtained;
• Submitting a request for PPP loan forgiveness; and,
• Making decisions or attempting to deal with federal authorities without experienced legal representation.