PPP FRAUD INVESTIGATIONS

The Department of Justice is actively and aggressively investigating fraudulent PPP loans throughout the State of Texas and around the country. Recent PPP loan fraud prosecutions suggest that the Department of Justice is devoting substantial time and resources to PPP loan fraud investigations. The SBA Office of Inspector General has issued a report citing "serious concerns" of potential fraud in its disaster loan program directed to coronavirus relief. Former United States Attorney Matthew Schneider has referred to it as the biggest fraud in a generation. Worse, watchdog groups have estimated the loss to fraud at approximately $79 billion. As a result, the federal government is actively investigating for potential PPP loan fraud, EIDL loan fraud, and other CARES Act violations that they believe to be blatant in an effort to recover money that may have been fraudulently obtained from COVID-19 relief programs.

Keith & Lorfing represents borrowers, lenders, and other service providers in all manner of issues arising under the PPP and other CARES Act programs. Our team of former federal prosecutors and seasoned attorneys provides unparalleled insight and extensive experience in investigations, defense, and compliance matters involving the various CARES Act programs, including on matters before the Department of Justice, SBA-OIG, state attorneys general, OCC, FDIC, and Federal Reserve Board. If you have any compliance- or enforcement-related concerns, reach out today for a free consultation today.

Local Matters

Our firm specializes in representing individuals and businesses in federal criminal cases throughout West Texas. We have offices in Lubbock, Midland, Abilene, and San Angelo. We employ multiple former federal prosecutors who have previously worked in the United States Attorney's Office for Lubbock, Midland, and New Mexico. We have close professional relationships with the prosecutors, federal agents, court staff, and other members of the defense bar. When we are hired to represent someone in a PPP or EIDL loan fraud case, we immediately contact the investigators and any prosecutor who may be assigned to the case. We find out why our client is under investigation, and we try to determine the evidence the government has against them. We then work with our client to review all the evidence in the government's possession – ideally with expert forensic accountants - to see if we have a solid defense to any fraud allegations. We then explain the circumstances of the client's situation to the government and offer information that the agents or prosecutor may not have known. In cases where charges have already been filed, we assist our clients in negotiating the best resolution possible or fighting the case in court.

Because our firm employs multiple former federal prosecutors, we know what rules and procedures apply to these cases, and we know what the government is looking to find. Our defense lawyers have extensive experience in white collar investigations that other lawyers simply do not have.

What is the CARES Act?

In early 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. It provided more than $2 trillion in economic relief to help Americans cope with the economic impact of the COVID-19 global pandemic. The Act authorized up to $670 billion in forgivable loans to small businesses through the Paycheck Protection Program (PPP). Additionally, the CARES Act authorized other relief, such as the Economic Injury Disaster Loan (EIDL), Economic Impact Payments (EIP), Provider Relief Fund (PRF), Pandemic Unemployment Assistance (PUA), and Federal Pandemic Unemployment Compensation (FPUC). In the link below, Keith & Lorfing tracks criminal cases that the Department of Justice (DOJ) has brought to address CARES Act-related fraud.

What is PPP loan fraud?

PPP loan fraud is when an individual or business submits false information in an application or certification for a loan under the federal Paycheck Protection Program (PPP). The PPP was created to help companies stay in business during the coronavirus pandemic by providing forgivable loans to cover payroll and operating expenses. Businesses can apply for PPP loans through commercial banks but must meet several criteria for eligibility. Even after a business obtains a PPP loan, it must abide by strict requirements and limits on how businesses can spend the funds.

What happens during a PPP loan fraud investigation?

The focus of a PPP loan fraud investigation is to determine whether charges should be brought against someone for violating one or more of the strict requirements of the PPP loan program. Generally, federal prosecutors have been targeting businesses and individuals who may have violated the PPP loan program by:

• Making a false statement on the PPP loan application
  • Ex: Embellishing how many people a company had a payroll
• Forging or creating false supporting documentation
  • Ex: creating fake payroll records or forging tax documents
• Using PPP loan money for an improper or unapproved purpose
  • Ex: Purchasing vacation homes, luxury vehicles, plastic surgery
• Submitting a false certification for PPP loan forgiveness
• Applying for PPP loans from multiple lenders ("loan stacking")
  • Ex: Applying through a PPP loan at Bank of America Week 1 and then applying for a PPP loan at Chase Bank two weeks later
• Not being truthful to agents during a PPP loan audit or investigation
  • Ex: Omitting the truth on a material issue in an ongoing investigation

A person charged with PPP loan fraud may face serious criminal and civil penalties. Although there are several possible criminal laws that may be involved in a PPP loan fraud case, the most common criminal charges are the following:

Wire Fraud (18 U.S.C. Section 1343) – This is when someone uses "the wires" (this includes using the internet or the phone) to steal money by making false statements or promises. The penalty depends on the amount of money taken, up to 20 years in prison.

Bank Fraud (18 U.S.C. Section 1344) – This is similar to wire fraud but involves making false statements to a bank or other financial institution. A violation of this law can carry up to 30 years in prison. We expect federal prosecutors to more commonly charge bank fraud because (1) it carries a higher statutory penalty, and (2) it is generally easier to prove. The DOJ branches in the Northern and Western District of Texas commonly rely on this statute in fraud cases.

False Statements to a Financial Institution (18 U.S.C. Section 1014) – This law makes it illegal to lie to a bank or other financial institution. Generally, this involves false statements made on a loan application or in documents submitted to the bank to qualify for the loan. It also carries up to 30 years in prison. (The banks have great lobbyists in Congress.)

Conspiracy to Commit Fraud (18 U.S.C. Section 1349) – This law makes it a federal crime to enter into an agreement to violate the federal fraud laws, even if the person doesn't actually take any money or make any false statement. The penalties for conspiracy are the same as the penalty for the fraud crime that is the purpose of the agreement.

False Statement (18 U.S.C. Section 1001) – This law makes it a federal crime to falsify, conceal (omit), or cover up a material fact, or make any materially false or fraudulent statement to a federal agent. The penalty for making a false statement is five years. This criminal offense is used frequently in high-profile federal investigations, including the Trump investigations and the college-admission scandal.

How do I respond to a PPP loan fraud investigation?

Often times, the federal government will send a "target letter" to individuals suspected of committing a white-collar crime. This lets an individual know that are under investigation by the federal government and gives them an opportunity to retain an attorney. Occasionally, a federal agent or other official will simply contact you directly and ask you to speak with them. On rare occasions, you will not learn you are being investigated until a team of federal agents show up at your home or office with a seizure warrant and seize your belongings or freeze your assets.

In any of those situations – whether you receive a letter from the federal government or a phone call from a federal agent or your home is being raided, you need to retain a lawyer immediately. There are numerous incidents of individuals suspected of defrauding the PPP program that attempted to speak to law enforcement in good faith and ended up being charged with additional crimes. We strongly advise our clients to contact us before they discuss their loan application or business with an investigator or federal agent.

If you are one of the rare few who first learn of an investigation by realizing that your bank accounts have been frozen or seized by the government as part of a PPP loan fraud investigation, don't panic. There are procedures in place to challenge the administrative of criminal seizure of your accounts. The best thing you can do in these situations in be proactive.

Being proactive in a PPP loan fraud investigation can go a long way in avoiding criminal charges. Although there are several criminal prosecutions already underway, federal grand juries are limited right now due to wide-spread coronavirus restrictions. That means an experienced federal defense lawyer can help steer the case to a civil disposition – like paying back the money and a fine – instead of federal criminal charges.

If you are concerned about possible PPP fraud charges, you should strongly consider hiring an experienced federal defense attorney and taking these common-sense steps to protect yourself and your business:

1. Gather all your business and personal financial records and make a digital copy of them. You will need these to document your loan request and to support your defense.
2. Do not throw away, shred or otherwise destroy any business records, especially any that were used to prepare your loan application or certifications. Not only may you need these documents later, destroying any important document in anticipation of a PPP loan fraud investigation can lead to a separate criminal charge.
3. Let all your employees know that they can report their suspicions about PPP fraud to management without fear of retaliation. If they feel they can't talk to you, they may decide to go directly to government or a whistleblower lawyer. That can start an investigation that's expensive to defend, even when there's been no violation of the PPP rules.

Knowledge is power in federal cases. Federal investigations are robust, well-funded, and organized. The government has generally spent months or years building a case before they ever reach out to you. It's important that you assume the government is fully aware of every application, every bank account, and all criminal conduct. Because they have such an enormous head start, it's important that you be completely candid with your defense team. Your conversations are protected under the attorney-client privilege even if you ultimately determine not to hire that attorney.

What Can Our Firm Do to Help?

Once we are hired to represent the client, we immediately contact any investigator or government agent involved in the matter to make sure there is no further contact with our client. In West Texas, we often know these agents personally. We will also contact any financial institution that may be holding funds belonging to the business or individual involved. We then take several additional steps, depending on the facts of the specific case and the status of the investigation:

1. Obtain all loan applications and all supporting documents from the business to review for any alleged errors.
2. Gather and preserve all relevant business documents that may support the need for the loan or the use of the funds received.
3. Interview any CPA, accountant, or financial advisor, if one was used or consulted in applying for the loan.
4. With the business owner's permission and consent, interview any relevant employees who may be able to support the need for the loan or the use of funds.
5. Discuss the case with a forensic accountant to review the company's financials and provide an opinion on the information contained in the loan application
6. Identify any vulnerabilities in the government's case-in-chief, including bias, credibility issues with a witness, admissibility concerns, or authenticity of certain documents.
7. Retain former agents with the Federal Bureau of Investigation to assist in developing our defense strategy
8. Present any available arguments for mitigation or mistake to the government agents, investigators, or prosecutor to structure a payback or other resolution of the matter, if appropriate.
9. Prepare a thorough sentencing analysis using the United States sentencing guideline so you have a realistic expectation of penalties you face.
10. Identify and brief mitigation arguments for the client, the government, and the court.

Our federal defense attorneys are closely monitoring PPP loan fraud cases and developments. We have already advised our clients on how best to navigate these investigations and avoid criminal charges. If you have been charged with PPP loan fraud, or think you may be the target of a PPP loan fraud investigation, call us now for a confidential and free consultation.

We have successfully represented clients in federal criminal cases across the the State of Texas. Our firm has offices in Lubbock, Midland, San Angelo, and Abilene and we frequently travel to other federal courts to represent people in serious federal criminal cases.

Recent Developments in PPP Loan Fraud Investigations

Acting Assistant Attorney General speaks at press conference about recent DOJ enforcement of PPP criminal fraud cases. The effort will be lead by the Criminal Division's Fraud Section and coordinated on a national basis. This suggests aggressive enforcement, and the potential for shaky cases as the Government tries to throw a big net.

Justice Department announces charges brought against 57 people for PPP fraud, representing $175 million in alleged fraud. The Department suggests that "criminal rings" are orchestrating this fraud, without providing any real details.

New outlets are now reporting on the large-scale fraud surrounding PPP loans. Aura News has a great succinct video and great article on the fraud.

NBC calls PPP loans the "biggest fraud in a generation"

Federal agency failed to prevent billions in dollars in fraudulent PPP loans

Updated List of PPP and EIDL Loan Fraud Criminal Cases