PPP Loan Fraud Attorney in North Carolina

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act established a 650-billion-dollar fund for small businesses to apply for loans and the loan proceeds could be used for “allowable uses.” The allowable uses included payroll expenses, mortgage payments, and related business expenses. Congress called the program the Paycheck Protection Program (“PPP”). This post explains how a PPP loan fraud attorney in North Carolina can help you if you or your business are under investigation by federal law enforcement.

There has been widespread fraud in this program and federal law enforcement is now committed to investigating, prosecuting, and holding accountable individuals and businesses that the government believes took advantage of the program. According to the Department of Justice (“DOJ”), this is now just the beginning of an aggressive enforcement effort. Indeed, Congress recently extended the statute of limitations for PPP loan fraud to ten years.

If you are being investigated, or think you may be under investigation for PPP loan fraud in North Carolina, it is critical that you consult a PPP loan fraud attorney in North Carolina at the earliest possible stage. As I explain further below, PPP loan fraud involves nuanced legal issues that require a white collar criminal defense attorney’s expertise.

The Department of Justice has been aggressively investigating and prosecuting business owners for PPP loan fraud. Indeed, the U.S. Attorney for the Eastern District of North Carolina recently established a task force to prosecute PPP loan fraud.

There is no criminal statute called “PPP loan fraud.” Instead, federal prosecutors rely on longstanding criminal statutes to prosecute PPP loan fraud. As with most fraud schemes, the illegal behavior can be prosecuted under various statutes. The most common ways federal prosecutors are charging PPP loan fraud in North Carolina is as wire fraud, bank fraud, making a false statement on a loan application, and as conspiracy to defraud the United States. 

The type of conduct that can form the basis for a PPP loan fraud case includes:

• Submitting false payroll records (wrong number of employees or false amount of payroll).

• Submitting false tax records.

• Submitting false documents when applying for PPP loan forgiveness.

• Sharing a large kickback with someone who prepared the PPP loan application.

• Inflating payroll expenses in order to obtain larger loans.

• Reviving dormant corporations that really had no operations or using sham or shell companies to apply for loans.

• Using PPP loan proceeds for something other than an “allowable use.”

If federal law enforcement officers believe you have done any of these things, they may pursue a criminal investigation into you and your business. The DOJ’s aggressive efforts at combating PPP loan fraud means that even businessowners who submitted legitimate applications in good faith are being scrutinized. 

I cover this topic at length in a separate post. But the summary is that PPP loan fraud can be charged under one of several federal felony statutes. These include is wire fraud, bank fraud, making a false statement on a loan application, and conspiracy to defraud the United States. Related charges often include engaging in monetary transactions in criminally derived property, money laundering, aggravated identity theft, and more.

The maximum sentence for some of these offenses is up to 30 years in federal prison.

For more information on the types of sentences and punishment for PPP loan fraud in North Carolina, check out my separate blog post on that subject.

Yes. PPP loan fraud charges are common, especially in North Carolina. As I mentioned above, the U.S. Attorney for the Eastern District of North Carolina recently established a task force to prosecute PPP loan fraud. In the Western District, which embraces Charlotte, North Carolina, Asheville, North Carolina, and every town in between, federal prosecutors have charged numerous business owners and other individuals with PPP loan fraud. For more information on examples of these cases in North Carolina, please read my separate post to see the facts of those cases.

Of course, every case is unique and requires a close examination by an experienced white collar federal criminal defense attorney. But some examples of defenses to PPP loan fraud that can be considered are as follows.

Intent and Timing. PPP loan fraud cases generally boil down to a question of intent: Can the prosecutor prove that the borrower intended to defraud the government? One defense is to try to persuade the prosecutor that he will have a difficult time proving an intent to defraud. The intent to defraud must have existed at the time the false statements were submitted to the government in the PPP loan applications. 

Although evidence from after the loan applications can be used to prove that the fraudulent intent existed at the time the false statements were made, skilled defense counsel may be able to argue that the client had a good faith intention to use the PPP loan proceeds properly but then fell into dire straits and ultimately used the funds for something other than payroll.

Lack of Knowledge. Understand that simply putting the wrong figures on a PPP loan application (or request for forgiveness) is not a criminal offense. The government has to prove that the client did so knowingly and with the intent to defraud the government or a bank. The wire and bank fraud statutes do not make criminals out of those who make honest mistakes.

Withdrawal From Conspiracy. The defense of withdrawal from a conspiracy may be available when the client can show that he took affirmative steps that were inconsistent with the criminal scheme and articulated his intent to withdraw to the co-conspirators. In the PPP loan fraud context, an example would be that the client and others agreed to submit false loan applications, but then the client got cold feet, realized it was a very bad idea, and told the others that he no longer wanted to follow through.

Minor Role Reduction. Another strategy is to argue that although the client was involved in a criminal conspiracy to defraud the Small Business Administration and commit PPP loan fraud, the client may have only played a very minor role in the scheme. Others may have taken the lead and done all the paperwork. In this scenario, the defense attorney may be able to argue for a reduced sentence.

Defense of Duress. The defense of duress may be available when a person commits a crime because someone has threatened to hurt him if he doesn’t. Although this defense is more common in the case of violent situations and street crimes, it is possible that a violent business partner may have threatened another to submit false loan documents and commit PPP loan fraud.

Loss Amount is Too High. As I explain in another post, the sentence and punishment for PPP loan fraud in North Carolina is driven largely by the amount of money involved in the crime—i.e., the “loss amount.” Federal prosecutors tend to portray the loss amount as high as possible. But skilled defense counsel may be able to persuade the judge that the actual loss amount is much less than what the government claims. 

First and foremost, you can politely tell the investigator that he should contact your attorney. If you do not already have an attorney, you can ask the investigator for his name and number and explain that you will have an attorney reach out as soon as possible. You never want to discuss the facts of a case without your attorney present. 

The government bears the burden of proving every element of a criminal offense beyond a reasonable doubt. Sometimes people interpret this rule by saying that “the defense doesn’t have to prove anything.” Technically, this is true. 

The problem clients sometimes experience, however, is that they believe it means they can just sit back and do nothing (or wait until the government files charges) because the burden of proof is on the government. Not so. Instead, a client is often best served with a proactive defense strategy, one that seeks to persuade the government not to even file charges in the first place. 

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About the Author: John J. Dowling III is a PPP loan fraud attorney in North Carolina. He represents business owners across the country in federal white collar fraud cases.

Disclaimer: This article is for educational purposes. Nothing in it should be construed as legal advice. Fraud charges are complex and unique, requiring a case-by-case review from a defense attorney well-versed in the mechanics of federal criminal law. If you are under investigation for a crime, you should contact an attorney to review your case.