What Are the Charges and Sentences for PPP Loan Fraud in NC?

This is a sister post to another blog post I wrote covering PPP loan fraud charges in North Carolina. This post specifically covers the charges and sentences for PPP loan fraud in North Carolina. If you are under investigation, or suspect you may be, contact a PPP loan fraud attorney in North Carolina today.

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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. In the PPP loan fraud context, these include wire fraud (18 U.S. Code § 1343), bank fraud (18 U.S. Code § 1344), making a false statement on a loan application (18 U.S. Code § 1014), and conspiracy to defraud the United States (18 U.S. Code § 371). Prosecutors also charge engaging in monetary transactions in criminally derived property (18 U.S. Code § 1957), money laundering (18 U.S. Code § 1956), aggravated identity theft (18 U.S. Code § 1028A), and more.

These are all federal felony offenses that carry devastating consequences. 

The wire and bank fraud charges carry a maximum statutory prison sentence of up to 30 years. But the key factor that drives a borrower’s sentencing exposure is 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. For example, if the loan application claims that the business was entitled to $550,000 in PPP loan funds, then, without adding any other sentencing enhancements, the minimum sentence may be around a year and a half in federal prison. 

But there are often various factors that amplify this sentence. Does the defendant have prior criminal convictions? Did the offense involve “sophisticated means”? Did the defendant submit loan applications that were denied? These and other factors may significantly increase the sentence.

In the federal system, a defendant’s sentence will also be higher based on the conduct of other people who may have been involved in the PPP loan fraud. For example, if John Smith submitted fraudulent paperwork for a PPP loan worth $100,000, but also helped Jane Janowitz, his girlfriend, fill out bad PPP loan paperwork so she could obtain a $100,000 loan for her small business, then John Smith could be held criminally responsible for both amounts.

Federal prison is not the only possible punishment for PPP loan fraud. If convicted, the borrower will also be required to pay restitution to the government. The federal government has powerful tools available to recoup stolen funds, including wage garnishment procedures, tax liens, etc. 

For licensed professionals, like physicians, lawyers, engineers, and financial professionals, there is also the very likely risk of being stripped of a professional license. Although this is not a punishment that federal judges are authorized to impose themselves, the relevant licensing boards generally do not permit continued practice once the licensee has been convicted of a felony. This is true for the vast majority of licensed professionals in the vast majority of jurisdictions.

In addition, a non-citizen convicted of a felony fraud offense is almost certain to be deported from the United States. This is true even if the borrower has a green card and entered the United States legally.

United States v. Izzat Freitekh (Western District): The Case of the Father and Son Restaurant Owners.

Freitekh, owner of a Middle Eastern restaurant in Charlotte, and his son were accused of submitting loan applications that misrepresented the number of employees and payroll expenses. They received over $1.7 million in PPP loan proceeds. Both father and son were charged with bank fraud, wire fraud, making false statements, conspiracy to commit money laundering, engaging in monetary transactions in criminally derived property. They both pled not guilty and were convicted at trial of some of the charges. Sentencing is scheduled for late November 2022. The father faces up to 30 years in federal prison and the son faces up to 10 years.

United States v. Kamgaing (Western District): The Case of the Technology Consultant Who Saw a Chance to Make it Big.

Kamgaing, a technology consultant, was accused of submitting false employment records, payroll records, and tax returns on multiple PPP loan applications. Kamgaing was charged with making a false statement to the SBA, wire fraud, and engaging in illegal monetary transactions. He pled guilty to wire fraud and engaging in illegal monetary transactions. At sentencing, Kamgaing appeared to argue that he saw the PPP loan program as an opportunity to obtain an interest-free loan to start a business. He was sentenced to over two years in prison and ordered to repay $1.4 million.

United States v. Shropshire (Western District): The Case of Cars, Hotels, and High Heels.

Shropshire was charged with conspiracy to commit wire fraud. She was accused of submitting numerous fraudulent loan applications to the SBA for an amount over $330,000 and many of the businesses were allegedly fraudulent. Although many of the loan applications were denied, for the successful ones, she was accused of using the loan proceeds to pay for hotels, shopping sprees, and cars. She pled guilty to conspiracy and sentencing is set for late 2022. She faces up to 30 years in prison.

United States v. Tristan Bishop Pan (Eastern District): 

Pan was accused of submitting numerous fraudulent PPP loan applications. On the applications, Pan allegedly made false statements regarding the number of employees and the payroll expenses that the applicant-businesses had. Pan also allegedly submitted falsified tax documents to back up the applications. Pan obtained more than $1.7 million in PPP loan funds. He was charged with wire fraud, bank fraud, and engaging in illegal monetary transactions. He pled guilty to wire fraud, was sentenced to over a year and a half in federal prison, and was ordered to pay $1.7 million in restitution.

United States v. Redfern, and others (Middle District): The Kickback Scheme Case.

Three men allegedly submitted fraudulent PPP loan applications misrepresenting the number of employees and the average monthly payroll expenses of various businesses. The defendants were accused of submitting false tax and bank records in support of their loan applications and gave a share of the proceeds to the leader of the conspiracy. They were charged with multiple counts of conspiracy, wire fraud, and bank fraud. One of the men (Christopher Redfern) pled guilty to conspiracy, wire fraud, and bank fraud and was sentenced to five years in federal prison and ordered to pay around $500,000 in restitution. Another (Eric McMiller) pled guilty to conspiracy and wire fraud, was sentenced to five and a half years in federal prison, and ordered to pay around $500,000 in restitution. 

Of course, fraud charges are complex, unique, and fact-specific. We can, however, make a few general observations based on these cases and others.

First, although many PPP loan fraud cases involve millions of dollars, federal prosecutors will not hesitate to charge you even if the amount is “only” a few hundred thousand dollars.

Second, there is a wide variety of federal criminal charges that a prosecutor can use to charge PPP loan fraud, including include is wire fraud, bank fraud, making a false statement on a loan application, conspiracy to defraud the United States, engaging in monetary transactions in criminally derived property, money laundering, aggravated identity theft, and more.

Third and relatedly, most PPP loan fraud cases involve more than one criminal charge.

Fourth, what a borrower does with the money after receiving it from the government can itself be a crime. As we saw in the Shropshire case above, using PPP loan proceeds to go shopping for cars can be charged as engaging in monetary transactions in criminally derived property. 

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If you are contacted by a federal agent, 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.