Common Questions in PPP Loan Fraud Cases

This is the third post in a series of articles we have written on PPP loan fraud. The others can be found here and here.

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Generally speaking, PPP loan fraud occurs when someone knowingly makes a false statement on an application to the Small Business Administration (or a bank) on a PPP loan application or on a request for PPP loan forgiveness.

Critically, some commentators on the internet falsely state that using PPP loan money for something besides payroll is a crime. That is not true. If, for example, someone made a good faith claim to the SBA at the time of the original application, but only later realized they needed to spend the money on something other than payroll, that would not be a crime.

Example case: United States v. McCarrick, 294 F.3d 1286, 1290-93 (11th Cir. 2002) (“The government concedes that any criminal intent McCarrick formed after signing the loan documents cannot support his convictions on the crimes charged in the indictment, which require that McCarrick have acted with intent to defraud the SBA at the time of the signing of the loan documents.”).

What is the statute of limitations for PPP loan fraud? Generally speaking, the statute of limitations for PPP loan fraud is 10 years from the date the fraud ends.

As we explained in earlier posts, however, there is technically no crime called “PPP loan fraud.” Instead, federal prosecutors rely on longstanding criminal statutes to prosecute fraud in the PPP loan context. 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.

So-called target letters are notices sent from the U.S. Attorney’s Office to someone who is suspected of a having committed a criminal offense. The target letter will inform you of the nature of the crimes being investigated and will give you an opportunity to appear before a federal grand jury to testify.

As we have explained in more detail in a previous post, it is critical to hire an attorney at an early stage if you receive a PPP loan fraud target letter.

Federal grand jury subpoenas are demands issued by a grand jury and the U.S. Attorney. Subpoenas usually demand that the recipient appear to testify, or produce documents to the U.S. Attorney. The subpoenas can be directed to an individual for his personal records, or they can be directed to the custodian of records for a business.

It is critical to consult with an attorney before responding to a federal grand jury subpoena to ensure the matter is handled in a way that minimizes your exposure to prosecution.

The punishment for PPP loan fraud can be devastating. These issues are discussed in much greater detail in a previous post we wrote, which can be viewed here.

Because PPP loan fraud can be prosecuted under a variety of different federal criminal statutes, various federal law enforcement agencies are involved in investigating allegations or suspicions of PPP loan fraud. This includes the FBI, the U.S. Secret Service, the criminal investigations unit of the IRS (the IRS-CI), and the SBA.

Federal investigators have a number of ways to track down suspicious PPP loan applications. One of the primary issues that may trigger a PPP loan fraud investigation is when a business’s PPP loan application lists information that differs from what the business listed on tax-related filings submitted to the IRS.

For example, if a business claimed $150,000 in payroll expenses for tax year 2019, but then on the PPP loan application the business claimed to have $700,000 in estimated payroll expenses for tax year 2020, that could raise a red flag with federal investigators.

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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.