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Look, I’ll be straight with you – when that Small Business Administration Office of Inspector General letter shows up at your Louisville office about your $500,000 EIDL loan from 2021, it’s not a routine audit. The investigation has been running for months. You just don’t know it yet.
Louisville resident submitted EIDL application claiming construction company with 30 employees and $2.4 million annual revenue. He operated no such business. FBI arrested Martez Johnson January 2025, sentenced to 46 months federal prison, ordered to repay $1.8 million.
Kentucky business owner obtained over $2 million in fraudulent EIDL and/or PPP loans by fabricating payroll and employee counts. Used funds to buy real estate and/or vehicles. Federal prosecutors sentenced Daniel Ramsey to 78 months prison in January 2024.
These aren’t hypotheticals – they’re actual Western District of Kentucky prosecutions from 2024-2025. And here’s the thing: Judge David J. Hale (the chief judge at Gene Snyder Courthouse on West Broadway) doesn’t play around. Neither does current U.S. Attorney Michael Bennett. Here’s what happens when the Small Business Administration comes for you in Louisville.
Western District of Kentucky – covering Louisville, Bowling Green, Owensboro, and Paducah – is part of DOJ’s COVID-19 Fraud Strike Force. Louisville federal prosecutors are aggressively pursuing EIDL fraud cases, particularly those involving fabricated businesses and/or inflated revenue.
Listen, I was at the federal courthouse last week (sixth floor, where the grand juries meet), and I overheard two AUSAs talking in the hallway. “How many more EIDL cases this month?” one asked. “Twelve,” the other said. “And that’s just mine.”
Over 3,500 defendants have been charged nationwide since May 2021, and prosecutions aren’t slowing down – they’re accelerating.
Congress extended the statute of limitations for EIDL fraud from 5 years to 10 years in 2022. Business owners who received EIDL loans in 2020-2021 face criminal exposure through 2031. The investigation into your loan might not begin for many, many years after you received the funds – but when it does begin, the government already has overwhelming evidence before you know they’re looking.
The biggest confusion for Louisville business owners: EIDL Advance versus EIDL loan. The Advance – up to $10,000 – was a grant you don’t repay. The EIDL loan – up to $500,000 for most businesses – is a 30-year loan at 3.75% interest you must repay.
Here’s my cell: 212-300-5196. Program it now – seriously. You’ll need it if that letter comes.
Many defendants thought the entire amount was “free money.” That misconception doesn’t prevent federal prosecution.
(This is what everyone asks first – let me break it down)
When you receive an OIG letter or FBI contact about your EIDL application, the next 48 hours determine whether this stays civil or becomes criminal. Constitutional protections activate the moment you’re contacted – but only if you invoke them. Most Louisville business owners try to “explain what happened” to investigators.
By the time they consult a federal defense attorney, their statements have provided prosecutors with evidence of criminal intent.
EIDL fraud convictions can result in fines up to $1 million and imprisonment for up to 30 years, depending on severity and/or prior criminal history. But here’s what actually happens in federal court:
January 2025: Martez Johnson of Louisville sentenced to 46 months federal prison for EIDL fraud. He submitted application claiming to operate construction company with 30 employees and $2.4 million revenue. He operated no such business. He received $1,802,900 and used it for luxury vehicles, jewelry, personal expenses. Now he faces nearly four years in federal prison, three years supervised release, must repay full $1.8 million.
The federal sentencing guidelines control, not the maximums. Here’s the real breakdown:
Daniel Ramsey’s $2 million fraud? That put him in the 51-78 month range. He got 78 months – the maximum of his range.
Spodek Law Group has former federal prosecutors who understand how Western District of Kentucky builds EIDL cases. We have 50+ years combined federal defense experience and have represented clients when the government already had the “smoking gun.” We’re available 24/7 – call 212-300-5196.
You inflated your 2019 revenue from $800,000 to $1.2 million on your EIDL application to qualify for a larger loan. You thought everyone was doing it during the pandemic.
It’s federal bank fraud punishable by 30 years in prison.
I had a client last year – restaurant owner from the Highlands. Nice guy, three locations before COVID. He panicked, inflated his numbers by $300,000. Small Business Administration Office of Inspector General caught it eighteen months later. Now he’s looking at 24-36 months.
The Economic Injury Disaster Loan program provided low-interest loans to businesses that suffered economic injury from COVID-19. To qualify, you had to show your business existed before January 31, 2020, and experienced substantial economic injury from pandemic. Loan amounts were based on gross revenue in the 12 months before disaster.
Material false statements that constitute EIDL fraud: lying about gross revenue in the 12 months before pandemic, claiming your business existed before January 2020 when it didn’t, inflating employee numbers to maximize loan amount, fabricating economic injury from COVID-19, using stolen identities, or creating fake tax documents to support revenue claims.
The legal distinction is between honest mistake and intentional fraud. Federal prosecutors must prove three elements: you made false statement, you knew it was false when you made it, and you intended to deceive the Small Business Administration.
Honest mistake: Louisville restaurant owner confused gross receipts with net income, miscalculated revenue by $50,000, can document actual business operations, spent EIDL funds on rent and/or payroll. Small discrepancy, legitimate business, proper use. Small Business Administration might demand repayment, but no prison.
Fraud: Martez Johnson claimed construction company with 30 employees and $2.4 million revenue. Operated no such business. Used $1.8 million for luxury vehicles and/or jewelry. FBI arrested him, sentenced 46 months federal prison January 2025.
Prosecutors prove fraud by examining: Did your business exist before January 31, 2020? They check Kentucky Secretary of State records, look for 2019 tax returns, search for evidence of pre-pandemic operations. Do tax returns match revenue claimed on EIDL application? They obtain IRS records, compare line by line. Do bank records show actual business operations? They subpoena bank statements looking for payroll, vendor payments, business expenses.
What did you spend EIDL funds on immediately after deposit? They analyze every transaction.
Spending patterns become damaging evidence. EIDL deposit Monday, Mercedes purchase Wednesday – prosecutors argue you knew you weren’t entitled to money. Immediate transfers to personal accounts, credit card payoffs, vacations, luxury goods – spending pattern demonstrates consciousness of guilt.
When Todd Spodek defended Anna Delvey, the media had already convicted her. EIDL cases are similar – you think inflating revenue “a little” is harmless, but by the time you realize Small Business Administration flagged your loan, prosecutors already have your application, tax returns, and bank records. Constitutional protections matter most when government has head start.
(Everyone wants to know the real cost – here it is)
Federal Penalties for Small Business Administration Loan Fraud in Western District of Kentucky
You fraudulently obtained $750,000 in EIDL funds. How much prison time are you facing in Louisville federal court?
On average, you can expect to pay between $250 and $800 per hour for white-collar crime lawyer services. For relatively straightforward white-collar crime case, such as minor embezzlement, total costs might range from $10,000 to $50,000. But EIDL cases aren’t straightforward.
Complex EIDL fraud defense: $75,000-$200,000. Going to trial? Add another $100,000-$150,000.
But here’s what I tell clients in my Bardstown Road office: Good lawyer costs $100,000, keeps you out of prison. No lawyer costs nothing upfront, gets you 36 months in federal prison plus $750,000 restitution.
Federal prosecutors charge EIDL fraud under several statutes. Wire fraud (18 USC 1343) – transmitting false information electronically – carries up to 20 years per count. Bank fraud (18 USC 1344) – submitting false application to financial institution – carries up to 30 years. False statements to Small Business Administration (18 USC 1014) – lying on federal loan application – carries up to 30 years. Money laundering adds additional decades. Aggravated identity theft adds mandatory two years consecutive.
But federal sentencing guidelines actually determine your prison time – calculated primarily on loss amount: total EIDL funds obtained through fraud, even if you paid some back.
Look at actual Western District of Kentucky cases:
These aren’t maximum possible sentences – they’re actual prison time federal judges imposed using guidelines. The guidelines aren’t suggestions – they’re mathematical calculations Western District judges follow.
81% of pandemic fraud defendants nationwide received prison time, not probation (DOJ statistics through December 2024). Federal judges aren’t treating EIDL fraud as white-collar deserving slap on wrist – they’re sending defendants to federal prison.
(Sometimes people ask about reporting competitors – here’s the process)
The Investigation Timeline After Small Business Administration Flags Your EIDL Loan
You received your $600,000 EIDL loan in July 2020. October 2025: you get letter from Small Business Administration Office of Inspector General. What happened during those five years of silence?
Report by email, fax, or mail for COVID-19 Economic Injury Loan (EIDL) and Disaster Loan identity theft: Email IDTheftRecords@sba.gov. Call the OIG Hotline at 1-800-767-0385.
But honestly? The Small Business Administration already knows. Their computers caught most fraud years ago.
Months 0-3: Small Business Administration data analytics flagged your loan. You don’t know yet. Algorithms detected: loan amount doesn’t match IRS tax returns, business not registered with Kentucky Secretary of State before January 2020, multiple EIDL loans to same address, immediate transfers to personal accounts, luxury purchases within days of deposit. Your file goes into queue.
Listen – I’ve seen these investigation files. The Small Business Administration Office of Inspector General builds cases like architects. Every document perfectly organized. Every transaction traced.
Months 3-8: OIG pulls your application, checks public records, cross-references claimed revenue with IRS data, obtains bank statements. They’re building evidence file – no contact with you yet.
Month 8-12: The letter arrives. OIG requests documentation: proof business existed before pandemic, tax returns supporting revenue claimed on application, bank statements showing how you spent EIDL money, proof of economic injury from COVID-19.
This is when most Louisville business owners realize they’re in trouble.
Fork in the Road – Civil vs Criminal: Documentation issues but no clear fraud = civil path. Small Business Administration denies forgiveness, demands immediate repayment, refers to Treasury for collection. Financial devastation but no prison. Fraud indicators (fake tax documents, fabricated business, luxury purchases after deposit) = criminal path. OIG refers to FBI and DOJ Criminal Division. Federal agents and prosecutors now involved.
Months 12-24+: If criminal path – FBI interviews witnesses, subpoenas bank records, analyzes spending patterns. You might not hear anything for months. Silence doesn’t mean it’s over – they’re building case. Grand jury convenes in Louisville.
My phone rings at midnight sometimes – business owner just got that letter, can’t sleep. Call me: 212-300-5196.
Month 18-36: Arrest or indictment. Federal agents show up at 6am, or you receive indictment notice. Charges: wire fraud, bank fraud, false statements, money laundering. Each count carries decades.
Months 24-48: Resolution through plea or trial. From initial OIG contact to sentencing: 24-48 months average in Western District cases. Two to four years of your life consumed.
(Let me be crystal clear about Small Business Administration penalties)
Why You Can’t Talk Your Way Out of EIDL Fraud Investigation
FBI agent calls: “We’re reviewing your EIDL application and need to verify some information.” You think cooperating shows you have nothing to hide.
You’re creating evidence they need to indict you.
Making false statements to Small Business Administration (18 U.S.C. § 1014) – Up to $1 million fine and 30 years federal imprisonment. Making false statements to FDIC-insured bank (18 U.S.C. § 1014) – Same penalties.
By the time FBI contacts you, investigation has been running for months. They already have your application, bank records, tax returns, payroll records. They’ve interviewed your accountant. They know exactly where discrepancies are.
They’re not calling to “verify information” – they already verified it. They’re calling to get your explanation on record to prove you knew information was false when you submitted it.
Classic interview: “Your application listed $1.2 million revenue for 2019, but your tax return shows $800,000. Can you explain?” Your answer “I estimated” = admission the $1.2 million wasn’t accurate. Your answer “I included projected revenue” = admission you inflated actual amount. Your answer “I don’t remember” = consciousness of guilt.
Every answer helps them build case. Silence protects you.
What you should say: “I need to speak with my attorney before discussing this.” Then actually call federal defense attorney.
I had a client – trucking company owner from Shepherdsville. FBI called about his EIDL application. He talked for two hours trying to explain. Prosecutor quoted him at sentencing: “Defendant admitted he knew the numbers were wrong.” Thirty-six months federal prison.
If you invoke right to counsel: Investigation continues, but silence can’t be used against you. Your refusal to answer can’t be interpreted as guilt. Attorney can determine whether this is civil matter or criminal investigation, assess whether early cooperation helps or just provides evidence for prosecution.
If you talk without lawyer: Your statements become trial exhibits. “Defendant admitted he estimated revenue figures” appears in government’s sentencing memorandum as evidence of knowing fraud. Everything you said trying to explain becomes evidence of criminal intent.
Louisville business owners think explaining will make FBI understand “what really happened” – it wasn’t fraud, just confusion about program rules, just mistake calculating revenue. They think cooperation shows good faith. By time they hire lawyer, their statements gave prosecutors everything needed for indictment.
Todd Spodek’s representation of Anna Delvey exemplifies core principle: everyone deserves vigorous advocacy, especially when universally condemned. Public opinion ran against client – media had convicted her. EIDL defendants face similar condemnation: “you stole from pandemic relief.” Constitutional obligation to defend doesn’t depend on popularity of client or charge. What matters is whether government can prove its case beyond reasonable doubt while respecting your constitutional rights.
When you receive that FBI call or OIG letter, next words out of your mouth determine trajectory of your case. Spodek Law Group has former federal prosecutors who know what investigators look for in these interviews. We know what questions they’ll ask, what answers help them, what answers protect you.
We’re available 24/7 – call 212-300-5196.
The Small Business Administration Office of Inspector General isn’t going away. Neither is the Western District of Kentucky’s appetite for EIDL prosecutions. If you received an EIDL loan between 2020-2021 and any part of your application wasn’t 100% accurate, you have criminal exposure through 2031.
Martez Johnson thought he’d never get caught. Daniel Ramsey thought everyone was doing it. They’re both in federal prison now.
When that letter arrives – and for many Louisville business owners, it will – the decisions you make in the first 48 hours determine whether you’re fighting for your freedom or just your finances.
Don’t wait. Don’t explain. Don’t cooperate without counsel.
Call first. Explain later.
Spodek Law Group: 212-300-5196
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