Federal Bank Fraud Charges

Federal Bank Fraud Charges

Federal agents just executed search warrant at your business and home, seizing loan applications, financial statements, and banking records. The warrant cites investigation into bank fraud under 18 U.S.C. § 1344 – allegations you submitted false information to FDIC-insured financial institution to obtain loan, line of credit, or PPP funds you weren’t entitled to receive. You’re reading the warrant thinking: “I applied for legitimate business loan using financial statements my accountant prepared. How can loan application become federal bank fraud?” Here’s what makes bank fraud different from wire or mail fraud: maximum penalty is thirty years imprisonment and $1 million fine – ten years more than wire or mail fraud – because victim is federally insured financial institution rather than private party, and Congress views fraud against banking system as threatening financial system’s stability. And PPP loan fraud prosecutions exploded after pandemic, with researchers estimating $76 billion in fraudulent PPP loans, making bank fraud federal prosecutors’ priority through 2025 under March 2025 Executive Order directing enhanced fraud detection for government programs.

Thanks for visiting Spodek Law Group – a second generation law firm managed by Todd Spodek, with over 40 years of combined experience defending federal bank fraud cases. We’ve represented clients charged with bank fraud for PPP loan applications, commercial loan applications overstating revenues, and mortgage applications inflating income or assets. We’ve also successfully defended bank fraud charges by proving clients relied on accountants’ or advisors’ representations when submitting applications, lacked intent to defraud, and reasonably believed information provided was accurate. This article explains what 18 U.S.C. § 1344 actually prohibits versus other fraud statutes, why PPP loan fraud carries ten-year statute of limitations under 2022 Bank Fraud Enforcement Harmonization Act instead of five years for other frauds, and what defenses work when prosecutors charge bank fraud based on loan applications containing misstatements you didn’t personally make.

What Makes Fraud Against Banks More Serious Than Other Fraud

18 U.S.C. § 1344 prohibits two forms of bank fraud: first, knowingly executing or attempting to execute scheme to defraud financial institution; second, knowingly executing or attempting to execute scheme to obtain money, funds, credits, assets, securities, or other property owned by or under custody of financial institution by means of false or fraudulent pretenses, representations, or promises. Maximum penalty: thirty years imprisonment and fine up to $1 million, significantly harsher than twenty-year maximum for wire or mail fraud not affecting financial institutions.

Why Congress imposed enhanced penalties: fraud against FDIC-insured institutions threatens not just individual bank’s solvency but entire financial system’s stability through potential cascading failures. When individual defrauds private company through wire fraud, harm is limited to that company and its investors. When individual defrauds bank through false loan application, harm extends to depositors whose funds FDIC must protect, federal insurance fund bearing losses, and banking system’s integrity that depends on accurate underwriting.

What qualifies as “financial institution” under Section 1344: FDIC-insured banks, federal credit unions, mortgage lending businesses, card issuers, and other entities engaged in business of banking affecting commerce. PPP loans administered through banks qualify even though SBA guaranteed loans, because applications went to financial institutions for processing and institutions faced fraud exposure if false applications weren’t detected.

Elements Prosecutors Must Prove Beyond Reasonable Doubt

To convict under Section 1344, prosecutors must prove you knowingly executed scheme to defraud financial institution or obtain property from institution through false representations, and you did so with specific intent to defraud. Four critical sub-elements: you made knowingly false statement or concealed material fact; you intended financial institution to rely on false statement or concealment; institution did in fact rely on false statement; institution suffered financial loss or faced financial risk as result.

Intent element creates defense opportunity. “Knowingly” requires proving you subjectively knew statement was false when made, not just that statement ultimately proved incorrect or that reasonable person should have known it was false. Prosecutors must prove beyond reasonable doubt you knew representation was false and made it specifically to deceive bank into lending money or extending credit you knew you weren’t entitled to receive. Good-faith mistakes, reliance on accountants’ or advisors’ representations, reasonable belief in accuracy of submitted information – all negate knowledge element even if application contained misstatements.

Reliance and loss elements: prosecutors must prove bank actually relied on false statement when approving loan. If bank knew or should have known statement was false, didn’t verify information, or approved loan despite red flags suggesting fraud, reliance element fails. Similarly, if bank suffered no loss because loan was repaid, collateral secured obligation, or SBA guaranteed loan eliminating bank’s exposure, some courts question whether bank fraud statute applies absent actual loss.

PPP Loan Fraud: $76 Billion Scheme and Continuing Prosecutions

Paycheck Protection Program created by CARES Act in March 2020 provided forgivable loans to small businesses maintaining employee payrolls during COVID-19 pandemic. More than 15% of PPP loans were potentially fraudulent, with researchers estimating $76 billion taken illegally. Common fraud patterns: businesses that didn’t exist applying for loans using fabricated employee counts and payroll expenses; businesses inflating employee numbers to qualify for larger loans; businesses using PPP funds for unauthorized personal expenses rather than payroll; individuals submitting multiple applications using different entity names to obtain repeated loans; criminals creating shell companies specifically to fraudulently apply for PPP loans.

Why PPP fraud prosecutions continue through 2025: PPP and Bank Fraud Enforcement Harmonization Act of 2022 extended statute of limitations to ten years for financial institution fraud, giving prosecutors until 2032 to charge frauds committed in 2022. March 20, 2025, President Trump signed Executive Order “Stopping Waste, Fraud, and Abuse by Eliminating Information Silos” to enhance government’s fraud detection capabilities for PPP and other COVID-19 relief programs. DOJ has prosecuted thousands of PPP fraud cases since 2020, with investigations continuing as data analytics identify additional suspicious applications.

Typical PPP fraud charges: bank fraud under Section 1344 for false statements to lender processing PPP application, wire fraud for electronic submission of false application, money laundering for movement of fraudulently obtained PPP funds, false statements to SBA under 18 U.S.C. § 1001. These charges stack – single fraudulent PPP application generates multiple counts, each carrying decades of maximum exposure. Prosecutors typically charge conspiracy under Section 371 when multiple people participated in fraud, adding five-year conspiracy count even if substantive frauds carry longer maximums.

Defenses to PPP Loan Fraud Allegations

Challenge knowledge element through good-faith reliance on accounting records or tax returns. Prosecutors allege you falsely stated employee count or payroll expenses on PPP application. Your defense: application reflected information from payroll records prepared by accountant, tax returns filed in prior years, or business records you reasonably believed were accurate. If you can demonstrate misleading actions were unintentional or based on misunderstanding, this significantly weakens prosecution’s case. PPP program launched rapidly with evolving guidance, creating genuine confusion about eligibility requirements, calculation methods, and documentation standards.

Assert lack of intent through contemporaneous consultation with accountants or lawyers. You sought professional advice about PPP eligibility, calculation of loan amount, and permissible use of funds. You provided complete information to advisors and followed their guidance when preparing application. That demonstrates good faith rather than criminal intent, even if advisors’ interpretation later proved incorrect or application contained errors.

Challenge reliance element if lender didn’t verify application information. PPP lenders relied heavily on applicant certifications without independent verification of employee counts, payroll records, or business operations. If lender approved application without checking readily available information – IRS records, state employment tax filings, business licenses – prosecutors struggle proving lender actually relied on false statements rather than approving applications perfunctorily.

Assert statute of limitations defense for non-PPP bank fraud. Standard five-year limitations period applies to most bank fraud, measured from when fraud occurred. Only PPP fraud and other financial institution fraud covered by 2022 Act carry ten-year limitations. Prosecutors charging bank fraud for conduct occurring more than five years before indictment must prove it falls within expanded limitations period or face dismissal.

What Defenses Actually Work Against Bank Fraud Charges

Challenge intent through evidence of reasonable belief in accuracy. Lack of intent serves as vital defense, challenging prosecution’s assertion that you knowingly engaged in deceptive practices. Loan application overstated business revenues? You relied on projections prepared by financial advisor using industry-standard methodologies. Mortgage application inflated income? You included income from side business you reasonably believed should be reported. Financial statements submitted to bank contained inaccuracies? Your accountant prepared them and you relied on their professional expertise. Force prosecutors to prove beyond reasonable doubt you subjectively knew statements were false, not just that they contained errors.

Assert constructive fraud defense similar to mail and wire fraud. Prosecution must establish you possessed requisite intent to defraud, and without this element, foundation for fraud charge may crumble. Negligent misstatements, accounting errors, sloppy documentation, reasonable differences in valuation methodologies – all potentially create civil liability but insufficient for criminal bank fraud requiring knowing intent to deceive.

Challenge loss element if bank suffered no actual harm. You defaulted on loan, but collateral value covered outstanding balance. PPP loan was forgiven under program terms despite misstatements in application, meaning bank suffered no loss. Some circuits hold bank fraud requires actual or potential loss to financial institution, not just false statement in application. If bank’s position wasn’t impaired by fraud – because collateral protected institution, guarantees eliminated risk, or loan was repaid – criminal prosecution seems disproportionate to harm.

Negotiate cooperation agreement in multi-defendant cases. Bank fraud schemes often involve multiple participants – loan brokers who prepared fraudulent applications, accountants who created false financial statements, straw borrowers who submitted applications for others. Substantial assistance identifying scheme organizers, providing testimony about fraud’s operation, helping recover proceeds can secure cooperation departures reducing sentence below guidelines minimums.

At Spodek Law Group, we’ve defended bank fraud cases ranging from million-dollar commercial loan frauds to PPP loan applications containing overstated employee counts. Bank fraud’s enhanced thirty-year maximum reflects Congress’s view that fraud against financial system threatens not just individual institutions but economic stability. March 2025 Executive Order and ten-year statute of limitations for PPP fraud mean prosecutions will continue through 2030s, making bank fraud federal prosecutors’ long-term priority. Constitutional principles require specific intent and proof beyond reasonable doubt – but prosecutors treat loan applications containing any misstatements as potential criminal fraud rather than civil disputes or regulatory matters. Contact us at 212-300-5196.