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San Diego PPP Loan Fraud Lawyers

San Diego PPP Loan Fraud Lawyers

You got your PPP loan forgiven. Not just applied for forgiveness – you received it, got the official SBA forgiveness approval letter through your bank in 2021 or 2022. You’re in San Diego, which means you applied through a Southern California bank that processed thousands of PPP loans during pandemic chaos when SBA was pushing banks to approve loans quickly. Now it’s 2024 or 2025, three years after you received your loan and two years after it was forgiven, and FBI San Diego field office or SBA Office of Inspector General contacts you asking about your original 2020 PPP application – not your forgiveness application, your original loan application. They’re asking about the employee count you listed, whether you included independent contractors as employees, how you calculated your 2019 average monthly payroll. Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek. We’ve represented clients in federal fraud prosecutions for over 40 years, many, many, PPP cases across California including Southern District prosecutions in San Diego federal court.

The Forgiveness Trap

Most San Diego business owners understand this sequence, particularly those running tech startups, biotech companies, hospitality businesses in the San Diego area where PPP loans were heavily utilized during pandemic shutdowns. They applied for PPP through their bank in 2020, during peak pandemic uncertainty when businesses were closed or operating at reduced capacity and needed emergency relief Congress authorized. They provided payroll information showing their 2019 average monthly payroll, employee counts documenting their workforce size, basic business details about their operations and revenue. Bank processed the PPP application, sometimes within days. SBA approved the loan, funds appeared in their business account – anywhere from $20,000 to $150,000 or more depending on payroll size. They used the funds for payroll, rent, utilities, other qualified expenses SBA listed in the program rules. Then in 2021 or early 2022, they applied for forgiveness through their bank’s online portal, submitted documentation showing how they spent the PPP funds, provided payroll reports and rent receipts proving the money went to covered expenses. Bank reviewed the forgiveness application, submitted it to SBA’s automated forgiveness platform. SBA processed forgiveness approval – sometimes within weeks, sometimes taking months. Eventually they received official forgiveness notification, their bank zeroed out the PPP loan balance, case closed from their perspective. That’s the sequence federal prosecutors in Southern District of California now deliberately exploit in San Diego prosecutions. The trap that catches most San Diego PPP defendants, and it’s devastatingly common across Southern District prosecutions throughout San Diego County and surrounding areas. SBA’s forgiveness approval was administrative processing, not criminal investigation. Banks processed forgiveness applications mechanically, checking whether the borrower spent PPP funds on payroll and other covered expenses during the covered period. They didn’t verify whether the original 2020 loan application was accurate. They didn’t investigate whether employee counts were inflated, whether contractors were improperly counted as employees, whether 2019 payroll calculations contained errors or deliberate misrepresentations. Federal criminal prosecution operates on completely different timeline and different legal standard. When FBI San Diego contacts you three years after your loan was forgiven, they’re not questioning your forgiveness eligibility – they’re investigating whether your original PPP application contained false statements at the time you submitted it in 2020. False employee counts – you claimed 25 employees when you actually had 18 W-2 workers on payroll. Inflated payroll figures – you included 1099 independent contractors in your “employee” count when SBA guidance said contractors shouldn’t be counted for employer PPP loans. Owner compensation calculation errors – you included owner draw amounts that exceeded the $100,000 annual cap SBA established. Here’s what San Diego defendants genuinely believe when FBI contacts them years after forgiveness: “But SBA already forgave my loan, the bank approved everything, I submitted all my documentation, how can there be fraud if the government already said I don’t have to repay it?” That reasoning, though seemingly logical to defendants who relied on forgiveness approval as vindication, doesn’t work as a legal defense in federal court. If your original 2020 PPP application contained false information at the time you submitted it – employees you claimed didn’t exist on your payroll, payroll figures that were inflated above what your 2019 tax returns and payroll records actually documented – that constitutes wire fraud under 18 USC Section 1343 and false statements to SBA under 18 USC Section 1014. Federal prosecutors throughout Southern District don’t care that SBA forgave your loan through their administrative process. What matters legally is whether you obtained federal funds based on false statements transmitted electronically through your bank to SBA across state lines. Each San Diego case prosecuted under identical federal wire fraud statutes, regardless of forgiveness approval.

San Diego’s economy runs on independent contractors – tech startups use contract developers, biotech companies hire contract researchers, hospitality businesses employ contract event staff. When PPP applications asked how many “employees” you had, that seemed straightforward until you actually tried to answer it. Did 1099 contractors count as employees for PPP purposes? SBA guidance in March 2020 said one thing, April guidance said something different. Many San Diego business owners included independent contractors in their employee count because those contractors performed essential functions and the whole point of PPP was to keep workers employed during the pandemic. Federal prosecutors in Southern District, three years later, now claim that was fraudulent misrepresentation. They calculate the “correct” PPP loan amount you should have received if you’d only counted W-2 employees, compare it to what you actually received, call the difference “loss amount” for sentencing purposes under federal sentencing Guidelines. Constitutional question federal prosecutors must answer – if SBA guidance about contractor classification was genuinely ambiguous in 2020, how do you prove criminal intent required for wire fraud conviction? Wire fraud isn’t strict liability. Federal prosecutors must prove you knew the information was false when you submitted it, that you acted with intent to defraud. If you reasonably believed based on SBA’s confusing guidance that contractors could be counted as employees, where’s the criminal intent? That’s the defense constitutional burden requires prosecutors to overcome in San Diego federal court.

2019 Revenue

Your PPP loan amount was calculated based on your 2019 average monthly payroll multiplied by 2.5. For seasonal San Diego businesses – tourism companies, event venues, restaurants that see summer spikes – 2019 payroll wasn’t consistent month to month. Some businesses used their highest-payroll month and multiplied by 2.5. Some averaged only operating months, excluding off-season. Some included owner compensation that exceeded SBA’s $100,000 annual cap. Federal prosecutors calculate the “correct” amount years later, using your 2019 tax returns and 941 quarterly payroll tax forms. They determine your true 12-month average monthly payroll, multiply by 2.5, compare that to what you actually received. Loss amount equals the difference. That loss amount determines your sentencing exposure under federal sentencing Guidelines. Small PPP fraud, $10,000 to $50,000 loss, typically produces probation to 18 months imprisonment for first-time offenders. Medium PPP fraud, $50,000 to $250,000, results in 18 to 36 month sentences. Large PPP fraud above $250,000 triggers significantly higher Guidelines ranges. 81% of pandemic fraud defendants sentenced as of December 2024 received prison time, not probation, according to Department of Justice data.

They know the calculations.

FBI agent calls your San Diego business or shows up at your office. “We’re reviewing your PPP loan application and need to verify some information about your 2019 payroll and employee count.” That sounds like routine administrative verification. It’s federal criminal investigation designed to obtain statements that will be used as evidence of criminal intent at your eventual prosecution. When San Diego business owners respond to FBI or SBA OIG investigators without federal defense counsel, those investigators already possess their complete financial history. They subpoenaed bank records months earlier showing exactly how you spent your PPP funds. They pulled your tax returns through IRS summons. They obtained your original PPP application from your bank and SBA’s database. They examined your 941 quarterly payroll tax forms. They know what your actual 2019 average monthly payroll was. They know how many W-2 employees you had. They know the discrepancies. What they don’t have yet is your statement admitting you knew the application contained false information when you submitted it. That’s what the “verification interview” is designed to obtain. Constitutional burden requires federal prosecutors to prove intent – that you knew your PPP application was false when you submitted it in 2020. Most San Diego defendants provide that evidence themselves by talking to investigators without counsel. Todd Spodek has defended federal fraud prosecutions in Southern District and throughout California for over 40 years. Call 212-300-5196.

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