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Protecting Your Business: How to Respond to DOJ Investigations for PPP Loan Fraud

The global outbreak of the COVID-19 pandemic has resulted in significant financial losses for both small and large businesses worldwide. The introduction of the Paycheck Protection Program (PPP) by the federal government in response to the pandemic proved to be a lifeline for many struggling companies. This program provides forgivable loans to eligible small businesses, covering payroll, mortgage interest payments, rent, and utility expenses.

However, one of the unforeseen outcomes of the program was significant fraud by unscrupulous individuals who have used PPP loans for ineligible business and personal expenses. The Department of Justice (DOJ) launched investigations into fraudulent activities related to PPP loans. If your business is among those under investigation by DOJ for PPP loan fraud, it is essential to know what actions you need to take next to protect your business from the consequences.

The Impact of DOJ Investigations Alleging PPP Loan Fraud

A DOJ investigation focused on allegations of PPP loan fraud can have severe consequences for all parties involved. These include criminal investigations and prosecutions, substantial fines, and possible imprisonment.

The DOJ Takes a Zero-Tolerance Stance Against PPP Loan Fraud

The Department of Justice intends to prosecute any individual or company suspected of committing PPP loan fraud rigorously. This tough stance is necessary because loan fraud breaches public trust while consuming valuable time and financial resources meant to help struggling companies through this challenging period. Consequently, they take a zero-tolerance approach towards any form of attempted misuse or abuse of these funds.

Charges Have Already Been Brought Against Numerous Companies

Many believe that charges against businesses that committed PPP loan fraud are mere possibilities; however, this is not so as several companies have already been charged in various cases brought before courts across America. The types of PPP loan fraud vary widely from shell companies created solely to obtain PPP loans illegally or even an unauthorized misuse or diversion of said funds.

Federal Law Enforcement Agencies Working Together

The DOJ collaborates with other federal law enforcement organizations to combat PPP loan fraud in every form. The FBI, IRS-CI, FDIC-OIG, and SBA-OIG work together holistically to prevent PPP loan fraud and minimize the impact on genuine applicants.

Potential PPP Loan Fraud Defenses

If you find yourself under investigation by DOJ for alleged PPP loan fraud, outstanding defenses are available. These defenses are employed with the assistance of experienced attorneys knowledgeable about such issues. Here are some viable options:

Demonstrating Paycheck Protection Program Compliance

The first defense option is demonstrating compliance with PPP program requirements by carefully documenting all expenditures from these loans into separate accounts, detailing how the funds were used only for authorized purposes. This tangible evidence could serve as a straightforward way of resolving a DOJ investigation.

Lack of Intent to Defraud

Criminal culpability for any federal crime typically requires the intent to defraud; thus, if there was no intentional manifestation of criminal activity, there exists legal grounds which can be used as proof demonstrating that no fraudulent intentions existed during your company’s use of the PPP funds.

Federal Lawsuits Arising From PPP Loan Fraud Investigations

PPP loan fraud investigations can lead to facing both civil and criminal charges under various federal statutes as follows:

Making False Statements to the Small Business Administration (SBA)

Every borrower needs to provide accurate factual information when applying for a loan; hence submitting false or misleading reports or statements knowlingly, thereby influencing SBA activities constitutes a serious federal offense subject to hefty fines and possible imprisonment.

Making False Statements to an FDIC-Insured Financial Institution

Providing false reports or statements submitted knowingly by companies and individuals seeking PPP loans constitutes an offence subject to charges under 18 U.S.C.§1014 of which several high -profile defendants have already been charged.

Banking Fraud Allegations

It is a felony punishable by law in terms of 18 U.S.C.§1344 to execute or attempt to execute fraudulent schemes against financial institutions by obtaining funds under false pretenses; thus, companies and individuals found guilty face both substantial fines and probable imprisonment.

Wire Fraud and Aggravated Identity Theft

Charges of Wire fraud (18 U.S.C. § 1343) are now being brught up in several PPP-related cases while charges of aggravated identity theft (defined according to 18 U.S.C. § 1028A), knowingly using or transferring someone else’s identification illegally to commit fraud have already been seen in connection with how some PPP loan application were submitted.

Tax Evasion

PPP loaners could face legal action if they intentionally evaded taxes prescribed by the internal revenue code as codified under 26 U.S.C.§7201.

False Claims Act Violations

The False Claims Act renders individuals liable for civil and criminal penalties whenever they defraud any federal government programs. Civil charges may be enforced for unintentional PPP loan application or forgiveness certification fraud, while intentional PPP loan fraud leads to criminal prosecution.

Protect Your Business with an Experienced Attorney

The DOJ continues its commitment to investigating those defrauding the Paycheck Protection Program. If your company is facing a DOJ investigation, you must promptly seek out experienced attorneys who understand the intricacies involved in white-collar crime defense. Spodek Law Group has a team of seasoned attorneys who have vast experience managing cases related to widespread business investment fraud investigations like the PPP program. Contact us today for professional assistance!