FEDERAL CRIMINAL LAWYERS

Miami EIDL Loan Fraud Lawyers

The Miami Beach restaurant generated $1 million in annual revenue before the pandemic. Real business with fifteen employees, documented payroll, filed tax returns. When COVID-19 shutdowns hit in March 2020, the restaurant lost $400,000 in revenue over the following six months – tables stayed empty, capacity restrictions limited service, tourists disappeared. The Economic Injury Disaster Loan application went to SBA in May 2020 requesting $500,000. Revenue figures: accurate, matched tax returns and bank deposits. Economic injury calculation: legitimate, showed actual pandemic losses. The application certified that loan proceeds would be used for working capital to support ongoing operations. SBA approved the loan and disbursed $500,000 in June 2020. Bank records show what happened next: $200,000 wire transfer to a real estate closing for purchasing the adjacent property to expand the restaurant. $150,000 payment to a commercial lender to pay off a business loan originated in 2018. $150,000 in ACH transfers to the owner’s personal bank accounts. FBI Miami and SBA Office of Inspector General now investigate whether these uses of EIDL funds violated working capital restrictions. Not revenue fraud. Use of proceeds fraud.

Spodek Law Group has defended clients in EIDL use of proceeds investigations throughout Southern District of Florida where prosecutors challenged how loan funds were spent. With former federal prosecutors on the team and over 2,000 federal cases handled, the firm understands how business expenditures become criminal charges.

Working Capital Requirements

SBA regulations at 13 CFR § 123.3 restrict EIDL loans to working capital purposes. Working capital means funds used to support ongoing business operations: payroll for employees, monthly rent payments, utility bills, inventory purchases, routine operating expenses. The statute prohibits using EIDL proceeds for expansion, purchasing real property, paying down debt incurred before the disaster, or making distributions to business owners. These restrictions exist because EIDL provides emergency assistance for businesses suffering economic injury from disasters – the loans help businesses maintain operations during crisis, not fund growth or pay old obligations.

The Miami Beach restaurant example shows how actual uses create criminal exposure even when the underlying application was accurate. The business legitimately generated $1 million in annual revenue pre-pandemic with fifteen employees working full-time. Tax returns for 2018 and 2019 showed steady income, payroll tax filings confirmed the employee count and wage expenses, bank statements demonstrated consistent deposits matching the reported revenue. When pandemic shutdowns began, the restaurant suffered real losses – revenue dropped to $600,000 over the twelve months following March 2020, a $400,000 decline from the normal pace. These were genuine pandemic-caused losses affecting a legitimate business. The EIDL application accurately reported the revenue history, correctly calculated the economic injury, and qualified for the $500,000 loan amount under program rules. SBA approved the loan based on accurate information. The application included a certification that proceeds would be used for working capital to support ongoing operations. But bank records for the restaurant’s business account tell a different story about actual uses. In June 2020, immediately after the $500,000 EIDL deposit, the account showed a $200,000 wire transfer to a title company for a real estate closing. The restaurant owner had negotiated to purchase the property adjacent to the existing location – expanding from the current space into a larger combined footprint. Buying property for expansion is not working capital. It’s capital expenditure for growth, explicitly prohibited under EIDL use restrictions. The following week, the bank account showed a $150,000 payment to a commercial lender. Records indicated this payment satisfied a business loan originated in 2018, two years before the pandemic. Paying off pre-disaster debt is prohibited – EIDL must be used for current operations, not resolving old obligations. The next month showed six ACH transfers totaling $150,000 from the business account to the owner’s personal checking account. These were owner distributions, withdrawals of business profits to the owner’s personal use. Distributions to owners are prohibited under EIDL use rules. Adding these three categories: $200,000 property purchase plus $150,000 old debt payment plus $150,000 owner distributions equals $500,000 – the entire EIDL loan went to prohibited uses. This creates potential exposure under 18 U.S.C. § 1343 for wire fraud – obtaining funds through false certifications about how proceeds would be used – and 18 U.S.C. § 1014 for false statements to the Small Business Administration about the intended use of loan proceeds. The revenue was accurate, the losses were real, the business qualified for assistance. But that certification about using funds for working capital becomes false when bank records show property purchases, debt payoffs, and owner withdrawals instead of payroll, rent, and operating expenses.

Use of proceeds restrictions create defense opportunities based on business necessity. Todd Spodek secured numerous acquittals at trial in federal fraud cases by challenging whether prosecutors can prove intent to violate restrictions versus good faith belief that expenditures qualified as working capital.

The Use Certification

EIDL applications required completion of SBA Form 5, which included a certification that loan proceeds would be used for working capital and normal operating expenses. The Miami Beach restaurant owner signed this certification in May 2020 when submitting the application. The certification language stated that the business would use EIDL funds “only as working capital to alleviate economic injury caused by disaster occurring in the applicable disaster period.” Most business owners signed without fully understanding what “working capital” means under SBA regulations or what uses would be considered violations.

The property purchase created the clearest violation. Commercial real estate acquisition represents capital investment for expansion, not working capital for operations. The owner might have viewed it as necessary for business survival – combining two spaces into one larger restaurant to improve efficiency and compete better post-pandemic. But SBA regulations don’t permit using EIDL for expansion regardless of business justification. Working capital means funds that circulate through operations: money comes in as revenue, goes out as operating expenses, comes back in as more revenue. Property purchase doesn’t circulate – it’s a one-time capital expenditure acquiring an asset.

The debt payoff presented similar issues. The $150,000 paid to the commercial lender satisfied a loan from 2018. That debt existed before the pandemic disaster period. EIDL restrictions prohibit using proceeds to refinance or pay off debt incurred before the disaster. The rule exists to prevent businesses from using emergency disaster assistance to clean up pre-existing financial obligations rather than address pandemic impacts. The owner might have believed that reducing debt payments would free up cash flow for operations, indirectly supporting working capital. But the regulation prohibits this use directly.

Owner distributions violated the requirement that proceeds support business operations. The $150,000 withdrawn to personal accounts didn’t pay employees, didn’t cover rent, didn’t purchase inventory. It went to the owner’s personal use. While the owner may have needed personal income after pandemic losses reduced the business’s ability to pay owner compensation, EIDL regulations prohibit distributions to owners. Working capital must remain in the business supporting operations, not transferred to personal accounts.

Bank Record Evidence

SBA Office of Inspector General conducts post-disbursement audits of EIDL loans by reviewing bank statements. The EIDL application requires borrowers to authorize SBA access to business bank accounts. OIG auditors examine statements for the months following loan disbursement to verify that funds went to eligible working capital uses. The Miami Beach restaurant’s bank records provided clear documentation of prohibited expenditures.

The $200,000 real estate purchase appeared as a wire transfer with memo “property closing” sent to a title company. Property records showed the transaction: restaurant owner purchased adjacent commercial space on the same day as the wire transfer. The real estate deed listed EIDL loan proceeds as part of the purchase financing. This created documentary evidence directly linking EIDL funds to a prohibited expansion purchase.

The $150,000 debt payoff showed as a payment to a commercial lender with memo referencing the 2018 loan account number. The lender provided payoff letter confirming that the payment satisfied the remaining balance on the pre-pandemic business loan. Bank records and lender documentation proved that EIDL proceeds paid off old debt rather than supporting current operations.

As a second-generation criminal defense attorney, Todd Spodek understands how business decisions that seemed necessary – like buying adjacent property to save the business long-term – get reframed by prosecutors as schemes to misuse federal funds.

The $150,000 in owner distributions appeared as six separate ACH transfers to the owner’s personal checking account at a different bank. The pattern was clear: EIDL deposit in June, followed by systematic withdrawals to owner over subsequent weeks. These weren’t salary payments processed through payroll – they were direct owner draws without payroll tax withholding, indicating distributions rather than compensation.

Federal Investigation

When OIG audits identify non-working capital expenditures, cases get referred to FBI for criminal investigation. The Miami Beach restaurant referral included bank statements, property records, and lender documents showing the three categories of prohibited uses. FBI agents reviewed the materials and opened a false statements investigation.

The investigation examines whether the business owner knowingly made false certifications about intended use of proceeds. Agents interview the owner about the working capital certification – did they understand what it meant? Were they aware that property purchases, debt payoffs, and distributions were prohibited? The owner’s explanations matter for intent: genuine misunderstanding of regulations differs from knowing violation. But the bank records provide objective evidence of actual uses regardless of subjective intent.

Prosecution in Southern District of Florida federal court typically alleges wire fraud for the electronic transmission of the EIDL application containing false use certifications. The government must prove: the defendant made false statements about intended use, transmitted those statements electronically to SBA, and intended to obtain EIDL funds through the false statements. The bank records showing prohibited expenditures support the allegation that use certifications were false.

Todd Spodek represented Anna Delvey in the high-profile federal fraud prosecution that became a Netflix series. Federal Sentencing Guidelines calculate fraud sentences based on loss amount. The $500,000 in misused EIDL proceeds drives sentencing calculations. Early intervention by defense counsel who understands EIDL use restrictions can address cases before charges.