Nashville PPP Loan Fraud Lawyers

Nashville PPP Loan Fraud Lawyers

Your PPP loan was flagged. Federal agents in Nashville contacted you. Or the SBA sent an audit letter about your Paycheck Protection Program application. You’re in Tennessee. The Middle District of Tennessee is prosecuting aggressively – ten individuals were charged for $950,000 in COVID-19 relief fraud schemes in October 2023. Mount Zion Baptist Church paid $70,464 in June 2024 to settle False Claims Act allegations for misusing PPP funds on prohibited mortgage principal payments. The U.S. Attorney’s Office collected over $137 million in Fiscal Year 2024, primarily through PPP and pandemic relief enforcement. The Middle District prosecutes hard.

Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek. We’ve defended PPP fraud cases in Tennessee federal courts for many, many, years. We know how Middle District of Tennessee prosecutors charge these cases and what outcomes you’re realistically facing in Nashville.

The SBA approved your PPP loan in 2020 with minimal verification. Now they’re prosecuting. A Shelbyville woman who fraudulently obtained $223,800 in combined PPP and EIDL loans pled guilty and faces prison at her July 2025 sentencing. Churches, businesses, individuals – Middle District pursues everyone. Congress extended the statute of limitations to 10 years in 2022, meaning prosecutions continue through 2031. Here’s what happens in YOUR Nashville case.

Recent Middle District Tennessee Convictions and Sentences

Mount Zion Baptist Church agreed to pay $70,464.39 on June 5, 2024 to settle civil claims under the False Claims Act that it misused Paycheck Protection Program loan funds. The church applied for PPP loan in April 2020, certifying it would use funds only for permitted purposes including mortgage interest payments. However, on May 29, 2020, Mount Zion made two separate mortgage principal payments totaling $70,464.39 using PPP funds – a prohibited use under PPP regulations. Mortgage principal payments were explicitly excluded from allowable PPP expenses under Treasury Department rules. Only mortgage interest qualified as eligible expense. On May 1, 2021, the church applied for full loan forgiveness. SBA approved forgiveness on May 17, 2021, including the misused portion – because the church falsely certified all funds were used for approved purposes. This created False Claims Act liability. The case was brought by whistleblower Kiara Moore, a former church employee, under qui tam provisions of 31 U.S.C. § 3730. Moore received $10,569.66 of the settlement – 15% of the recovery. This case demonstrates three critical points: First, Middle District pursues civil False Claims Act cases even for amounts under $100,000. Second, PPP loan forgiveness applications create independent fraud when you falsely certify proper use. Third, employees and insiders can file whistleblower lawsuits and receive substantial portions of government recovery.

Ten individuals in Tennessee were charged by federal grand jury in October 2023 for their roles in schemes to defraud the Paycheck Protection Program and EIDL program. According to court documents, the defendants allegedly obtained funds by submitting false and fraudulent PPP loan applications that collectively sought over $950,000. The indictments alleged material misrepresentations about number of employees, payroll expenses, business operations, and revenue. This multi-defendant case shows Middle District’s aggressive conspiracy prosecution approach. When multiple people coordinate to obtain fraudulent PPP loans – when they share information about how to inflate payroll, when they use same accountant or facilitator, when they discuss applications – prosecutors charge conspiracy under 18 U.S.C. § 371. Conspiracy carries maximum 5 years prison and makes each defendant liable for the entire scheme amount, not just their individual loan. If you received $150,000 fraudulent PPP loan but were part of group that fraudulently obtained $950,000 total, your sentencing exposure is based on $950,000 under conspiracy liability principles.

A Shelbyville woman in Bedford County pled guilty in Eastern District of Tennessee to wire fraud charges for fraudulently obtaining $105,800 in PPP loan proceeds in April 2020, then submitting additional fraudulent application that resulted in $118,000 in February 2021. Total restitution owed to Small Business Administration: $223,800. Sentencing scheduled July 11, 2025. She also pled guilty to employment tax fraud for failing to report and pay payroll taxes while simultaneously claiming payroll expenses for PPP eligibility. This illustrates common fraud pattern Middle District investigates: business owners underreport or don’t pay payroll taxes to IRS for years, then suddenly claim large payroll expenses to qualify for maximum PPP loans. IRS Criminal Investigation cross-references PPP applications against Form 941 quarterly payroll tax returns. If you haven’t filed 941s or reported minimal payroll for 2018-2019, then claim $400,000 annual payroll on April 2020 PPP application, the fraud is obvious. Even with guilty plea and cooperation, the Shelbyville woman faces 18-30 months federal prison at her July 2025 sentencing.

PPP-Specific Fraud Detection in Middle District

PPP fraud detection is automated and sophisticated throughout Tennessee. Every Paycheck Protection Program application was cross-referenced against IRS Form 941 quarterly payroll tax returns, state unemployment insurance wage reports, W-2 filings, and Social Security Administration wage data. You claimed 30 employees with $750,000 annual payroll on your PPP application for your Nashville hospitality business, construction company, healthcare practice, or retail operation. Your Form 941 filings for quarters ending March 2020, June 2020, September 2020, and December 2020 show 18 employees with $420,000 total payroll. Computer flagged the discrepancy within days of disbursement. The SBA Office of Inspector General reviewed the flag and referred to Middle District multi-agency task force for criminal investigation. The ten-defendant Tennessee case started with automated flags showing similar patterns of inflated payroll and employee counts across multiple related applications.

Independent contractor misrepresentations trigger PPP fraud prosecutions frequently in Nashville. PPP regulations allowed self-employed individuals to apply based on net profit, but businesses could not include 1099 independent contractors they paid as W-2 employees in payroll calculations for their own PPP loans. Independent contractors had to apply for their own separate PPP loans. Many Nashville business owners included amounts paid to independent contractors as employee payroll to inflate their PPP loan amounts. SBA cross-checks applications against Form 941 (which only includes W-2 employees), Form 1099-NEC filings (which show payments to contractors), and state unemployment insurance records (which only cover employees, not contractors). If you claimed 20 employees and $500,000 payroll, but your 941 shows 12 W-2 employees with $300,000 wages and your 1099s show $200,000 paid to 8 contractors, that’s PPP fraud. You inflated payroll by including workers you had no right to include under PPP program rules.

Owner compensation calculations create additional fraud exposure. PPP allowed business owners to include their own compensation up to $100,000 annualized ($8,333 per month) in payroll calculations. Many Nashville business owners who took minimal salary or distributions in 2019 suddenly claimed $100,000 annual compensation on PPP applications to maximize loan amounts. SBA cross-checks owner compensation claims against IRS transcripts showing actual 2019 W-2 wages for corporate owners or Schedule C net profit for sole proprietors. If you claimed $100,000 owner compensation but your 2019 tax return shows $40,000 Schedule C net profit or $35,000 W-2 wages to yourself, that’s material misrepresentation. Mount Zion Baptist Church’s mortgage principal payment misuse demonstrates how even proper loan amounts create fraud exposure if funds are used for prohibited purposes. The church likely qualified for the PPP loan amount it received, but using funds for mortgage principal instead of approved expenses created False Claims Act liability when they certified proper use on forgiveness application.

PPP loan forgiveness applications create massive second wave of fraud exposure. Initial PPP applications in spring 2020 were processed with minimal verification due to emergency nature of program. Many Nashville business owners with inflated applications received full loan amounts. Then in 2021-2022, they applied for loan forgiveness. Forgiveness applications required detailed certifications under penalty of perjury that funds were used for payroll, mortgage interest (not principal), rent, utilities, and other approved expenses during covered period. Federal agents subpoena bank records and trace every dollar of PPP funds. Mount Zion Baptist Church’s case shows the consequences: they used $70,464 for mortgage principal, certified on forgiveness application that funds were used properly, received forgiveness – then faced False Claims Act liability when whistleblower exposed the misuse. Each false certification on forgiveness application is separate wire fraud count under 18 U.S.C. § 1343 carrying maximum 20 years prison.

Bank Secrecy Act reports trigger PPP investigations as frequently as IRS discrepancies. When you withdrew large cash amounts from PPP loan proceeds, made luxury purchases like vehicles or jewelry, transferred PPP funds to personal brokerage accounts, paid personal credit cards or personal mortgage principal, or sent wire transfers to family members – your bank filed Suspicious Activity Reports within 30 days that go directly to FinCEN and federal law enforcement. Treasury Department’s Pandemic Response Accountability Committee reviews every SAR related to PPP funds. Banks are required to monitor COVID relief fund usage and file SARs for any suspicious transactions. By the time SBA-OIG opens formal investigation, they already have bank documentation proving you diverted PPP funds for personal use instead of approved business expenses. Middle District prosecutors use SAR evidence to prove you knew PPP funds were restricted but deliberately spent them on prohibited purposes, establishing criminal intent.

Middle District Tennessee Prosecutes Aggressively

The U.S. Attorney’s Office for Middle District of Tennessee made pandemic relief fraud prosecution an institutional priority. In Fiscal Year 2024, the office collected $137,054,515 for American taxpayers and crime victims. Of that amount, $135,738,858 came from civil cases, primarily False Claims Act enforcement like the Mount Zion Baptist Church settlement. This demonstrates Middle District’s sophisticated dual-track approach: criminal prosecution for individuals who submitted fraudulent applications with intent to defraud, and civil False Claims Act litigation against businesses, organizations, and individuals who misused funds or made false certifications on forgiveness applications. You face exposure on both criminal and civil tracks simultaneously. Even if you’re never criminally charged, Middle District can pursue civil case with treble damages under 31 U.S.C. § 3729. Civil False Claims Act penalties are $13,946 to $27,894 per false claim (each false statement or certification counts), plus three times the government’s actual damages.

Middle District pursues everyone – churches, small businesses, large corporations, healthcare providers, restaurants, construction companies, professional service firms. Mount Zion Baptist Church’s $70,464 settlement shows they pursue cases under $100,000. The ten-defendant $950,000 case shows they pursue mid-sized frauds. They also participate in multi-district investigations of million-dollar schemes. No one is too small to prosecute. No organization gets special treatment. The church’s whistleblower case demonstrates additional risk: employees, bookkeepers, accountants, board members, and business associates with knowledge of false claims can file qui tam lawsuits under False Claims Act. Whistleblowers receive 15-30% of government recovery. Kiara Moore received $10,569 – over 15% – for reporting the church’s $70,464 misuse. If you misused $500,000 in PPP funds and your bookkeeper, office manager, or business partner files whistleblower complaint, they could receive $75,000-$150,000 while you face treble damages plus criminal investigation.

Middle District has dedicated Assistant U.S. Attorneys with specialized training in PPP regulations, forensic accounting, and pandemic relief fraud prosecution. Congress extended statute of limitations from 5 to 10 years by passing PPP and Bank Fraud Enforcement Harmonization Act of 2022. For PPP loans disbursed in 2021, statute doesn’t expire until 2031. If you received PPP loan in 2020 or 2021, you remain exposed to federal prosecution for 5-9 more years. Middle District continues filing new cases through 2025 and will continue through end of decade. The Shelbyville woman’s July 2025 sentencing for April 2020 loan shows they’re prosecuting cases 5+ years after disbursement.

Sentencing in Middle District follows federal sentencing guidelines strictly. Under $100,000 with full cooperation and early guilty plea: 6-18 months prison. $100,000-$350,000 with cooperation: 18-30 months like the Shelbyville woman likely faces. $350,000-$1 million with cooperation: 30-48 months. Over $1 million with cooperation: 4-8 years. Without cooperation or after trial conviction: add 50-70% to guideline ranges. The ten defendants charged for collective $950,000 face widely varying sentences based on individual roles and amounts. Primary scheme organizers face 3-6 years even with cooperation. Participants who submitted false applications face 2-4 years with cooperation. If any of the ten go to trial and lose, they face 5-10 years depending on their individual fraud amounts.

Restitution is mandatory under 18 U.S.C. § 3663A for all PPP fraud convictions. Defendants must repay full PPP loan amount received regardless of how much was actually misused. If you received $300,000 PPP loan and used $250,000 properly for payroll but $50,000 for prohibited personal expenses, you still owe $300,000 restitution because the loan was obtained through fraud or misused in violation of program requirements. This is federal debt that survives bankruptcy discharge under 11 U.S.C. § 523(a)(7) and follows you for life. The Shelbyville woman owes $223,800 ($105,800 + $118,000). Mount Zion Baptist Church paid $70,464 in civil settlement. U.S. Treasury garnishes tax refunds, Social Security benefits, wages, seizes bank accounts and real property to collect restitution and civil judgments. Collection continues for 20 years or until paid in full.

Supervised release after prison is standard in Middle District: 3 years for frauds under $500,000, 5 years for frauds over $500,000. Supervised release conditions include: cannot start, manage, or have signatory authority on any business without probation officer written pre-approval; must provide immediate access to all financial records, bank statements, tax returns, and business documents upon request; cannot incur new debt over $500 without written permission; must maintain full-time employment or prove active job search with documentation; submit to random announced and unannounced financial audits; allow probation officer home and business visits without warrant; potential electronic GPS monitoring for high-dollar frauds. Violating any supervised release condition – even technical violations like changing jobs without permission – sends you back to prison for remaining term plus additional sanctions.

The critical mistake Nashville business owners make is responding to initial SBA audit letters, loan review questionnaires, or Office of Inspector General inquiries without experienced federal criminal defense counsel. They think cooperation and explanation will resolve the matter administratively with simple loan repayment and no criminal consequences. They respond to SBA-OIG questionnaires explaining their accountant miscalculated payroll, or they didn’t understand rules about independent contractors, or they used some PPP funds for expenses they later learned were prohibited. Those written responses become evidence in criminal prosecution. “I may have included some 1099 contractors in employee count by mistake” = admission you inflated payroll. “I used PPP funds for mortgage principal not realizing only interest was allowed” = admission of misuse like Mount Zion Baptist Church. Mount Zion’s settlement came after whistleblower filed qui tam complaint with detailed evidence. If church had consulted counsel before responding to initial inquiries, they might have negotiated better settlement terms or structured voluntary repayment differently.

At Spodek Law Group – Todd Spodek has defended federal fraud cases in Tennessee for many, many, years. If Middle District contacted you about your Nashville PPP loan – if SBA Office of Inspector General sent audit letter questioning payroll calculations, employee numbers, or fund usage – if FBI, IRS Criminal Investigation, or SBA-OIG agents asked to interview you about your application or forgiveness certification – if former employee or business associate might have knowledge of misuse – time matters critically. Middle District of Tennessee collected over $137 million in FY 2024 through aggressive PPP enforcement. They prosecute criminally and pursue civil False Claims Act recovery simultaneously. You face dual exposure plus potential whistleblower lawsuits. Call 212-300-5196.