At the beginning of the pandemic, the U.S. Government launched several programs designed to help small businesses and individuals weather the economic storm. These programs, like the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL), provided critical financial lifelines. However, now that these programs have ended, the government has begun to aggressively investigate and prosecute alleged fraud cases across the country. If you find yourself facing fraud charges related to these loans, understanding your rights and legal options is crucial. You’ll want to fight them as hard as you can.
This article will explore:
- What PPP Loans are and new government efforts to combat fraud;
- The faces of COVID-relief fraud and how it relates to common types of fraud; and
- How to fight charges when backed into a corner.
The Pandemic and PPP Loans
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This sweeping $2.2 trillion stimulus package included the creation of the $350 billion Paycheck Protection Program (PPP). The PPP was designed to help small businesses sustain themselves through the pandemic by providing loans that could be forgiven if used for specific purposes, such as payroll and rent. Congress eventually increased PPP’s available funds to $669 billion.
Another significant component of the CARES Act was the expansion of the Small Business Administration’s Economic Injury Disaster Loans (EIDL loans) to include nonprofit organizations. These loans were intended to help owners cover operating expenses or bills to offset revenue losses.
In Maryland, the state established its own Emergency Relief $75 million Loan Fund, offering up to $50,000 to businesses that demonstrated financial distress, such as tenants unable to pay rent or businesses facing disrupted supply chains.
By May 31, 2021—the end of PP, the Small Business Administration processed nearly 12 million loans totaling $800 billion; this does not include EIDL loans, though, which are still available.
The sheer volume of loans disbursed created a significant opportunity for fraud. In response, Attorney General Merrick Garland established a COVID-19 Fraud Enforcement Task Force in May 2021. By August of the same year, the Department of Justice (DOJ) announced it had prosecuted more than 100 defendants in over 70 criminal cases, confiscating upwards of $65 million. DOJ studies also suggest that around 15 percent of all PPP loans contained at least one indication of possible fraud.
It’s clear that both the U.S. and state Justice Departments, including in MD, VA, PA, and DC, are on high alert for PPP fraud now that many of the programs have ended. If you are facing legal issues in these areas, consult with JC Law.
What Does COVID-Relief Loan Fraud Look Like?
Fraudulent claims that lead to the collection of money via PPP or EIDL loan programs are serious and can result in multiple charges and penalties. The severity of these charges often depends on the amount of money defrauded and the extent of the scheme. Involving other people, even unknowingly, can also lead to harsher penalties.
The types of fraud committed can vary. In the digital age, wire fraud is a common charge. Wire fraud involves any scheme to defraud another person using electronic means. Federal charges for wire fraud can carry severe consequences, including up to 20 years in prison, three years of supervised release, and $250,000 in fines. The government may also seek forfeiture of assets or restitution to victims.
Another potential charge is bank fraud, which arises from allegedly deceiving a financial institution through false statements on a PPP loan application. A misdemeanor bank fraud charge can lead to up to a year in jail, while a more serious felony charge carries a potential sentence of up to 30 years.
Some recent examples of PPP-related fraud in Maryland include:
- Providing fraudulent tax forms to obtain a higher amount of PPP loans than otherwise owed.
- Using appointed government positions to defraud people of their money through the identities of non-existent people.
- Applying for PPP loans using multiple identities or business identities in an attempt to take more money than you’re owed.
- Using PPP loans to buy luxury items or for otherwise unapproved purposes.
These examples highlight the diverse ways in which individuals have attempted to defraud the PPP. While these cases may seem specific, any scheme to obtain extra cash through deceptive means can quickly lead to serious fraud charges.
Here’s a breakdown of potential charges and penalties:
| Charge | Description | Potential Penalties |
|---|---|---|
| Wire Fraud | Using electronic communication to execute a fraudulent scheme. | Up to 20 years in prison, 3 years supervised release, $250,000 fine, asset forfeiture |
| Bank Fraud | Deceiving a financial institution through false statements/actions. | Up to 30 years in prison (felony), Up to 1 year in jail (misdemeanor). |
| PPP Loan Fraud | Misrepresenting information to obtain a PPP loan or misuse PPP funds. | Varies depending on the amount defrauded and other factors, but can include prison time, fines, and restitution. |
| EIDL Loan Fraud | Misrepresenting information to obtain an EIDL loan or misuse EIDL funds. | Varies depending on the amount defrauded and other factors, but can include prison time, fines, and restitution. |
Know Your Legal Options If Accused of Fraud
If a law enforcement officer interrogates you about your role in a PPP fraud case, it is imperative that you do not speak without a lawyer present. Anyone can be charged with fraud. Although often considered a ‘white-collar crime,’ any business professional, regardless of experience or association, could participate in or be accused of fraud.
A police investigator might tell you they “just want to help” and that answering a few questions can help them help you. Do not fall for this tactic. Retain an attorney first. They can help you assess your situation and organize a defense against allegations. At a minimum, they can advise you on what to say and when to say it. James E Crawford, Jr., along with JC Law, can provide the legal expertise needed to navigate these complex situations.
“The first thing I tell clients is that silence is your best friend. Don’t try to explain or justify anything to law enforcement without first consulting with an attorney. Your words can and will be used against you.”
It is also crucial to maintain meticulous business records. Having a clear paper trail can provide your lawyer with a comprehensive understanding of your case.
With these tools, your lawyer can craft a robust defense against your allegations. While all fraud cases are unique, several common defenses can be employed, especially in wire fraud cases:
- Lack of Intent to Commit Fraud: You may find yourself in a situation where you did not intend to commit fraud but are still facing serious charges. If you have maintained detailed business records and can provide the necessary proof to your lawyer, they may pursue a lack-of-intent defense. Given the novelty of these loan programs, you may have simply made a mistake on the application.
- Acting in Good Faith: If you genuinely believed that the claims you made that led to the fraud allegations were accurate, your lawyer could use a good-faith defense. However, even if you claim good faith, the statements that lead to fraud might seem otherwise to a judge and jury.
- Claiming Legitimate Use: As mentioned above, PPP and EIDL loans require that the funds be used for legitimate business expenses. If you are facing fraud charges alleging you misused a loan but can prove the opposite, your lawyer can use that in a defense.
If you face loan fraud allegations, contacting our offices for a free initial consultation is critical. These charges are serious, and our accomplished lawyers are ready to help you mount an aggressive defense. Don’t hesitate; on top of coming out of a pandemic, you don’t want to deal with a felony. Get in touch with a lawyer today, especially if located in MD, VA, PA, and DC.
