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If an SBA Office of Inspector General agent, an FBI agent, or your lender has contacted you about a PPP loan, an EIDL loan, or another SBA loan, you are probably wondering how the government investigates these cases and what happens next. This article explains it from the defense side: what investigators look at, how a review becomes a criminal case, and what to do before you respond. The Law Office of Vikas Bajaj, APC represents clients in federal investigations and prosecutions across the United States. If you are trying to report suspected fraud, use the SBA OIG Hotline.
Two points matter at the outset. First, Congress gave prosecutors 10 years to bring fraud charges or civil enforcement actions alleging borrower fraud on PPP and COVID-19 EIDL loans (Public Law 117-166 and Public Law 117-165), so a 2020 or 2021 loan can still be investigated. Second, statements made to agents can become evidence, and a false statement to a federal agent is a separate crime under 18 U.S.C. § 1001. Talk to a lawyer before you talk to investigators. See our EIDL loan fraud defense page, or call (619) 525-7005.
What Is the Business for the Loan?
Due to the complexities of the pandemic, the federal government disbursed loan funds to provide immediate relief for business owners who applied for an SBA, PPP, or EIDL loan.
The speed of these programs also made them a target for fraud. Some criminal cases have involved people who claimed to own businesses that did not exist, or who spent loan money on personal luxuries. For PPP, a business generally qualified if it had no more than 500 employees or met SBA’s size standard for its industry (15 U.S.C. § 636(a)(36)(D)). Investigators compare what a borrower reported, such as employees, payroll, revenue, and when the business began operating, with tax filings, bank records, and other evidence.
How Is the Loan Being Used
Loan money had to be used for permitted purposes. PPP loans of up to $10 million (15 U.S.C. § 636(a)(36)(E)) could be used for payroll and certain other costs such as rent, mortgage interest, and utilities. PPP loans could be forgiven if at least 60% of the money went to payroll and the rest to other eligible costs; the forgiven amount could be reduced if the borrower cut staff or wages (15 U.S.C. § 636m). COVID-19 Economic Injury Disaster Loans (EIDL) were SBA loans for businesses suffering economic injury from the pandemic. EIDL loans were not forgivable, but an eligible applicant could receive an advance of up to $10,000 that did not have to be repaid. EIDL funds had to be used for the purposes allowed by SBA. For the EIDL advance, the law lists paid sick leave, payroll, increased material costs, rent or mortgage payments, and repaying obligations that could not be met because of revenue losses (15 U.S.C. § 9009(e)(4)). Federal investigators examine how loan money was actually spent.
Cares Act Investigations
Federal agencies, including the SBA Office of Inspector General and the FBI, continue to investigate pandemic relief loans. Borrowers certified their eligibility and their intended use of the funds, and the forms warned that false statements could lead to criminal and civil penalties. Investigators often test those certifications against email, bank, payroll, and tax records.
Loan Repayment
SBA, PPP, and EIDL loans obtained through false statements can lead to criminal investigations. If your business receives a subpoena or other government demand, preserve the records and talk to a lawyer before responding to a subpoena, an agent, or the SBA; that is a good first step. Inability to repay a loan is not a crime. In fraud cases, prosecutors can seek forfeiture of proceeds and restitution, and fines and imprisonment are possible.
Federal Cases Nationwide
PPP and EIDL cases are investigated and charged in districts across the country, and the agents and Department of Justice prosecutors on a case may be far from where the borrower lives or the business operated. Early contact is the same work in any district: counsel can reach the case agents and the Department of Justice prosecutors handling the matter, learn what can be learned about the borrower’s status, and address SBA reviews, subpoenas, target letters, and interview requests before a charging decision is made.
Federal courts set their own admission rules. Where a court requires it, Vikas Bajaj appears together with local counsel or applies for admission pro hac vice. Procedure and local practice differ from district to district, and no particular result can be promised in any of them.
Contact An Attorney
Filing for a business loan is not as simple as it seems, and a mistake in an application is not the same as fraud. If you are facing a federal investigation over a PPP, SBA, or EIDL loan, contact the Law Office of Vikas Bajaj in San Diego. Vikas Bajaj can review your situation and your options. Call (619) 525-7005 to arrange a confidential consultation.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney-client relationship. Every case turns on its own facts, and no particular outcome can be promised. Consult qualified counsel about your specific situation.