Conspiracy & Attempt to Commit PPP Loan Fraud - Title 18 U.S. Code 371 & 1349
When the coronavirus pandemic initially forced millions of businesses to shut down, the federal government quickly rolled out the Paycheck Protection Program (PPP) loan for business owners, a forgivable loan intended to keep employees on the payroll and minimize layoffs.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was primarily designed to help people and businesses affected by the coronavirus (COVID-19) pandemic. The PPP ran out of funds quickly, and many eligible companies could not receive a loan.
The unintended result of the rushed process is an estimated $76 billion in fraudulent PPP loans.
Since then, the federal government has been intensifying its crackdown on suspected fraudsters of the PPP loan program—even to the point that those who allegedly attempted to commit PPP loan fraud may now face federal charges, whether or not their applications went through.
In response to concerns over the risk of fraudulent activity related to PPP, the United States Department of Justice launched a comprehensive federal investigation to identify loan fraud and pursue criminal charges against anyone defrauding the program.
These investigations are now standard. PPP loan fraud occurs when someone or a business submits false information on an application for a loan under the federal Paycheck Protection Program (PPP).
Most of those now being charged with federal crimes for PPP loan fraud and other CARES Act violations are being charged under one of two federal laws, and sometimes both: conspiracy to commit offense or defraud the United States (Title 18 U.S.C. 371) and attempt and conspiracy (Title 18 U.S.C. 1349).
Our federal criminal defense lawyers will examine these statutes more closely below.
Overview of 18 U.S.C. 371
This law applies to any conspiracy that has as its object any federal offense against the United States or any fraud or deceit committed against it.
Federal prosecutors and agents will target a person or business that violated the terms and conditions of the PPP program by doing any of the following acts:
- submitting false information on a PPP loan application,
- applying for a PPP loan from several lenders (loan stacking),
- fraudulent loan certification,
- using PPP funds for an unapproved purpose,
- lying to federal agents during a PPP loan fraud audit.
To be convicted of this crime, the government must prove that you agreed with one or more other people to commit an illegal act and that you took some action towards carrying out that plan.
In the case of PPP loan fraud, federal prosecutors must show that you and at least one other person effectively "hatched a plan" either to fill out fraudulent PPP loan applications or to use the money in ways it was not allocated.
EXAMPLE: During the pandemic lockdowns, "entrepreneurs" Tom and Jerry got an idea for creating a series of fake business entities and applying for PPP loans for them.
They got some of their friends involved in the plan to create more fake businesses, promising to split the money with each other. Even if Tom and Jerry's plan failed, they could be charged under 18 U.S.C. 371 because they conspired together to commit PPP loan fraud.
Companies that misrepresent information on their loan application to claim eligibility fraudulently could face criminal prosecution. Some examples of misrepresentation in the application include:
- number of employees, as most are required to have 500 or less,
- misclassifying employees as independent contractors,
- claiming their business met the small business eligibility standard,
- misrepresenting the business payroll cost to increase the loan.
18 U.S.C. 1014 false statementsto a financial institution prohibit lying on a loan application or in the documents provided to qualify for the loan.
Overview of 18 U.S.C. 1349
This law applies to any fraud in Chapter 63 of the Federal Criminal Code. It seems ambiguous to read, but it carries a heavy punch.
It simply says: "Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy."
This is a long way of saying that in the eyes of the federal government, attempting to commit federal fraud is the same as actually succeeding and therefore carries the same penalty. This law has a broader reach than U.S.C. 371 because it covers conspiracies between two or more people and individuals who attempt fraud on their own.
EXAMPLE: John owned a small business forced to shutter when the pandemic hit. After seeing how easy it was to get a PPP loan, he formed several more "companies" to get more loans.
He registered three more business names with fake addresses and sent in his applications. The applications were denied because the addresses couldn't be verified.
Although John was unsuccessful in getting more PPP loans and didn't conspire with anyone, he can still be charged with attempted fraud as an individual under U.S.C. 1349. If convicted, he could face the same penalty as if he had succeeded.
What Are the Penalties for PPP Loan Fraud?
Using these two laws, the federal government can inflict somewhat harsh penalties on those who successfully committed PPP loan fraud and those who conspired and attempted to do so.
Under 18 U.S.C. 371, a conviction of conspiracy can result in a maximum of 5 years in prison per count and fines up to $250,000, regardless of whether the plot succeeded.
The penalty for conviction under 18 U.S.C. 1349 could be significantly less or more, depending on the underlying crime you're charged with.
If the PPP loan fraud was classified as 18 U.S.C. 1344 bank fraud, for example, you could face up to 1 year in prison, but if it's classified as 18 U.S.C. 1343 wire fraud, the prison sentence could go as high as 20 years.
In either case, 18 U.S.C. 1349 makes you eligible for the same sentence for attempting to commit PPP loan fraud as if you had succeeded. If successful, you'd also have to pay back the money you took fraudulently.
What Should You Do If Under an Investigation?
Talking to a federal agent without first consulting with a criminal lawyer is highly risky as you could be charged with obstruction of justice or making a false statement to the agents in addition to PPP loan fraud.
Don't be fooled when federal agents seem friendly. They are not on your side. Be polite, but don't answer their questions, as you might make incriminating statements. Contact a federal criminal defense lawyer to review the case and legal options.
You can take some steps to avoid criminal charges being filed. Perhaps we can turn the case into a civil disposition, such as paying back the money and a fine.
We can help review all the crucial information, such as evidence the government has against you, along with your documentation to determine whether you have a strong defense against the fraud accusations.
Perhaps we can negotiate with the federal prosecutor or agents and work out a resolution that doesn't involve filing formal criminal charges.
Eisner Gorin LLP is located in Los Angeles, California. We provide legal representation across the United States on federal criminal issues. You can contact us for an initial case review by phone or use the contact form.