What Should I Do If My Bank Freezes My PPP Loan Account?

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While the U.S. Treasury Department has recently announced that it no longer intends to have the U.S. Small Business Administration (SBA) systematically audit companies that received less than $2 million in federal funds under the Paycheck Protection Program (PPP), audits and investigations of PPP loan recipients are still ongoing. Under the Treasury Department’s latest guidance, the SBA will still be auditing all recipients of PPP loans of $2 million or greater, and the U.S. Department of Justice (DOJ) is independently investigating allegations of PPP loan fraud as well. This includes alleged fraud involving loans below the SBA’s $2 million audit threshold.

We know that some PPP loan recipients are having their loan accounts frozen in connection with these audits and investigations. For some companies, having their PPP loan account frozen is the first indication that their loan application or their use of PPP funds is under scrutiny. It is potentially a very serious matter if your company’s PPP loan account has been frozen, and you should promptly engage expert federal defense counsel.

Why are the SBA and DOJ Scrutinizing PPP Loan Recipients?

The PPP and PPP loan recipients are already the subjects of intensive scrutiny, despite the fact that the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act was created just months ago. The terms of the PPP made it very easy for companies to receive federal loans that were entirely forgivable provided that certain basic conditions were satisfied; and, given that the program was created in a time when much of the country’s economy was shuttered due to the novel coronavirus (COVID-19) pandemic, it proved to be exceedingly popular.

It also proved to be a prime target for fraud.

Of the initial $349 billion allocation to the PPP (which was essentially exhausted in a matter of minutes after the program was launched), it is expected that tens, if not hundreds, of millions of dollars were either (i) issued to individuals or businesses that submitted fraudulent loan applications, or (ii) used for purposes not permitted under the forgiveness conditions of the PPP. This has led to criticism in the media, and it has all but forced the federal government to take a closer look at the companies that are currently utilizing PPP funds.

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Dr. Nick Oberheiden

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Lynette S. Byrd

Former Department of Justice

Brian J. Kuester

Former U.S. Attorney
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John W. Sellers

Former Senior Trial Attorney
U.S. Department of Justice

Local Counsel

Joanne Fine DeLena

Former Assistant U.S. Attorney

Local Counsel

Joe Brown

Former U.S. Attorney & Former District Attorney

Local Trial & Defense Counsel

Amanda Marshall

Former U.S. Attorney

Local Counsel

Aaron L. Wiley

Former Federal Prosecutor

Local Counsel

Roger Bach

Former Special Agent (OIG)

Michael Koslow

Former Supervisory Special Agent (FBI)

Chris Quick

Former Special Agent (FBI & IRS-CI)

Ray Yuen

Former Supervisory Special Agent (FBI)

What Constitutes PPP Loan Fraud?

Given that the SBA and the DOJ are continuously working to uncover and prosecute instances of PPP loan fraud, this begs the question: What constitutes PPP loan fraud?

We previously published an article that discussed seven potential forms of PPP loan fraud in depth. These included:

• PPP loan “stacking,” or obtaining loans from more than one lender.
• Misrepresenting or unlawfully concealing information during a PPP loan fraud audit or investigation
• Submitting a fraudulent certification for PPP loan forgiveness
• Submitting a fraudulent certification in support of a PPP loan application
• Submitting false or fraudulent information in support of a PPP loan application
• Using PPP funds for an illegal purpose (i.e. to finance bank fraud, insurance fraud, or other fraudulent business activities)
• Using PPP funds for ineligible business purposes (i.e. anything other than payroll, rent, mortgage interest, or utilities)

This is a non-exhaustive list, and the SBA has published (and is continuing to update) a Frequently-Asked Questions (FAQs) document that provides important information for PPP loan applicants and recipients. It is important that new PPP loan applicants review these FAQs in detail prior to submitting their applications, and that current PPP fund recipients should review the FAQs to determine if they are in compliance as well. Along with representing companies that are facing PPP loan fraud allegations, we are also representing companies with regard to proactive PPP compliance. Our attorneys can assist you if you have any questions or concerns about the PPP application criteria or the program’s forgiveness eligibility requirements.

What Should I Do if My Company’s PPP Loan Account has Been Frozen?

It is imperative that you engage federal defense counsel as soon as possible if your company’s PPP loan account has been frozen. However, it is also important to not assume that your company is liable for PPP loan fraud. Although there are many forms of PPP loan fraud – and although many individuals and companies have defrauded the PPP – if you have done your best to comply, there is no reason to assume that your company’s activities have been unlawful.

However, this does not mean that you should simply assume that everything will be fine.

It means that there is at least some evidence to suggest that your company has engaged in PPP loan fraud if federal authorities have frozen your company’s PPP loan account. This does not mean that this evidence is dispositive, and it also does not mean that there is no exculpating evidence available. Nevertheless, in order to demonstrate that your company is in compliance and have its account unfrozen, you will need to affirmatively address the issue, and it will be in your company’s best interests to address it proactively with the advice and representation of experienced federal defense counsel.

In another article, we discussed the steps companies should take upon learning that the SBA is auditing their PPP loan application and use of PPP funds. These included:

• Collect the documentation used to prepare your company’s PPP loan application
• Collect all other PPP-related documentation (including, but not limited to) records of disbursements of PPP funds
• Re-assess whether your company meets the PPP application and forgiveness eligibility criteria
• Determine whether any other issues are at risk for being exposed during an SBA audit
• Engage federal audit defense counsel to represent your company throughout the SBA’s audit

In the event of a DOJ PPP loan fraud investigation, similar steps should also be taken; however, depending on the circumstances involved, companies may need to promptly take additional steps in order to mitigate their risk of facing federal charges. We represent companies in federal audits and investigations nationwide, and our attorneys and former federal agents have extensive experience handling both types of inquiries.

What are the Risks of Being Targeted for PPP Loan Fraud?

Although the PPP is a unique program that Congress created specifically to provide relief to struggling businesses during the COVID-19 pandemic, fraud targeting the program is a serious offense that will be prosecuted similarly to other types of federal program fraud. This means that the penalties can be severe, and companies and their owners and executives will be at risk for both civil and criminal prosecution. In some of the federal criminal prosecutions for PPP loan fraud to date, the DOJ has filed criminal complaints asserting charges such as:

• Aggravated identity theft
• Bank fraud
• Conspiracy to commit bank fraud
• Conspiracy to make false statements to influence the SBA
• Making false statements to a financial institution
• Making false statements to the SBA
• Wire fraud

Each of these offenses carries the potential for substantial fines and years, if not decades, of federal imprisonment. Additionally, in many cases, defendants are facing multiple counts of multiple alleged offenses. If charged civilly, companies and their owners and executives can face fines, loss of government contract and program eligibility, and other federal penalties.

Although the consequences of a PPP loan prosecution can be severe, there are also many effective potential defenses to each of the federal offenses listed above. Regarding the PPP loan program specifically, many companies will be able to avoid liability by demonstrating (i) that they met the requirements for loan eligibility, and (ii) that they have used their PPP funds as required in order to secure forgiveness. In many cases, SBA auditors and DOJ investigators initially only have limited information; and, once defense counsel has been engaged, it will be possible to demonstrate strong compliance with the program’s requirements.

Defending against federal loan fraud allegations following a bank account freeze will require a different approach for companies that are not in compliance with the PPP, but there will still generally be defenses available. These defenses can range from statutory defenses (such as lack of criminal intent) to the assertion of constitutional protections (such as failure to secure a search warrant based upon probable cause). If your company’s PPP loan account has been frozen, our attorneys and former federal agents are prepared to defend you by all means available, and we encourage you to contact us promptly for a free and confidential assessment of your PPP loan fraud case.

Are you being audited by the SBA or investigated by the DOJ for PPP loan fraud? If so, there is no time to waste. To discuss your defense strategy in confidence, contact us today.

Speak with a Federal PPP Loan Fraud Defense Lawyer at Oberheiden P.C.

Our firm is representing individuals and companies nationwide in federal PPP loan fraud audits and investigations during the COVID-19 pandemic. If you need legal representation, we encourage you to call us immediately at 888-680-1745 or contact us online for a complimentary and confidential consultation.

Last Updated: 2023-09-04