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

Dr. Nick Oberheiden is a nationally recognized expert on PPP loan laws
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Although 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 have recently learned 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. If your company’s PPP loan account has been frozen, this is potentially a very serious matter, and you should engage federal defense counsel immediately.

Why are the SBA and DOJ Scrutinizing PPP Loan Recipients?

Despite being created just months ago under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, the PPP and PPP loan recipients are already the subject of intensive scrutiny. 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 effectively exhausted in a matter of minutes after the program was launched), it is expected that a 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
Dr. Nick Oberheiden

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John W. Sellers
John W. Sellers

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U.S. Department of Justice

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Joanne Fine DeLena
Joanne Fine DeLena

Former Assistant U.S. Attorney

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Joe Brown
Joe Brown

Former U.S. Attorney & Former District Attorney

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Amanda Marshall
Amanda Marshall

Former U.S. Attorney

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Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

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Roger Bach
Roger Bach

Former Special Agent (OIG)

Gamal Abdel-Hafiz
Gamal Abdel-Hafiz

Former Supervisory Special Agent (FBI)

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan
Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

What Constitutes PPP Loan Fraud?

Given that the SBA and the DOJ are working around the clock 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.
  • Submitting false or fraudulent information in support of a PPP loan application
  • Submitting a fraudulent certification in support of a PPP loan application
  • Using PPP funds for ineligible business purposes (i.e. anything other than payroll, rent, mortgage interest, or utilities)
  • Using PPP funds for an illegal purpose (i.e. to finance bank fraud, insurance fraud, or other fraudulent business activities)
  • Submitting a fraudulent certification for PPP loan forgiveness
  • Misrepresenting or unlawfully concealing information during a PPP loan fraud audit or investigation

This list is not exhaustive, 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. Critically, not only should new PPP loan applicants review these FAQs in detail prior to submitting their applications, but current PPP fund recipients should review the FAQs to determine if they are in compliance as well. In addition to representing companies that are facing PPP loan fraud allegations, we are also representing companies with regard to proactive PPP compliance, and 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 the My Company’s PPP Loan Account has Been Frozen?

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

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

If federal authorities have frozen your company’s PPP loan account, this means that there is at least some evidence to suggest that your company has engaged in PPP loan fraud. This does not mean that this evidence is dispositive, and it also does not mean that there is no exculpating evidence available. But, 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 previously-published 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

Similar steps should be taken in the event of a DOJ PPP loan fraud investigation as well; although, depending on the circumstances involved, companies may need to swiftly take additional steps in order to mitigate their risk of facing federal charges. We are representing 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?

While 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 have the potential to be severe, and companies and their owner 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 including:

  • Aggravated identity theft
  • Bank fraud
  • Conspiracy to commit bank fraud
  • Conspiracy to make false statement 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; and, 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.

While the consequences of a PPP loan prosecution can be severe, there are also many potential defenses to each of the federal offenses listed above. With regard to 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 only have limited information to go on initially; and, once defense counsel has been engaged, it will be possible to affirmatively demonstrate compliance with the program’s requirements.

For companies that are not in compliance with the PPP, defending against federal loan fraud allegations following a bank account freeze will require a different approach, 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, you do not have 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 consultation.

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