Ppp Litigation: How to Defend Ppp Loan Claims and Minimize Exposure

The DOJ's COVID-19 Fraud Enforcement Task Force coordinates PPP fraud investigations across federal agencies, including the SBA's Office of Inspector General and the FBI. Investigators use data analytics to identify red flags including applications submitted for shell companies, employees whose Social Security numbers do not match IRS payroll records, and borrowers who diverted proceeds to personal accounts. Businesses or individuals who receive a subpoena related to their PPP loan should engage federal criminal defense counsel immediately before making any voluntary disclosure.

PPP fraud liability arises from material misrepresentations in a loan application or forgiveness certification, including false certifications about employee counts and payroll costs. A representation is material if it would have a natural tendency to influence the government's decision to approve the loan or grant forgiveness, and courts have found materiality even where accurate information might not have changed the outcome. Borrowers who believe their PPP applications may contain inaccuracies should consult small business fraud counsel to assess the inaccuracy's legal significance.

The False Claims Act imposes civil penalties of between $13,946 and $27,894 per false claim plus treble damages, which in PPP cases typically equals treble the loan amount. A borrower who received a $500,000 PPP loan based on false certifications faces FCA civil liability of $1.5 million in treble damages plus per-statement penalties, and the government can pursue civil liability even if it declines to bring criminal charges. Borrowers served with a civil investigative demand or qui tam complaint should engage federal and state fraud defense counsel immediately to evaluate the government's theory and potential defenses.

Qui tam provisions of the False Claims Act allow a private citizen with inside knowledge of fraud, called a relator, to file a sealed lawsuit on the government's behalf and receive a share of any recovery. Former employees, competitors, vendors, and lenders are all potential relators in PPP fraud cases. A qui tam complaint can be filed years after the underlying loan transactions without the defendant's knowledge. Borrowers who suspect a qui tam complaint may have been filed against them should consult whistleblower counsel immediately to evaluate their risk.

Wire fraud under 18 USC §1343 is the most common charge in PPP fraud prosecutions and carries a maximum sentence of 20 years in prison, or up to 30 years if the offense affected a financial institution. PPP fraud defendants frequently face multiple charges, including wire fraud, bank fraud, money laundering, and aggravated identity theft. Even first-time offenders face significant prison time. Individuals who are targets of a PPP fraud criminal investigation should engage wire fraud counsel to evaluate the government's evidence.

The period between the government's initial inquiry and a formal charging decision is the most critical phase in PPP litigation. Early intervention can result in declination of charges, a negotiated civil resolution, or a cooperation agreement. Defense counsel can conduct an independent investigation, identify weaknesses in the government's case, and present exculpatory information before any charging decision. Borrowers who receive a target letter or grand jury subpoena should avoid making any statements without first retaining criminal defense counsel to evaluate their full exposure.

A borrower whose forgiveness application is denied may appeal to the SBA Office of Hearings and Appeals within 30 calendar days of the denial notice, and failure to file a timely appeal waives the right to challenge the denial. Common grounds for forgiveness denial include failure to maintain employee headcount or wage levels, use of more than 40 percent of loan proceeds for non-payroll costs, and documentation deficiencies. Borrowers who disagree with a forgiveness denial should preserve the administrative record, collect payroll documentation, and engage bank fraud counsel to evaluate the denial and file an OHA appeal.

The DOJ and the SBA have settled numerous PPP fraud cases through civil settlement agreements requiring repayment of the loan principal plus a civil penalty when the borrower's conduct reflects negligence rather than intentional fraud. A borrower who identifies a material inaccuracy before a government investigation may make a voluntary self-disclosure to the SBA's OIG and negotiate a favorable civil settlement. Borrowers seeking to resolve PPP loan liability should engage civil settlements in lawsuits counsel experienced in False Claims Act negotiations.