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PPP & EIDL Loan Fraud

Dallas PPP & EIDL Loan Fraud Attorney

Unmatched Representation with Thousands of Successful Cases

At the Law Offices of Patrick L. McLain, PLLC, you can expect to work with a results-driven and professional attorney with unmatched experience. He has successfully litigated over 3,500 cases and brings experience as a former federal prosecutor and military judge. Attorney McLain is a personable and attentive advocate who will do his best to protect you against any loan charges in Dallas.

What Are the Terms of a PPP Loan and an EIDL?

After the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide relief to individuals and businesses facing economic hardship due to the COVID-19 pandemic, it also implemented 2 types of loans guaranteed by the Small Business Administration (SBA) —the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan Program (EIDLP).

PPP loans are available to businesses with fewer than 500 employees that were in operation on February 15, 2020. Individuals operating as a sole proprietor or independent contractor and nonprofits are also eligible for PPP loans, though the organization must have employees to apply for a PPP loan, as the loan amount is based on payroll. The money from the loans can be used for payroll and other expenses like rent, mortgage interest, and utilities.

One of the benefits of a PPP loan is that it may be partially forgiven. More specifically, money spent during the first 8 weeks does not have to be paid back if it is spent on specified costs such as:

  • payroll costs for employees who earn under $100,000;
  • rent payments;
  • mortgage interest; and
  • utility payments.

Be aware that to be eligible for loan forgiveness, the business must not lay off any of its employees for at least 8 weeks after the date of the loan. If employee’s wages are cut or employees are laid off during this time, the amount of the loan that is forgivable will be reduced unless the employees are rehired by June 30, 2020.

Economic Injury Disaster Loans, on the other hand, are long-term and can last up to a maximum of 30 years. The amount of the loan and its term are determined on a case-by-case basis, and businesses must use the money to pay for operating expenses and other business expenses that cannot be met due to COVID-19.

What Constitutes Loan Fraud?

Loan fraud occurs when a person or business knowingly makes a false, material statement to a financial institution or federal agency to mislead the lender into providing them with a loan. Note that in all criminal prosecutions, the prosecutor needs to prove all the elements of the crime beyond a reasonable doubt, which requires a jury to be convinced that the defendant’s guilt is the only reasonable conclusion.

Common examples of PPP loan fraud include:

  • Falsifying Application InformationApplicants might inflate payroll figures or list fictitious employees to secure a larger loan amount. They may also misrepresent their business’s operational status or financial details to appear more eligible for the loan.
  • Misuse of Loan ProceedsSome individuals use PPP funds for personal expenses like luxury items or home improvements, rather than for payroll and essential business costs. Others may spend the funds on non-qualifying business activities, violating the program’s guidelines.
  • Multiple Loan ApplicationsFraudsters might submit several loan applications for the same business to different lenders or use multiple business entities to obtain several loans. They may also create shell companies to fraudulently receive additional PPP funds.

Here are several examples of EIDL loan fraud:

  • False Information on ApplicationsApplicants might exaggerate their business’s revenue or provide false financial statements to qualify for a larger EIDL loan. In some cases, fraudsters apply using fictitious businesses that do not actually exist.
  • Misuse of Loan FundsEIDL funds may be diverted for personal use, such as buying real estate or luxury items, instead of being used for legitimate business recovery. Alternatively, the funds might be spent on activities unrelated to the business’s operational needs.
  • Identity TheftCriminals may use stolen personal or business identities to apply for EIDL loans fraudulently. This results in the funds being issued to the fraudsters rather than to legitimate businesses.

Note that a person’s act is knowing, intentional, or willful if they are aware of certain facts or desire a certain result; an innocent mistake will not usually result in criminal liability. Additionally, a material statement in a loan application is one that affects the lender’s decision-making process, such as providing false information on payroll figures.

Penalties and Sentencing

The federal government or bank does not need to lose any money or use the false information provided for a crime to be committed. In many cases, it is punishable enough that a person made the false statements to influence the bank or agency’s decision on whether to make the loan. As a result, several federal criminal statutes apply to acts involving loan fraud depending on the nature of the offense:

  • false statements to a federal agency;
  • false statements to the SBA;
  • false statements in a loan application; or
  • bank fraud.

Anyone who knowingly makes a false, material statement aimed at deceiving or influencing a loan decision to a federal government or a federal agency could face up to 5 years’ incarceration and a $250,000 fine. If they knowingly make a false statement or overvalue securities or collateral to obtain an SBA loan, they commit a 2-year felony subject to a fine of up to $5,000. The consequences for knowingly providing a false statement to influence loan application decisions are up to 30 years’ incarceration and a fine up to $1,000,000.

At the Texas state level, it is also criminal to commit certain mortgage fraud. The state’s Residential Mortgage Fraud Act establishes that, “A person commits an offense if he intentionally or knowingly makes a material false or misleading written statement to obtain property or credit, including a mortgage loan.” If the value of the property or amount of the loan exceeds $200,000, the offense is a first degree felony punishable by 5-99 years in prison and a fine of $10,000.

Contact Attorney Patrick J. McLain for Legal Support Immediately

If you fear you may face charges for loan fraud in relation to a PPP loan or EIDL, contact an experienced attorney immediately for legal guidance. The consequences for loan fraud can be severe, ranging from decades in prison to hundreds of thousands of dollars in fines. Attorney Patrick J. McLain has successfully litigated over 3,500 cases in Dallas and can take a look at your particular circumstances to protect you against any loan fraud charges.

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Schedule a free consultation with the Law Offices of Patrick J. McLain, PLLC today online or at (214) 238-9392.

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  • Former Federal Prosecutor & Military Judge
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