Criminal Defense

What is Loan Fraud?

June 08, 2022 by Sarah Edwards in Criminal Defense  Federal Crime  
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Loan Fraud

Loan fraud is a serious crime that usually results in severe penalties. Unfortunately, a variety of circumstances may lead to a charge of loan fraud, even in situations where there was no intent to commit a crime. When this happens, it is essential to reach out to a seasoned criminal defense attorney as soon as possible.

Loan fraud usually refers to the misrepresentation or omission of facts to obtain a loan from a banking institution. Because a bank is involved in loan fraud cases, charges are usually brought at the federal level.

In most cases, the alleged misrepresentations occur while filling out loan paperwork, including documents submitted after a loan has been disbursed, such as audit documents.

A specific intent to defraud is an essential element of the crime. However, honest errors may sometimes appear to be willful fraud and become the target of prosecution.

Because of the rampant loan fraud that occurred with federal COVID-19 loan programs, the federal government is diligently reviewing millions of documents for evidence of fraud.

Many individuals have been prosecuted and have received significant prison sentences and hefty fines.

What Happens If I Am Charged with Loan Fraud?

If you are charged with loan fraud, you will be required to answer the charges. The first step after this happens is to consult with an experienced defense attorney. You need to mount a strong defense against your charges as soon as possible.

Even if you have not been charged but have concerns, an attorney can help prepare you for any eventualities.

During a loan fraud case, the prosecutor will be pouring over your loan documents to prove their case. The type of loan in question will determine the course of the investigation.

For COVID-19 prosecutions, the government will look closely at PPP and SBA applications for misrepresentation of information needed for loan qualification.

PPP Loans

During the pandemic, the Paycheck Protection Program (PPP) provided vital loan assistance to small business owners. In many cases, the loans were forgivable, essentially making them grants, and they were disbursed rapidly, making it easy to obtain a loan without a comprehensive vetting process.

Applicant businesses needed to fulfill specific requirements to be eligible for these loans, including:

  • Have less than 500 employees
  • Be open and operational before Feb 15, 2020
  • Be currently open and operating
  • Certify the funds were going to specific business expenses, including 60% towards payroll expenses

Misrepresentation in any of these or other PPP requirements is a potential grounds for federal criminal prosecution.

SBA Loans

The Small Business Administration (SBA) offers a variety of loans, including PPP loans. The money received can be used for reasonable business expenses. As with PPP loans, prosecutors will be looking closely at the qualification requirements of applicant businesses and their use of funds.

They will also be searching for instances of loan stacking. Loan stacking occurs when an eligible applicant business applies for and receives an SBA loan from more than one lender.

Mortgage Loan

Lying on a mortgage application can lead to prison time and significant fines. Even a little white lie or an exaggeration can result in multiple felony criminal charges. As with other loans, an error on mortgage paperwork may also be viewed as an intentional attempt to defraud and could draw the eyes of federal prosecutors.

Regardless of the type of loan fraud you are charged with, contacting a defense attorney is fundamental to your success and peace of mind. As you may know, criminal charges of this nature do not fade away, nor are they put on hold for more important business. Loan fraud is the Department of Justice’s business of the day.

Potential Charges and Penalties for Loan Fraud

Prosecutions for loan fraud at the federal level often involve multiple charges, each of which is usually a felony. In many cases, the charges will be stacked, which gives the prosecution a leg up. Wire fraud is almost guaranteed to be one of the charges.

Another common charge is the making of false statements to the SBA. The penalties are harsh and include a maximum of 30 years in federal prison and a fine of up to $1 million. The same penalties apply for lying on an application for a bank loan or in other statements to an FDIC-insured bank.

Additionally, conspiracy charges, which could net you an additional five years of incarceration, may arise out of fraudulent or perceived fraudulent activity if you acted in concert with one or more individuals. You may also be charged with lying to a federal agent during an investigation if you conceal the truth in an interview.

False Claims Act Violations (31 U.S.C. §§ 3729 – 3733) – Prohibits the submission of any “false or fraudulent” claim for payment under a federal benefit program. Submitting false information in a PPP loan application and submitting a fraudulent PPP loan forgiveness certification both can lead to charges under 31 U.S.C. §§ 3729.

Making False Statements to the Small Business Administration (SBA) (18 U.S.C. § 1014) – It is a federal offense to “knowingly makes any false statement or report for the purpose of influencing in any way the action of the Small Business Administration.” The Small Business Administration (SBA) is the agency responsible for administering the PPP. Penalty includes up to $1 million fine and 30 years in federal prison.

Making False Statements to an FDIC-Insured Bank (18 U.S.C. § 1014) – Section 1014 imposes the same penalties for making false statements to FDIC-insured banks and other financial institutions. Subsequently, individuals and companies that submitted false information in their PPP loan applications have the potential to face charges regardless of whether or not they are accused of submitting false information directly to the SBA.

Bank Fraud (18 U.S.C. § 1344) – “knowingly executing, or attempting to execute, a scheme or artifice to defraud a financial institution; or (2) to obtain any of the moneys under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises.”

Wire Fraud (18 U.S.C. § 1343) – Any fraudulent activity that involves Internet communication or that is conducted in whole or in part over the Internet can lead to wire fraud charges under 18 U.S.C. § 1343.

Conspiracy (18 U.S.C. § 371 and 18 U.S.C. § 1349) – Conspiring to commit PPP loan fraud is a federal offense that can lead to penalties up to and including the same penalties imposed for the “successful” commission of a PPP loan fraud offense.

Aggravated Identity Theft (18 U.S.C. § 1028A) – Using another company’s or individual’s information in order to fraudulently get a PPP loan can be prosecuted as aggravated identity theft under 18 U.S.C. § 1028A. Penalties include two years in prison, and must be served consecutively.

Tax Evasion (26 U.S.C. § 7201) – Under 26 U.S.C. § 7201, federal tax evasion carries fines of up to $100,000 (for individuals) or $500,000 (for corporations) and up to five years of federal imprisonment.

Making False Statements to Federal Agents (18 U.S.C. § 1001) – When facing an SBA audit or an SBA-OIG, DOJ, or FBI investigation targeting allegations of PPP loan fraud, individuals must be extremely careful to not make false statements.

Attempt (18 U.S.C. § 1349) – Like, conspiracy, attempt carries the same penalties as the underlying substantive offense even if carried out unsuccessfully.

Contact A Lawyer

If you have questions or concerns about loans and issues of fraud, speaking with an attorney can help you get clear answers.

At Esfandi Law Group, we have a seasoned criminal defense attorney waiting to discuss your case. Remember, all of your communications are confidential, and the initial consultation is free.

Need an Attorney? CALL NOW: 310-274-6529

Seppi Esfandi is an Expert Attorney who has over 21 years of practice defending a variety of cases.

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