The Case of the Non-Citizen Facing Felony PPP Fraud Indictment: Innocent of All Charges

This is the first in my series of articles discussing specific aspects of some of my recent criminal defense representations here in Texas.  These will be generalized discussions: particulars including the identification of clients, prosecutors, etc. will not be included for obvious privacy reasons.  No one reading these articles should assume any form of legal advice is being provided here.

This first case deals with the all-too-common allegations of felony bank fraud – specifically, PPP fraud charges advanced in our local federal district courts.  It begins as a large fraud indictment in the United States District Court for the Northern District of Texas.

The defendant, my client, faced serious felony charges based upon allegations of submitting false federal income tax documents (in support of the loan application) and inflating income as a 1099 worker.  An added challenge: the accused was not a citizen of the United States, although he was a permanent resident of our country.

What is PPP?

During the Pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was passed by Congress in an attempt to help the nation during those difficult times.   It provided a mind-blowing amount of money in excess of Two Trillion Dollars ($2,000,000,000,000.00) in relief, with $349 Billion specifically designed to provide financial help to small business owners in what was named the “Paycheck Protection Program” (“PPP”).  A second piece of Congressional legislation followed up with another $310 Billion for the PPP (i.e., the Paycheck Protection Program and Health Care Enhancement Act.)

By May 2020, PPP had $659 Billion at the ready.  The PPP then offered money to small businesses as forgivable loans if the applicant could meet the program’s requirements.  The intent: help sole proprietors; independent contractors; and the like keep their doors open with monetary help for things like making rent or payroll.  In tandem with this, approved lenders would handle the actual loan transactions as agents of the PPP.

Importantly, the CARES Act includes a provision that these PPP loans did not have to be paid back.  The legislation provides for debt forgiveness of up to the loan’s full principal amount.

The Continuing Focus on PPP Fraud Investigations and Arrests

It did not take long for federal law enforcement to begin focusing on these PPP loan transactions for potential misuse and fraud.  By March 2021, the Attorney General was announcing criminal charges for PPP fraud. Congress set up a special task force to investigate and pursue PPP Fraud, headed by the new Special Inspector General for Pandemic Recovery.

And today, years after the Pandemic and its lockdowns, federal investigations and prosecutions continue into misuse and abuse of the PPP.  See, e.g., “Waste Watch: $200 Billion in COVID relief fraud,” written by Katherine Zehnder and published by The Carolina Journal on December 30, 2024.

Legal Parameters for PPP Investigation and Prosecution

All sorts of things can invite law enforcement investigation into the activities of either an individual or a business into potential PPP fraud.  They may suspect false information was provided in the PPP application:  payroll is curiously high, some expenses seem strange, etc.

However, they cannot just willy-nilly roam through these loan applications and then formally accuse and charge for fraud.  The federal investigators and the AUSA who prosecutes the case all have to follow specific legal steps and remain within legal parameters.

For instance, they all have to conform with federal fraud statutes that apply in PPP situations.  These include (1) the CARES ACT itself; (2) the False Claims Act; and (3) wire fraud laws.   Federal regulations also come into play; things like those established by the Small Business Administration (“SBA”) for eligibility conditions as well as business documentation and records requirements.

For more, read our earlier discussions in PPP Fraud: Government Loans and Federal Arrests Based on COVID-19 Relief and Health Care Fraud Arrests for Violation of Federal False Claims Act.  Also see: Arrested for Bank Fraud in Texas; and Things to Know about Wire Fraud Today: It’s a Big Deal.

Key Elements of Proof Defined by Law for PPP Fraud Charges

Within these statutory and regulatory boundaries, federal prosecutors must correlate authenticated and admissible evidence from all the things they have stuffed into their fact files to support their criminal charges for PPP Fraud.  They have to prove not only that (1) the accused did some act that was fraudulent, as defined by law, but that (2) there was an intent to deceive.  They have the burden to show beyond a reasonable doubt that the accused intentionally (deliberately, consciously) deceived the government in order to get money via a PPP loan.

Federal investigators do this by pulling together things like emails, texts, letters, and other documentary evidence; all sorts of financial records including bank account transactions and company payroll; the history and identity of employees who worked for the individual or business during the pertinent time period; and witness testimony.

They also have to prove up harm.  This may be done by the AUSA doing audits; comparing how things were going for the business or individual in the months before the PPP loan and for months thereafter; and through the testimony of various experts who give professional opinions on alleged financial harm suffered by the purported PPP fraud.

They may argue they have found a pattern of bad acts.  They may diagram connections between various people or companies that allegedly cooperated in a scheme to defraud the PPP.  They may propound an analysis of all kinds of digital data that boosts their arguments of illegal irregularities.

And if the AUSA is able to meet the evidentiary burden for all the crime’s elements, including proof of harm, then there is the likelihood of conviction and sentencing for PPP Fraud.  The sentence will comply with the language of the convicting statute as well as with the United States Sentencing Guidelines (“USSG”).

Defending Against PPP Fraud Charges

For an experienced federal criminal defense attorney, these PPP Fraud cases are a challenge.  There is no one-size-fits-all strategy to apply here: each case will have its own nuances, depending not only upon its particular factual circumstances but specific legal allegations advanced by the AUSA.

Maybe there is the complication of identity theft charges where the defendant is accused of using someone else’s personal information in order to apply for the PPP loan.  Perhaps the PPP loan itself passed muster, but how the PPP funds were used is alleged to be illegal.  And, maybe, as in the case we’re discussing here, the AUSA argues that the loan application was based upon fraud because the information provided was not true.

Defense Case Begins: Grand Jury Indictment

Without revealing specifics of my representation and sharing this general overview for purposes of illustration and instruction (see my site disclaimer for details), the case began with a grand jury indictment based upon the CARES Act for PPP fraud.  It alleged that an individual, operating as a business in Harris County, Texas, had applied for a PPP loan using SBA application documentation with a Dallas County bank serving as lender.

The indictment contained one count of bank fraud in violation of 18 USC §1344(2).  The factual basis involved a “scheme” of “unlawful enrichment” whereby the individual did these things:

• Falsified the average monthly payroll of the business; and
• Submitted false IRS forms with fake business income since in reality there had been no income payments during the pertinent time period.

It alleged that the bank approved the PPP Loan application based upon this false information and deposited approximately $18,000.00 into the business bank account, controlled by the individual. This loan was subsequently forgiven.

Complexities of This Case

There were two additional characteristics of this case that had to be involved in the building of the defense’s strategy here:

1. Forfeiture. As part of the sought-after punishment, forfeiture under 18 USC §982(a)(2) was sought by the government seeking “any property constituting or derived from proceeds obtained directly or indirect as a result of the offense,” including but not limited to the gross proceeds traceable to the alleged criminal act.
2. Not a Citizen. This individual was not a U.S. citizen.  He was a permanent resident. This indictment jeopardized his status:  he would be facing removal proceedings upon conviction because bank fraud is an “aggravated felony” under immigration law, defined as an offense that involves fraud or deceit over $10,000.

For more on forfeiture, read: Federal Forfeiture Reform: 81% Property Seized by DOJ from People Never Charged with a Crime; and The Forfeiture Epidemic: When the Government Just Takes Your Property and Keeps It.

First Defense Step: Review the Government’s Evidence

The beginning of the criminal defense here was a common one:  grading the AUSA’s papers.  Each and every element of the government’s case had to be reviewed. Everything that was undertaken to gather all the facts in that file had to be considered, too.  Did they meet the constitutional standards for search and seizure?  What about the rules of procedure and evidence?  Was every single piece of evidence properly authenticated?  Was it admissible or vulnerable to challenge (e.g., hearsay, etc.)?

PPP fraud, as is any crime involving financial transactions, is one with lots of documents and details.  All the financial records of the bank, as well as the business, and the individual charged in the case, had to be studied line by line.  It’s tedious but necessary.  Digital data, likewise, has to be meticulously analyzed. Likewise, all the tax returns and their supporting documentation must be reviewed.

Second Defense Step:  Independent Investigation of the Matter

Alongside everything in the government’s case, all the documentation held by the business and the individual that might bear on the matter had to be located and reviewed.  Also, very complex.  This included all the communications of the accused, as well as the lender, and the business itself, from “while you were out” type messages to lengthy emails, formal letters, forms, notes, and more.

Defense Result

After going over the entirety of the government’s case together with the accused’s documentation and testimony, I was able to uncover emails, tax documents, and bank records that supported my assertion that he was innocent.

In the end, I was able to show that the Bank was not deceived in any way.  The element of intent could not be proven by the AUSA. This man was simply not guilty of the crime for which he had been indicted. 

Result:  the federal judge entered an Order dismissing the indictment, based upon the Government’s Unopposed Motion to Dismiss.

PPP Fraud Criminal Defense: Successful Result

It is always heartwarming to help someone avoid the catastrophic possibilities of a felony grand jury indictment; however, this case was particularly gratifying because the consequences would have been so devastating.  If convicted, this client not only would be sentenced on federal fraud charges, and their livelihood would be destroyed, but they would be deported.  This, after building a life for themselves and their loved ones here in Texas after successfully gaining residency status.

Some takeaways:  it is possible to get a federal matter dismissed in its entirety even after there has been an indictment.  Just because the AUSA presented a matter as being sufficient for a grand jury’s consideration does not mean that an aggressive criminal defense cannot reveal gaps in that determination to the benefit of the client.

Of course, the earlier that a criminal defense lawyer can get involved in a case, the better.  Having the opportunity to discuss matters with the prosecutor before charges are filed may be the optimum course to take for everyone.  If resolution can be had before an indictment or an arrest, the client will avoid having their name forever in the public record in a criminal matter (even with an order of dismissal).  It’s never too soon to ask for the help of an experienced advocate when you suspect law enforcement is looking into your activities.

For more, read:

• Federal Investigations:  Target Letters, Proffers, and Plea Deals;
• Grand Jury in Texas: Defending Witnesses and Targets of Grand Jury Investigations;
• FBI Investigations and DOJ Prosecutions: Fighting for Your Privacy Rights;
• How Arrests Happen: From Investigation to Arraignment, Being Charged for a Federal Crime;
• The Federal Criminal Justice System: After Arrest, From Arraignment to Sentencing;
• How Prosecutors Try to Maximize Punishment:  Aggravating Factors in Federal Sentencing;
• Why You May Need a Federal Criminal Defense Lawyer in Texas.

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For more information, check out our web resources, read Michael Lowe’s Case Results, and read his in-depth article, “Pre-Arrest Criminal Investigations.”