Can I Be Charged with EIDL Loan Fraud?

Congress passed the CARES Act in March of 2020, providing billions of dollars in economic relief to help American businesses cope with hardships caused by the COVID-19 pandemic. As part of the CARES Act, the Economic Injury Disaster Loan (EIDL) Program provided businesses with up to $150,000 in loans that could be used to pay debts, payroll, and other expenses. The loans had extremely favorable repayment options, including a 3.75% interest rate, a 12-month deferral period, and a 30-year repayment period.

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To allow businesses to receive funding quickly, EIDL applications were submitted online, and the rules regarding how a business could prove income on an EIDL application were lax. In fact, EIDL applications did not require an individual to submit any documentation to support their claimed 2019 income. Therefore, many applicants overstated gross receipts in order to qualify for higher loan amounts. Because of the lack of oversight, many of these loans were funded based upon false statements regarding income.

Fraud investigators are also identifying and prosecuting people who submitted false documentation of their income to obtain a higher EIDL loan, in excess of $150,000.

In July of 2020, the Small Business Administration Office of the Inspector General (SBA-OIG) identified unprecedented indicators of potential fraud in EIDL loan applications. In August of 2020, federal prosecutors began targeting individuals and businesses who submitted false documentation to obtain relief under the EIDL Program. President Biden recently announced a new Director of COVID Fraud to spearhead the Justice Department’s prosecution of these cases.

What Can EIDL Loans Be Used For?

EIDL funds can properly be used for:

• Working capital
• Operating expenses, such as:
  • Rent
  • Utilities
  • Healthcare benefits
  • Fixed debt payments
  • Web hosting
  • Inventory
  • Office supplies
  • Accounts payable
  • Rent and utilities
  • Merchant fees
  • Bookkeeping and accounting services

EIDL funds cannot be used to:

• Refinance debt
• Make capital purchases
• Buy new vehicles
• Pay off old debt
• Fund new construction
• Dividends and bonuses
• Disbursements to owners (draws and distributions), except when directly related to performance of services
• Repair or replacement of physical damages
• Relocation

Reasons Charges May Be Brought Against You

Due to the loss of millions in COVID fraud, the government is vigorously seeking to identify situations in which business owners and individuals improperly applied for and used EIDL funds in an effort to prosecute the offenders and seek restitution and forfeiture.

A person can face federal criminal charges for:

• Knowingly making false statements on a COVID benefit application, such as by overstating revenues and disbursement or misrepresenting a business’ number of employees;
• Seeking EIDL funds from multiple lenders;
• Pursuing an EIDL for a fictitious or defunct business;
• Using EIDL funds for personal or unlawful purposes;
• Identity theft.

Common Charges Related to EIDL Loan Fraud

Someone who is under investigation for EIDL fraud could face various federal criminal charges, including:

• Bank Fraud (Title 18 U.S.C. Section 1344) - A bank fraud charge requires the intent to execute a scheme or artifice to defraud a financial institution to obtain money or assets owned by or under the custody or control of a financial institution by means of false or fraudulent pretenses, representations or promises. The maximum penalties are 30 years in prison and extensive fines, restitution and forfeiture.
• Wire Fraud (Title 18 U.S.C. Section 1343) - Wire fraud requires the knowing and intentional execution of a scheme or artifice to defraud, or to obtain money or property by means of false or fraudulent pretenses, representations or promises, by the transmission of a wire, radio, television, computer, cellphone. A conviction of wire fraud carries a maximum sentence of 20 years in prison and extensive fines, restitution and forfeiture.
• Conspiracy and Conspiracy to Commit Wire Fraud (Title 18 U.S.C. Section 371, 1349) - Conspiracy does not require that a person actually commit the crime. All that is required is proof of an “agreement” with another person to commit the crime. This crime carries the same penalties as wire fraud and/or any other federal crime as to which the conspiracy applies.
• Mail Fraud (18 U.S.C. Section 1341) - Mail fraud has the same requirements as wire fraud, but requires the transmission of the documents through the U.S. Mail, Fed Ex, UPS or any other mail carrier.
• Identity Theft, Aggravated identity Theft (18 U.S.C. Section 1028, 1028A) - Identity Theft and Aggravated Identity Theft requires the use of identification documents of another person without lawful authority. These are serious charges and Aggravated Identity Theft can result in a mandatory minimum consecutive two year sentence of imprisonment.
• False Statements to a Financial Institution (15 U.S.C. Section 645) - This crime occurs when a person knowingly makes false statements or willfully overvalues a property or security to influence a bank or government agency. This charge carries a maximum penalty of two years imprisonment.
• Fraud in Connection with Major Disaster or Emergency Benefits (18 U.S.C. Section 1040) - This criminal offense requires knowingly making false statements to obtain a benefit paid out for disaster relief, such as under the CARES Act. This applies to EIDL loans. This charge carries a maximum penalty of 30 years in prison and extensive fines, penalties and restitution.

Defenses to Allegations of EIDL Fraud

Fortunately, a fraud charge does not always result in a conviction. An experienced federal criminal defense attorney can defend you during an EIDL fraud investigation, minimize the likelihood of being charged with a crime, and protect your rights.

As with any criminal case, to secure a conviction, the government must prove you guilty beyond a reasonable doubt. The government must prove that you knowingly and intentionally misrepresented facts on an EIDL application.

Good faith is a common defense to any fraud charge. If you genuinely believed that your actions were legitimate, you may be able to avoid a fraud conviction. Also, there is an important distinction between an innocent mistake and fraud. An experienced federal criminal defense lawyer must analyze the facts of your case and determine the likelihood of success on the merits of your case.

Contact Hope Lefeber for Fraud Defense

If you are under investigation or have been charged with a federal crime due to alleged EIDL fraud, you must act quickly to hire an experienced federal criminal defense attorney.

Hope Lefeber has been defending people accused of crimes in federal court for more than 30 years. She began her career as an Enforcement Attorney with the Securities and Exchange Commission. Today, she defends people who have been accused of white-collar crimes in federal court.

Ms. Lefeber’s clients describe her as meticulously prepared and a tenacious and fierce advocate. She has defended executives of Fortune 500 Companies, businessmen and women, professors, doctors, accountants, healthcare professionals, and lawyers who have been charged with federal crimes. She has also lectured on federal criminal law topics and appeared on TV as a legal expert.

If you are under investigation or have been charged with EIDL fraud, contact Hope Lefeber today.