White Collar and Federal Criminal Defense

[Law360 published the below article by Finch McCranie partner, David Bouchard, on January 25, 2021.  The article concerns PPP fraud and enforcement.  Our white collar criminal defense team is deeply experienced in helping individuals and businesses navigate government investigations, enforcement actions, and prosecutions.  If you are contacted by a law enforcement or regulatory authority regarding a PPP loan or other business transaction, do not hesitate to contact our capable team.]

By last August, just four months after the first Paycheck Protection Program loans were disbursed, federal prosecutors had filed 41 criminal complaints charging nearly 60 people with PPP fraud in cases involving alleged losses totaling approximately $62 million.[1]

Without skipping a beat, Hannibal Ware, inspector general of the Small Business Administration, cautioned that such prosecutions amounted to “the smallest, tiniest piece of the tip of the iceberg.”[2]

Nobody accused of a federal crime should be penalized for exercising their Sixth Amendment right to trial.  And yet, because of the trial penalty, that happens all too often.[1]

The trial penalty refers to “the substantial difference between the sentence offered in a plea offer prior to trial versus the sentence a defendant receives after trial.”[2]  At least in part because of the trial penalty, federal criminal trials are on a steep decline.  Thirty years ago, 20% of federal criminal cases went to trial.[3]  Today, fewer than 3% of federal criminal cases result in a trial, and more than 97% of criminal cases are resolved by plea.[4]  As the National Association for Criminal Defense Lawyers (“NACDL”) has accurately observed: “[t]he Sixth Amendment right to trial [is] on the verge of extinction.”[5]

The trial penalty can be traced back to the sentencing reform push of the 1980s, which led to the creation of mandatory minimum sentencing provisions and the sentencing guidelines, and in turn, more powerful prosecutors and less powerful judges with more limited discretion.  Charge and fact bargaining, excessive guidelines ranges, departure provisions conditioned on pleading guilty, and statutory mandatory minimums, are all key reasons for the emergence of the trial penalty.  For example, rather than reserving mandatory minimum sentencing provisions for the most culpable defendants, prosecutors have at times used them “to strong-arm guilty pleas, and to punish those who have the temerity to exercise their right to trial.”[6]

Videoconferencing has skyrocketed in popularity because of the pandemic.  Just check Zoom’s stock.  Seemingly overnight, what used to be an irregular method of business communication has become commonplace.

Courts have embraced the craze, frequently holding hearings and other meetings by video.  But there are limits to what a court can permissibly accomplish by video.  While some observers have suggested videoconferencing is a potential solution to the problem of requiring live, in-person testimony during a pandemic spread by airborne particles, the Supreme Court of Michigan held in a recent criminal appeal that “two-way, interactive video testimony violated the defendant’s Confrontation Clause rights.”[1]

U.S. Supreme Court Precedent on the Confrontation Clause

In the early days of the Coronavirus pandemic, Congress passed relief legislation authorizing unprecedented federal aid to states, businesses, and individuals.  In short order, a torrent of federal spending flowed.  While those days may seem long gone as initial relief dollars have dried up and Congress is now debating additional relief programs, the Department of Justice (“DOJ”) remains focused on investigating and prosecuting fraud schemes arising from relief programs rolled out at the beginning of the pandemic.[1]

One of the relief programs receiving special attention from DOJ is the Paycheck Protection Program (PPP), administered by the Small Business Administration (SBA).  Through the PPP, participating banks lent money to qualifying businesses, which loans the SBA guaranteed.  Subject to certain conditions, the SBA agreed to forgive the loans.  Some of the key loan conditions included, for example: the requested loan was to be used to pay costs eligible for forgiveness (e.g., payroll, mortgage interest, rent and utility costs); payroll was to be capped at $100,000 per employee, annualized; the borrower was not to reduce salaries or hourly wages by more than 25 percent for any employee during the relevant period.[2]  To obtain the loan, the borrower had to sign and certify the PPP loan forgiveness application.

DOJ’s initial investigations of PPP fraud schemes have appeared to focus on the eligibility of borrowers (i.e., whether they had a real business with real employees, whether the size of the payroll matched representations in the loan application, etc.) and the use of the proceeds (i.e., whether the proceeds were spent on permissible items).  Thus far, DOJ’s prosecutions for PPP fraud have involved allegations of egregious misconduct.  As DOJ’s enforcement efforts continue, it is likely that DOJ will start bringing prosecutions concerning conduct that may be closer to the line and that may fall in gray areas.

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