NYC PPP Loan Fraud Lawyers

Last Updated on: 16th December 2025, 11:06 pm

NYC PPP Loan Fraud Lawyers: You’re Being Prosecuted for Trusting a System the Government Designed to Fail

Welcome to Spodek Law Group. We handle federal criminal defense across New York City, and we believe everyone facing charges deserves to understand exactly what they’re up against. Our goal is to give you the tactical intelligence that most law firms won’t share – the information that actually determines whether you walk away with probation or spend years in federal prison.

If you’re facing PPP loan fraud charges in New York, you’ve probably heard that the government is aggressively prosecuting pandemic relief fraud. That’s true. But here’s what nobody tells you: the system you’re being prosecuted for “defrauding” was designed to be defrauded. The SBA told banks not to verify applications. Congress made self-certification the law. They implemented the entire program in 15 days. And when fraud experts warned the White House this would cause “the biggest fraud in history,” they were told the government would rather have speed than security.

Now that same government is prosecuting you for trusting the system they created. The “fraud” wasn’t something you did to the program. The fraud was built into the program itself. Understanding this changes everything about how you approach your defense.

The System That Was Designed to Fail

OK so heres how the PPP program actualy worked when it launched in April 2020. The SBA issued an interim final rule that told lenders they would be “held harmless for borrowers’ failure to comply with program criteria.” Read that again. The government explicitly told banks they wouldnt be punished if borrowers lied. Banks were told not to verify – just process applications as fast as possible.

Congress mandated that the SBA implement the entire program in 15 days. Fifteen days to create a system that would distribute hundreds of billions of dollars. There was no time to build verification systems. No time to create fraud detection. No time to even clarify what the rules were. Speed was the only priority.

And it wasnt just the banks who were told not to verify. The CARES Act itself allowed the SBA to rely on borrower self-certifications rather then verification of supporting documentation. Self-certification wasnt a loophole people exploited – it was the legal structure of the program. You were supposed to certify your own eligibility. That was the rule.

Heres what that meant in practice. You filled out an application saying how many employees you had and what your payroll was. Nobody checked. You submitted it to a bank. The bank didnt verify becuase they were told not to. The SBA approved it becuase they were told to move fast. Money showed up in your account. And now the government is calling that fraud.

The system had no verification. No checks. No balances. It was designed to push money out the door as fast as possible, and it did exactly that. Non-bank lenders made $14.2 billion in suspected fraudulent loans at a rate more then five times higher then traditional banks. Thats not becuase non-bank lenders were corrupt. Its becuase the system rewarded speed and punished caution.

Self-Certification: The Fraud Built Into the Law

Theres something most people dont understand about PPP applications. The entire program was built on self-certification. Under the CARES Act, applicants certified there own eligibility. They certified there own payroll numbers. They certified there own employee counts. And the government accepted those certifications without verification because that’s what Congress told them to do.

Think about what that means. The thing prosecutors are now calling “fraud” – submitting information that wasnt verified – was the entire legal structure of the program. Everyone who got a PPP loan submitted unverified self-certifications. Thats how the program worked. Thats how it was designed to work.

The government argues that self-certification doesn’t mean you can lie. And thats technicaly true. But heres the problem: in a system with no verification, how does anyone know what the “truth” is? Payroll numbers are complicated. Employee counts change month to month. The rules about who qualified changed multiple times during the program. The SBA issued contradictory guidance. Accountants and lawyers prepared applications and told clients the numbers were accurate.

So when prosecutors say “you lied on your application,” there actualy saying “you should have known better then the system we created.” The program made verification impossible, and now there prosecuting people for not verifying.

They Knew What Would Happen

Heres the part that should make you angry. The government knew exactly what would happen when they launched this program. This wasnt ignorance. This wasnt incompetence. This was a deliberate choice made with full knowledge of the consequences.

When COVID relief was being designed, a fraud expert spoke directly to Larry Kudlow, then a top economic advisor to President Trump. He warned Kudlow that the program would cause “the biggest fraud in the history of our country.” He explained the risks. He laid out what would happen without verification systems. He told them exactly what was coming.

And he was told, according to NBC News reporting: “You can have speed or you can have security. And they’d rather just get the money out.”

Let that sink in. The government was explicitly warned this program would create historic levels of fraud. They chose speed anyway. They made a deliberate decision to prioritize getting money out over preventing fraud. And now there prosecuting people for the fraud they were warned about and chose to allow.

The Government Accountability Office – the government’s own watchdog – warned repeatedly about fraud risks in the PPP program. There reports identified specific vulnerabilities. There recommendations for safeguards were ignored or deferred. The SBA moved forward anyway becuase Congress had given them 15 days and speed was the only metric that mattered.

Think about what that means for your case. The government is prosecuting you for fraud in a program they knew would be defrauded. They were warned. They chose not to implement safeguards. They prioritized speed over integrity. And now you – the person who trusted that system – are the one facing federal charges.

This isnt a case of government incompetence. Its a case of government choice. They knew the system would be exploited. They decided that was acceptable. And now there treating everyone who used that system as a criminal. The same officials who chose speed over security are now running the prosecution machine that punishes you for there choice.

Now They’re Prosecuting People for Using It

The Southern District of New York – which covers Manhattan and parts of the surrounding area – is one of the most aggressive districts in the country for PPP fraud prosecutions. SDNY prosecutors have devoted significant resources to these cases, and there not showing mercy.

Recent SDNY cases include:

• Rafael Martinez, CEO of a PPP lender called MBE Capital, sentenced to 54 months for fraudulent loan applications
• A six-defendant conspiracy that obtained $14.7 million through phony bank statements and tax documents
• A “recidivist fraudster” sentenced to 25 years for a scheme involving over $10 million
• A December 2024 civil settlement of $1.47 million against a footwear business owner who double-counted employees

Look at those cases. Some involve clear-cut fraud – fake companies, stolen identities, fabricated documents. But others involve judgment calls about employee counts and payroll calculations in a system that never required verification in the first place. The civil settlement case – a footwear business owner who double-counted employees – is particularly instructive. That wasnt a master criminal. That was someone who made a calculation error in a program that never checked calculations. Now there paying $1.47 million becuase they counted wrong in a system designed not to count.

The government created a program with no guardrails. They told everyone to self-certify. They told banks not to check. And now there prosecuting people for the inevitable result of that system. You’re facing the weight of federal prosecution not because you did something the system prohibited, but because you did exactly what the system allowed.

The Good Faith Trap

So your thinking – I relied on my accountant. I had a lawyer review the application. I genuinely believed I qualified. That should protect me, right?

It might. But probly not. And heres why.

The “good faith reliance” defense is real. Federal courts recognize that if you relied on professional advice in good faith, you may lack the criminal intent required for fraud. The problem is proving it.

To successfully claim good faith reliance, you need:

• Written documentation of the advice you received – verbal assurances dont count
• Proof you disclosed all relevant facts to the professional – you cant have hidden anything
• Evidence the advice was prospective – you got it before submitting the application, not after
• A qualified professional who gave the advice – not just a friend who does taxes

Most PPP applicants dont have this documentation. Why would they? The system didnt require verification. The program was moving at lightening speed. People talked to there accountants on the phone, got verbal approval, and submitted applications. Nobody thought to document every conversation becuase nobody thought theyd need to defend themselves in federal court.

Prosecutors know this. They challenge good faith defenses aggressively. There favorite arguments include: you should have known better regardless of what your accountant said, you didnt tell the accountant all the relevant facts, the advice wasnt specific enough to the PPP program, or the accountant wasnt qualified to give PPP-specific guidance. Any one of these arguments can destroy your defense.

And heres what makes it worse. If you raise a good faith reliance defense, you may have to waive attorney-client privilige to prove it. That means opening up all your communications with your lawyer to the prosecution. Every email. Every document. Everything you discussed. Prosecutors will comb through those communications looking for anything that undermines your claim of good faith. The defense that’s supposed to protect you can actualy expose you to more risk.

The defense exists in theory, but in practice its extremly difficult to prove when the underlying system never required documentation. You need evidence of something the system told you not to create.

This is the trap: the same system that never required verification now demands you prove what you were told and when you were told it.

The irony is crushing. A program designed around self-certification with no verification is now requiring defendants to produce verification of there good faith. The government created a system with no paper trail and is now prosecuting people for not having a paper trail.

40% Longer: The Leniency Window Closed

Heres something that might terrify you: if your facing PPP fraud charges in 2024 or 2025, your looking at significantly harsher sentences then people who faced identical charges in 2021 or 2022.

Defendants sentenced in 2024-2025 recieve prison terms 40% longer on average then those sentenced in 2021-2022 for the exact same conduct. Early in the pandemic, some judges showed leniency. They understood the chaos. They recognized that the program was confusing and the rules were unclear. Those days are over.

Federal judges in 2025 include prison time in nearly every PPP fraud sentencing – regardless of the amount involved. The Department of Justice has emphasized pandemic relief fraud as a priority, and judges are responding with harsher sentences. There varying upward more often then down.

The median plea sentence for PPP fraud in 2024-2025 is around 18 to 24 months. Thats the median – half of defendants get more. And if you go to trial and lose? The median sentence jumps to 60 to 72 months. Thats the trial penalty in action – a threefold increase in prison time for exercising your constitutional right to trial.

Why such a massive penalty? Prosecutors argue that defendants who go to trial and lose have demonstrated a lack of remorse. Judges often agree. The guidelines calculation that applies after a guilty plea includes a three-level reduction for acceptance of responsibility. Lose at trial, and you dont get that reduction. Your guidelines range jumps dramaticaly. And judges in 2024-2025 are following those enhanced ranges.

A real example: in March 2025, a Cincinnati defendant got 18 months for a $21,000 PPP loan fraud. Twenty-one thousand dollars – and he’s spending a year and a half in federal prison. Another defendant in SDNY recieved 27 months for a $150,000 scheme – just barely over the threshold. The leniency window has completly closed. Judges who might have shown mercy in 2021 are now handing down prison sentences as a matter of course.

And remember – theres no parole in the federal system. You serve at least 85% of whatever sentence the judge imposes. An 18-month sentence means your doing roughly 15 months before release. A 60-month sentence means your doing 51 months.

The $150,000 Line That Determines Your Future

If theres one number you need to understand about PPP fraud sentencing, its $150,000. This is the threshold that dramatically changes your odds of avoiding prison.

Read that again. If your alleged fraud is under $150,000, you have a reasonable chance of probation. If its over that line, your almost certainly going to prison. The cliff is that steep.

This is why loss amount calculations matter so much in PPP cases. Defense attorneys fight aggressively over how the government calculates the “loss” becuase the number determines everything. Did you repay some of the loan? That should reduce the loss. Did you actualy use some funds for legitimate payroll? That should reduce the loss. Was the entire loan amount fraudulent, or just part of it?

Every dollar matters when your trying to stay under that $150,000 line.

Todd Spodek at Spodek Law Group has handled dozens of PPP fraud cases in the Southern District of New York. The strategy is always the same – fight the loss calculation, document everything that supports good faith reliance, challenge the government’s theory of intent, and position for the best possible outcome given the facts.

The loss calculation fight is critical because of that $150,000 threshold. If the government is claiming you caused $200,000 in losses but you can demonstrate that $60,000 was actually used for legitimate payroll, your loss drops to $140,000 – potentially the difference between prison and probation. Every dollar counts. Every receipt matters. Every payroll record could be the evidence that keeps you under that line.

And timing matters too. If your under investigation but havent been charged yet, there may be opportunities to shape the case before indictment. If your already charged, the focus shifts to trial preparation or plea negotiation. Every stage requires different strategies, and the earlier you get counsel involved, the more options you have.

But here’s what nobody tells you: even if you avoid prison, restitution follows you forever. PPP fraud cases trigger restitution orders requiring you to pay back the full loan amount plus interest. That restitution obligation survives bankruptcy. It dosent go away if you cant pay. It follows you for the rest of your life until its paid in full. You might avoid prison, but you wont avoid the debt. Wage garnishment. Tax refund seizure. Asset liens. The government has tools to collect, and they use them.

This is why understanding the full picture matters so much. Your not just fighting to avoid prison. Your fighting for your financial future. You’re fighting to preserve what’s left of your business and your reputation. Your fighting against a system that was designed to fail and is now blaming you for that failure.

At Spodek Law Group, weve defended clients facing PPP fraud charges across New York City and the surrounding districts. We understand that many of these cases involve people who genuinely believed they qualified, who relied on professionals, who were caught up in a chaotic system that was designed to fail. We know the difference between intentional fraud and honest mistakes in a confusing program. We fight every case like our own freedom depends on it because we know what’s at stake.

The government created this mess. Now there prosecuting you for it. You deserve someone who understands both the legal defense and the fundamental unfairness of whats happening. Someone who can challenge the loss calculations, build the good faith defense, and fight for every advantage the law allows. Call us at 212-300-5196 for a confidential consultation. The sooner you have experienced counsel, the more options youll have. Time is not on your side in federal cases – the government has been building there case for years. Start building yours today.