Criminal Defense Lawyers

SBA Office of Inspector General Sent Me a Letter About My PPP Loan

You check your mail and there it is. An official letter from the SBA Office of Inspector General. Something about your PPP loan. Questions about your application. Requests for documentation. Your heart starts pounding. But here’s what you need to understand before you do anything else: this letter is actually the best possible scenario you could be facing right now. Not because there’s nothing to worry about – there is. But because you’re receiving this letter instead of a knock on the door from the FBI.

The SBA OIG letter means your case is still at the civil stage. It hasn’t been referred to criminal investigators yet. The government is still deciding what to do with you. And how you respond to this letter – what you say, what you write, what documents you provide – will play a major role in determining whether this stays a civil matter or becomes a federal criminal prosecution.

This might be the most important letter you’ve ever received. The decisions you make over the next few weeks could mean the difference between paying back the loan with a penalty versus going to federal prison. Most people don’t realize they have options at this stage. They either panic and say too much, or they ignore the letter and make things worse. Neither approach works. What you need is to understand exactly what you’re dealing with and make strategic decisions with full information.

The SBA OIG Letter Is Actually Your Best-Case Scenario

I know that sounds counterintuitive. How can a federal investigation letter be good news? But compared to the alternatives, receiving contact from SBA OIG is genuinly the best position you could be in.

Heres why. The SBA Office of Inspector General is the agency responsible for overseeing PPP loan compliance and investigating potential fraud. But theres a critical distinction most people dont understand: SBA OIG is not a criminal prosecution agency. They cant charge you with crimes. They cant put you in prison. What they can do is investigate, make findings, and then decide what happens next.

When SBA OIG reviews your PPP loan, they have three options:

• Option one: they accept your explanation, close the matter, and you move on with your life
• Option two: they pursue civil recovery, which means you pay back the loan plus penalties but face no criminal charges
• Option three: they refer your case to the FBI and Department of Justice for criminal prosecution

Your response to this letter influences which option they choose.

Think about what that means. At this moment, you have the ability to affect the outcome. Once your case gets referred to the FBI, that window closes. Once criminal charges are filed, the options narrow dramatically. But right now, at the OIG stage, theres still flexibility. Thats why I say this letter is actually good news – its the last exit before things get much worse.

Compare this to what happens when the FBI shows up. If FBI agents contact you about your PPP loan, the criminal investigation has already been running for months. Theyve already gathered evidence. Theyve already talked to witnesses. There calling to close the case, not to give you a chance to explain. At that point, your basicly negotiating the terms of your prosecution, not trying to prevent it.

But with an SBA OIG letter? Your still in the decision zone. The case hasnt been referred yet. You have leverage you wont have later.

What SBA OIG Contact Actually Means – Civil vs Criminal

Lets break down exactly what happens when SBA OIG investigates a PPP loan. Understanding the process is critical becuase most peoples instincts lead them to make things worse.

The SBA Office of Inspector General reviews PPP loans using data analytics and risk-based approaches. They cross-reference loan applications against tax filings, unemployment databases, and other federal records. When something looks suspicious – a payroll number that dosent match, an employee count that seems inflated, a business that dosent appear to have been operational – the loan gets flagged.

Over 669,000 potentially fraudulent PPP loans have been referred to SBA OIG. Thats not a small number. The odds of being in that pile arent as remote as you might think. Seventeen percent of all PPP and EIDL funds – roughly $200 billion – may have been disbursed to fraudulent actors. SBA OIG is working through these cases methodicaly, and your loan just came up.

At this stage, the investigation is civil, not criminal. That distinction matters enormously. Civil investigations focus on recovering money. The goverments primary goal is to get the improperly disbursed funds back. Criminal investigations focus on punishment. The goverments goal is to convict you and send you to prison.

How you respond determines which track your case takes.

Heres the trap most people fall into. They recieve the OIG letter and think: I need to explain myself. I need to provide documentation. I need to write a detailed response showing that everything was legitimate. So they sit down and write pages explaining there situation, providing context, offering justifications for every number on there application.

Every word of that written response can be forwarded to the DOJ Criminal Division. Theres no firewall between civil and criminal investigators. What you write to SBA OIG trying to resolve a civil matter becomes evidence at your criminal trial. If your written explanation contradicts the documents they already have, youve just created a false statement charge. If your explanation admits to things you didnt realize were problems, youve just confessed.

Many defendants make the mistake of providing detailed written responses without legal counsel, essentially creating a confession that later becomes evidence in the criminal case.

The 6-12 Month Window You Didnt Know You Had

Heres something most people facing SBA OIG contact dont understand. Theres a window – typically six to twelve months – between when OIG flags your loan and when the case gets referred to the FBI for criminal investigation. During this window, you have leverage that completly dissapears once criminal charges are filed.

Why does this window exist? Becuase the goverment has limited resources. Not every flagged PPP loan can be criminaly prosecuted. The FBI and DOJ prioritize cases based on loss amount, complexity, and the strength of the evidence. Cases under $100,000 often stay civil unless theres aggravating factors. Cases with clear documentary evidence of fraud get prioritized for criminal referral. Cases that are ambiguous – were the discrepencies were honest mistakes, or were the defendant has a plausible explanation – often get resolved civily.

During this 6-12 month window, an attorney can intervene. They can communicate with SBA OIG on your behalf. They can negotiate the terms of any response. They can explore whether a civil settlement is possible – repaying the loan plus a penalty in exchange for closing the criminal referral pathway.

Once the case gets referred to the FBI and US Attorneys Office, that opportunity for administrative resolution usualy closes. Now your dealing with prosecutors whose job is to convict people. The dynamic shifts completly. The leverage you had at the OIG stage evaporates.

Think of it this way. At the OIG stage, the goverment is still deciding what your case is. Is it a minor compliance issue? A civil recovery matter? A criminal prosecution? Your response helps them decide. Once they decide its criminal, the decision is made. There is no undeciding it.

This is why the timing of getting an attorney matters so much. If you hire counsel immediatly upon recieving the OIG letter, they can potentially intervene before any criminal referral happens. If you wait until FBI agents show up, youve missed the window.

How Your Written Response Becomes Criminal Evidence

I need to be very specific about this becuase its the mistake that destroys most people. When you write a response to SBA OIG explaining your PPP loan, you are not writing to a neutral party who just wants to understand what happened. You are creating evidence.

Heres how the cascade works. SBA OIG recieves your written explanation. They compare it to the documents they already have – your loan application, your tax returns, your bank records, witness statements from your accountant or employees. If your explanation matches the documents, thats a point in your favor. If your explanation contradicts the documents, thats evidence of consciousness of guilt.

And heres the critical part. Whatever you write to SBA OIG gets shared with the DOJ Criminal Division. Civil Investigative Demands might look less serious then a grand jury subpoena. The letterhead dosent say FBI. It feels like a bureaucratic inquiry. But every response, every document, every explanation you provide can be forwarded to criminal investigators.

The Department of Justice has policies about coordinating civil and criminal investigations. For cases above $100,000, the civil and criminal divisions communicate. If your PPP loan was over that threshold, assume that anything you write will be seen by prosecutors.

Let me give you a specific example of how this goes wrong. You get the OIG letter. It asks about the employee count on your PPP application. You remember that things were chaotic during COVID, that you included some contractors who maybe should of been reported as 1099s instead of employees, that you estimated the headcount becuase you didnt have time to get exact numbers. So you write a response explaining the chaos, the estimates, the honest confusion about what counted as an employee.

That response just admitted that the numbers on your PPP application werent accurate. It admitted that you knew the numbers were estimates rather then verified figures. It provided the goverment with evidence of intent – you knew the numbers were uncertain but submitted them anyway. A prosecutor reads that response and sees a confession dressed up as an explanation.

This is why you never respond to an OIG letter without an attorney reviewing every word.

The Civil Settlement Path – How Some People Avoid Prison

Not every PPP fraud case becomes a criminal prosecution. Some get resolved civily. And understanding how that happens could be the difference between paying a penalty versus going to prison.

The first civil settlement in a PPP fraud case was SlideBelts Inc. This company applied for a PPP loan while in bankruptcy – a clear eligibility violation. They obtained $350,000 in PPP funds. When the DOJ investigated, the company and its CEO admitted to making false statements on the loan application.

Heres what happened next. Instead of pursuing criminal charges, the DOJ negotiated a civil settlement. SlideBelts repaid the $350,000 loan in full. The company and CEO paid an additional $100,000 in damages and penalties. And thats were it ended. No criminal prosecution. No prison time. The matter was resolved civily.

West Coast Dental faced allegations of improperly obtaining multiple PPP loans. They settled for $6.3 million. Again, civil resolution, no criminal prosecution.

These civil settlements require full repayment of the loan. Theres no negotiating a discount. You dont get to keep any of the money. But the penalty on top is usualy much less then the costs of criminal defense, and incomparably less then prison time.

Why would the goverment accept a civil settlement instead of pursuing criminal charges? Becuase prosecutions are expensive and time-consuming. A civil settlement gets the money back immediatly, covers the costs of investigation, and frees up resources for more egregious cases. The DOJ has limited prosecutors. They prioritize.

The key to accessing this civil settlement path is timing. You need to negotiate it during the SBA OIG stage, before criminal referral. Once the case goes to FBI and prosecutors, the civil option usualy closes. At that point, the goverment has invested significant resources and they want a conviction, not just the money back.

The Appeal Trap – How Fighting Back Triggers Criminal Referral

Heres something almost nobody knows, and it destroys people who think there fighting for there rights. If your PPP loan forgiveness gets denied and you appeal that denial, you may be triggering a criminal investigation.

Think about what happens when you appeal. Your basicly telling the SBA: the information on my application was accurate. You made a mistake denying forgiveness. I stand by everything I submitted.

If the SBA denied forgiveness becuase something on your application looked fraudulent, and you appeal by insisting the application was accurate, the SBA has a policy decision to make. If you maintain your application was accurate despite there findings to the contrary, they may refer the matter to OIG for investigation of false statements.

According to SBA OIG reports, a significant portion of criminal referrals originate from the forgiveness appeal process. People who thought they were defending themselves against an unfair denial ended up triggering the exact criminal investigation they were trying to avoid.

The irony is brutal. Fighting back – which feels like the right thing to do when you beleive your innocent – can be the action that escalates your case from civil to criminal. Accepting the denial and repaying the loan might have ended the matter. Appealing it put you on the FBI’s radar.

This dosent mean you should never appeal. But it means you should never appeal without understanding the consequences and consulting with an attorney who can evaluate whether appeal makes strategic sense.

The Numbers That Should Worry You

Lets talk about the scale of what your dealing with. The SBA Office of Inspector General estimates that $200 billion in potentially fraudulent COVID loans were disbursed through PPP and EIDL programs. Thats not a typo. Two hundred billion dollars. Seventeen percent of all program funds may have gone to fraudulent actors.

Over 669,000 potentially fraudulent loans have been referred to SBA OIG for investigation. As of early 2023, there were 536 ongoing investigations. The statute of limitations extends through 2030 for most PPP loans. There in no rush. There working through the backlog methodicaly.

What this means is simple. If you recieved an OIG letter, your in that pile of 669,000. The odds werent as remote as you thought. And the investigation apparatus has years to work through these cases.

Renetta Golden-Larimore from Kansas City had her PPP loans forgiven in 2021. She probly thought she was in the clear. Four years later, she was sentenced to 51 months in federal prison. Loan forgiveness means nothing for criminal liability. The SBA can forgive your loan while the FBI is simultaniously building a case against you. These are seperate processes run by seperate agencies that dont coordinate with each other.

The conviction rate in prosecuted PPP fraud cases exceeds 97 percent. That number should terrify you. It means the goverment dosent bring cases they might lose. By the time they decide to prosecute, theyve already determined they can win. The OIG stage is were you prevent that determination from being made. Once its made, the outcome is nearly guarenteed.

What You Should Do Right Now

So youve recieved an SBA OIG letter. Heres exactly what you should do.

First, do not respond immediatly. I know the letter has deadlines. I know it feels urgent. But a rushed response is almost always worse then a delayed response. You have time to get counsel. Use it.

Second, hire a federal defense attorney today. Not a general practice lawyer. Someone who understands SBA OIG investigations, who knows how civil investigations become criminal cases, who has experience negotiating with federal agencies. This is not optional. The stakes are to high.

Third, gather all your PPP loan documentation. The application, the payroll records you submitted, your actual tax filings, your bank statements showing how the funds were used. Give everything to your attorney. They need to see what the goverment is looking at so they can assess your exposure.

Fourth, do not talk to anyone else about the investigation. Not your accountant – theyve probly already been contacted by investigators. Not your employees. Not your business partners. Only your attorney, becuase only those communications are privileged.

Fifth, let your attorney respond to the OIG letter. They can request extensions. They can shape the response strategicaly. They can explore whether civil settlement is possible. Most importantly, they can make sure you dont inadvertantly create evidence against yourself.

Heres the decision matrix your facing:

• Option one: respond on your own, provide detailed explanations, and watch those explanations become evidence in a criminal case
• Option two: hire counsel, respond strategicaly, and potentially resolve this civily before criminal referral ever happens

Theres no option three were you ignore the letter and it goes away. That approach guarentees criminal referral.

The SBA OIG letter is a warning and an opportunity. The warning is that your PPP loan is under scrutiny. The opportunity is that you still have options you wont have once the FBI gets involved. Dont waste this window. Get an attorney and handle this properly.