Tennessee PPP Loan Fraud Lawyers: What To Do When Federal Investigators Come Knocking

Tennessee PPP Loan Fraud Lawyers: What To Do When Federal Investigators Come Knocking

You got a letter from the SBA. Or maybe FBI agents showed up at your business yesterday asking questions about your Paycheck Protection Program loan from 2020. Your facing the kind of terror that keeps you awake at 3am—federal charges, prison time, losing everything your family depends on. And its not like you set out to commit fraud. You were desparate during the pandemic, trying to save your business. Maybe you made mistakes on the application. Maybe your accountant miscalculated the numbers. But now the government is treating you like a criminal.

Here’s the thing most people don’t realize: Tennessee has three seperate federal court districts—Eastern (Knoxville and Chattanooga), Middle (Nashville), and Western (Memphis)—and each one handles PPP fraud cases differently. The U.S. Attorney’s office in Nashville has been more agressive then the Memphis office in prosecuting smaller loan amounts. Which district your case lands in can litteraly determine weather you face prison time or negotiate a civil settlement worth paying attention to.

In 2025, were now five years into the statute of limitations for most PPP fraud cases, which means prosecutors are rushing to file charges on loans from early 2020 before the window closes. If you recieved a PPP or EIDL loan and have any concerns about your application’s accuracy—even minor concerns—this is the critical time to act. Based off recent Tennessee cases, the DOJ is going after smaller amounts then they used to. Sometimes prosecuting loans as low as $20,000.

You Just Got an SBA Letter: What Happens Next (and Why the Next 60 Days Matter More Then You Think)

When the Small Business Administration sends you an audit or inquiry letter, your first instinct is probly panic. But heres what you actually need to understand—this is not yet a criminal investigation. Its an administrative review. How you respond in the next 60 to 90 days can litteraly determine whether this stays civil or becomes a federal case that destroys your life.

The SBA doesn’t have authority to prosecute you criminaly. What they can do is refer your case to the SBA Office of Inspector General (OIG), who coordinates with the Department of Justice to decide whether criminal charges are warrented. The timeline typically looks something like this: SBA audit letter → You respond (or don’t) → SBA-OIG opens investigation → FBI gets involved → DOJ decides on prosecution → Grand jury indictment. Most people don’t realize their are multiple off-ramps along this path were early intervention can prevent criminal charges entirely.

If you respond to the SBA letter with detailed documentation, proof of good-faith mistakes, and evidence that you didn’t personally benefit from the funds, you might avoid criminal referral. But—and this is critical—if you ignore the letter, or if you respond without legal counsel and accidently make incriminating statements, you’ve just made the prosecutor’s job easier. Look, here’s the deal: the SBA letter usually gives you between 30 and 90 days to respond. Common requests include payroll records, tax returns, bank statements, and an explaination of how you calculated your loan amount.

Some businesses recieve what’s called a “loan necessity questionaire,” which asks you to prove that economic uncertainy made the loan request neccessary. This is were people get themselves in trouble—they try to reconstruct records from 2020, they make statements that contradict thier original application, or they fail to provide documentation that would of shown good faith. Don’t respond without consulting a federal defense attorney first. I mean it.

First 48-hour action steps if you recieved an SBA letter:

• Do NOT respond to the SBA without legal counsel—not even to “clarify” something
• Gather all documents related to your PPP/EIDL loan but don’t alter anything
• Do not discuss the matter with buisness partners or employees who might become witnesses
• If you used an accountant or payroll company, locate all communications immediately
• Contact a federal criminal defense attorney who handles PPP fraud in your district

The reason early intervention matters so much is voluntary disclosure—proactively admitting errors and repaying funds before criminal charges—can sometimes result in civil resolution rather then prosecution. In November 2025, Koide Tennessee, Inc. paid $2 million to resolve False Claims Act allegations about thier Second Draw PPP loans. No criminal charges. No prison time. Just a financial settlement. But this kind of outcome requires sophisticated legal strategy before the Criminal Division gets involved.

Am I Actually Going to Federal Prison? (The Real Risk Assessment Nobody’s Telling You)

This is the question haunting you right now. The short answer: it depends on multiple factors including loan amount, whether you used funds appropriately, weather you personally enriched yourself, your criminal history, and—critically—which federal district is handling your case. Let me break down the real risk assesment based off what were seeing in Tennessee courts right now.

When PPP issues typically stay civil rather then criminal:

• Loan amount under $150,000 (though this threshold is dropping)
• Funds were used for legitimate buisness expenses even if application had errors
• No evidence of personal enrichment—no luxury purchases or cash withdrawls to yourself
• Errors appear to be mistakes rather then intentional fraud
• You cooperate early with SBA and offer repayment
• No criminal history, especially no prior fraud convictions

When criminal prosecution becomes way more likely:

• Loan amount over $150,000, especially over $500,000
• Evidence you falsified documents—fake payroll records, altered tax returns
• Personal enrichment: bought cars, real estate, luxury items with PPP funds
• Multiple fraudulent loans across different businesses
• Obstruction: destroyed documents or lied to investigators

But here’s were it gets really complicated. The Middle District of Tennessee (Nashville) has been significantly more agressive in prosecuting PPP fraud then the Western District (Memphis). Nashville’s U.S. Attorney’s office has made pandemic relief fraud a priority. There prosecuting cases that Memphis might handle civily. Why? Prosecutorial discretion varies by office. Nashville has more resources dedicated to white collar crime, and the judges in the Middle District have handed down sentences that sent a clear message.

Recent Tennessee sentencing data shows first-time offenders with loans under $200,000 who cooperate and accept responsability often recieve probation or home confinement rather then prison time. But if you tried to hide evidence, or if your fraud exceeded $1 million—your looking at multiple years in federal prison. The federal sentencing guidelines for fraud calculate punishment based primarily on loss amount, but judges have discretion to depart downward for defendants who show genuine remorse and make full restitution.

Which Tennessee Federal Court Will Handle Your Case (and Why This Matters More Then Your Lawyer Might Admit)

Tennessee is divided into three federal judicial districts, and understanding which one has jurisdiction affects everything from the judges who’ll hear it to the prosecutors making charging decisions. The same conduct—say, a $200,000 PPP loan with payroll miscalculations—could result in drastically different outcomes depending on weather your business is in Knoxville, Nashville, or Memphis.

Middle District of Tennessee (Nashville)

The Middle District covers 32 counties in central Tennessee. If your buisness is in Nashville, Murfreesboro, or surrounding Middle Tennessee areas, this is your district. The U.S. Attorney’s office in Nashville has been the most active in PPP fraud prosecutions. They’ve dedicated prosecutors specifically to COVID-related financial crimes.

Judges in the Middle District include Chief Judge Waverly Crenshaw, Judge Aleta Trauger, and Judge William Campbell. These judges have shown varied approaches to PPP sentencing. Some emphasize restitution and probation for first-time offenders who cooperate. Others have imposed prison sentences to deter fraud. Understanding which judge gets assigned can inform whether your attorney pursues trial, plea negotiations, or cooperation agreements.

Western District of Tennessee (Memphis)

The Western District covers 22 counties in western Tennessee. If your buisness is in Memphis, Jackson, or surrounding West Tennessee areas, this is your jurisdiction. The Memphis U.S. Attorney’s office has taken a slightly different approach, focusing resources on larger-scale schemes rather then smaller individual cases.

Memphis prosecutors have generally been more selective about which PPP cases they prosecute criminaly, often resolving smaller-dollar cases through civil means. That doesn’t mean Memphis is “easier”—if you’ve engaged in significant fraud, they’ll prosecute vigorously. But for borderline cases were errors might of been unintentional, Memphis prosecutors may be more open to civil resolution then thier Nashville counterparts.

Eastern District of Tennessee (Knoxville and Chattanooga)

The Eastern District covers 41 counties in eastern Tennessee. The U.S. Attorney’s office is in Knoxville. This district handles fewer PPP fraud cases then Nashville, partially because business density is lower. Eastern District prosecutors tend to focus on clear-cut fraud cases were intent is obvious. If your case involves genuine uncertainty about eligibility or calculation errors rather then outright fabrication, you may have better prospects here.

What Are They Actually Accusing You Of? Understanding Federal Fraud Charges

PPP loan fraud isn’t a single crime. Its a cluster of potential federal charges, each with different elements and different maximum penalties. Understanding the specific statutes your likely facing helps you evaluate defense options and assess realistic outcomes.

Bank Fraud (18 U.S.C. § 1344)

This is the workhorse statute for PPP prosecutions. Bank fraud makes it a federal crime to knowingly execute a scheme to defraud a financial institution. Since PPP loans were administered through banks and backed by the SBA, false statements on PPP applications meet the elements of bank fraud. Maximum penalty: 30 years in prison and up to $1 million in fines.

But actual sentences are typically far lower, especially for first-time offenders. The key element prosecutors must prove is intent. They need to show you knowingly made false statements to obtain the loan. This is were many defenses focus. If you can show you relied in good faith on your accountant, or that you misunderstood complex SBA regulations, or that you made mistakes under extreme time pressure during the pandemic, you challenge the intent element.

Wire Fraud (18 U.S.C. § 1343)

Wire fraud focuses on use of interstate wire communications (email, electronic transfers) to execute fraud. Since PPP applications were submitted electronically, prosecutors often charge wire fraud. Maximum penalty: 20 years (or 30 years if affecting a financial institution). The real danger with wire fraud is prosecutors can charge seperate counts for each wire communication—your application email, confirmation email, fund transfer. This is called “stacking.”

False Claims Act Civil Liability

The False Claims Act isn’t criminal—its civil. But it allows the government to seek treble damages (three times the fraud amount) plus penalties. For PPP fraud, if you fraudulently obtained $100,000, the government can seek $300,000 in damages plus additional penalties. The FCA also allows whistleblowers to file lawsuits and collect 15-30% of recovered funds. This is why many PPP investigations start—someone reports you to collect a reward.

The advantage of FCA cases from a defendant’s perspective is no prison time. Its purely financial. If your attorney can negotiate civil resolution under the FCA before criminal charges are filed, you avoid the life-destroying consequences of a federal conviction.

I Made Mistakes on My Application—Is That Actually Fraud?

This is probly the most common question: “I made errors on my PPP application, but I didn’t intentionally defraud anyone. Am I going to prison for honest mistakes?” The answer depends entirely on the distinction between knowing falsehoods and good-faith errors. Federal fraud statutes require proof of intent—that you knowingly made false statements.

Here’s the practical problem: how do prosecutors prove what was in your head? They look at circumstantial evidence. Did you falsify documents? Create fake payroll records? Have conversations discussing how to inflate numbers? All this can support an inference of intent. But the flip side is also true. If you can show evidence of good faith—that you consulted professionals, tried to comply with rules, had a reasonable basis for calculations even if ultimately wrong—you undermine the intent element.

Common Good-Faith Defenses That Actually Work:

Reliance on Accountants: If you hired a CPA or used a payroll service and relied on thier calculations, that’s evidence of good faith. Make sure you have documentation of all communications showing you asked them to calculate eligible expenses and relied on thier expertise.

Misunderstanding Complex Regulations: The PPP rules were extraordinarily complex and changed multiple times during 2020. Many small business owners made errors because the rules were genuinely confusing. If you made a reasonable interpretation of ambiguous regulations, even if SBA later disagreed, that supports lack of intent.

Lack of Personal Enrichment: If every dollar went to legitimate business expenses, that supports lack of intent to defraud. But if prosecutors show you used money on luxury items for yourself, its very hard to argue good faith.

Advice-of-Counsel Defense: If you consulted an attorney about PPP eligibility and followed thier advice, that can be a complete defense. This requires full disclosure to your attorney, seeking advice about legality, receiving advice it was legal, and relying on that advice in good faith.

Can I Just Pay the Money Back and Make This Go Away?

Everyone facing PPP scrutiny has this fantasy: “If I just repay the loan, won’t the government drop the investigation?” The reality is more complicated. Repayment can definitely help—it shows good faith, reduces the government’s loss (which affects sentencing), and makes civil resolution more likely. But repayment doesn’t automatically make criminal liability dissapear, especially if prosecutors beleive you committed intentional fraud.

The SBA hasn’t created a formal voluntary disclosure program. However, in practice, businesses that proactively identify errors, notify the SBA, and repay questioned amounts often avoid criminal prosecution. The key word is “proactively.” If you discover you made mistakes and reach out to the SBA before they contact you, that demonstrates good faith.

Timing is critical. Voluntary disclosure works best before SBA has contacted you. If you’ve already received an audit letter, you can still benefit from cooperation and repayment, but leverage is reduced. If your already under criminal investigation (target letter, grand jury subpoena), repayment still helps but won’t prevent prosecution if prosecutors beleive you committed intentional fraud.

The government has two seperate tracks: civil (False Claims Act) and criminal. Ideally, your attorney negotiates civil resolution before the Criminal Division gets involved. Civil settlements typically involve repayment plus additional damages. The Koide Tennessee $2 million settlement is a good example—they avoided criminal prosecution by settling civily.

The FBI Just Showed Up—What Do I Say?

Few things are more terrifying then FBI or SBA-OIG agents appearing at your door asking questions about your PPP loan. Your first instinct might be to cooperate fully, to explain yourself. But here’s what you need to understand: anything you say to federal agents can and will be used against you. Even if you beleive your innocent, you can easily make statements that hurt your case.

What to say: “I’d like to cooperate, but I need to speak with my attorney first.”

That’s it. Don’t explain. Don’t justify. Don’t try to convince them of your innocence. Just politely decline to answer questions and tell them you’ll have your attorney contact them. You might feel like invoking counsel makes you look guilty. It doesn’t. What does make you look guilty is lying to federal agents, which is a seperate federal crime. Even if you didn’t commit PPP fraud, if you lie to agents during questioning, you’ve just committed a new crime.

Do not consent to searches without a warrant. Agents may ask permission to search your business or computer. They might say “If you have nothing to hide, why not let us look?” Politely say: “I don’t consent to any searches. If you have a warrant, I’d like to see it.” If they have a warrant, they’ll show you. But don’t consent to warrantless searches.

Do not make statements without an attorney. Even seemingly innocent statements can be twisted. Federal agents are skilled at asking questions that seem harmless but are actually building blocks for prosecution. And do not, under any circumstances, destroy or alter documents. Destruction of evidence is obstruction of justice—a seperate federal crime carrying up to 20 years in prison.

How Much Prison Time Am I Looking At? (The Sentencing Reality Check)

Sentencing in federal fraud cases is driven by the Federal Sentencing Guidelines, a complex matrix that calculates offense levels based on loss amount, criminal history, and other factors. Understanding how guidelines work helps you assess realistic sentencing exposure.

The fraud guideline starts with a base offense level of 6 or 7. From there, the offense level increases based on loss amount. For example:

• Loss $95,000-$150,000: +8 levels
• Loss $150,000-$250,000: +10 levels
• Loss $250,000-$550,000: +12 levels
• Loss over $1,500,000: +16 levels and higher

If you fraudulently obtained a $200,000 PPP loan, that adds +10 levels to your base offense level of 6, giving you offense level 16. But the most important reduction is for “acceptance of responsibility.” If you plead guilty and genuinely accept responsability, you recieve a 3-level reduction. This can reduce your guideline sentence by 30-50%.

For a first-time offender with a $200,000 fraud who accepts responsibility, your offense level would be 13 (16 minus 3). The guideline range for offense level 13 with no criminal history is 12-18 months. But alternatives like split sentences (part prison, part home confinement) or community confinement are possible.

Tennessee judges have shown varying approaches. Middle District judges generally follow guidelines but show willingness to impose below-guidelines sentences for defendants who demonstrate genuine remorse and make full restitution. Western District judges have been somewhat more lenient for smaller-dollar cases. First-time offenders with losses under $150,000 who cooperate and make restitution often recieve probation or home confinement rather then prison time.

What Defenses Actually Work in PPP Fraud Cases?

Federal fraud prosecutions have high conviction rates—over 90% at trial. But that doesn’t mean defenses don’t exist. Successful defenses usually prevent charges from being filed in the first place, or result in favorable plea agreements before trial.

Lack of Intent: The most common and effective defense. If you can show good-faith errors—misunderstood rules, relied on professionals, had reasonable basis for calculations—you undermine the intent element. This works best before charges are filed.

Statute of Limitations: Most fraud charges have a 5-year statute. For PPP fraud, that means prosecutors must indict you within 5 years of when you obtained the loan. If your loan was in April 2020, the statute expires in April 2025 (though it extends to 10 years if fraud exceeds $1 million). If your approaching the statute deadline, this defense is worth exploring.

Good-Faith Mistake in Calculations: PPP calculation rules were extraordinarily complex, especially for self-employed individuals. If you made calculation errors because rules were genuinely confusing and had a reasonable basis for your interpretation, that supports good-faith mistake defense.

I Need a Lawyer—What Should I Look For?

Not all criminal defense attorneys are equipped to handle federal PPP fraud cases. Federal criminal defense is specialized and requires knowledge of federal procedure, federal sentencing, and relationships with U.S. Attorneys. Here’s what to look for:

Federal Criminal Defense Experience: State and federal defense are very different. Look for an attorney who regularly practices in federal court and has handled federal fraud cases.

PPP Fraud-Specific Experience: By 2025, experienced attorneys should have handled multiple PPP cases. Ask how many they’ve handled and what outcomes were.

Experience in Your District: An attorney who practices in Middle District (Nashville) knows the prosecutors and judges there. Local experience matters for sentencing—attorneys know which judges are receptive to certain arguments.

Pre-Charge Intervention Capability: The best outcomes happen before charges are filed. An attorney who can intervene early—responding to SBA letters, negotiating with investigators—can often prevent charges entirely.

Questions to ask during consultation:

• How many federal fraud cases have you handled?
• How many PPP fraud cases specifically?
• Do you regularly practice in my district?
• Have you successfully negotiated civil resolutions in PPP cases?
• What’s your assessment of my case?
• What are likely outcomes (best case, worst case, most likely)?
• What are your fees?

How Much Will This Cost? (Legal Fees Nobody Talks About)

Federal criminal defense is expensive. PPP fraud cases can cost $25,000 to $200,000+ in attorney fees, depending on complexity and whether it goes to trial.

Pre-Charge Negotiation: If you hire an attorney to respond to SBA letter or negotiate before charges, fees typically range $15,000-$50,000. If the case is resolved at this stage, this is the cheapest outcome.

Post-Indictment Plea: If your already indicted and your attorney negotiates a plea, fees typically range $30,000-$75,000. Most federal PPP cases resolve via plea.

Trial: If your case goes to trial, fees can exceed $100,000-$200,000+. Trials require extensive preparation, expert witnesses (forensic accountants charging $10,000-$50,000+), and weeks of court time.

Most federal defense attorneys require a retainer—upfront payment of $25,000-$50,000. Some offer payment plans. And remember: on top of attorney fees, if your convicted you’ll face restitution (repayment of the loan) and potentially fines. Factor in total cost when evaluating settlement offers.

What To Do Right Now If Your Under Investigation

If your facing PPP fraud investigation in Tennessee, time is critical. Early intervention provides the best opportunity to avoid charges or minimize exposure.

If you received an SBA letter: Don’t respond without counsel. Contact a federal defense attorney who handles PPP fraud in your district. Bring all loan documents to your consultation.

If FBI agents visited you: Contact an attorney immediately. Don’t contact agents again without counsel present.

If you received a target letter or subpoena: You have limited time to respond (usually 14-21 days). Contact an attorney today.

What to bring to your first attorney meeting:

• Original PPP loan application and supporting documents
• Bank statements showing how funds were used
• Payroll records and tax returns
• Communications with accountants or consultants
• Any letters from SBA, FBI, or U.S. Attorney’s office
• Timeline of events

Don’t wait. The sooner you hire counsel, the sooner they can start protecting your interests. Federal investigations move quickly, and early intervention can mean the difference between civil resolution and criminal charges. Between probation and prison time. Between keeping your business and losing everything.

If your facing PPP loan fraud investigation or charges in Tennessee, you need an attorney who knows federal criminal defense, who has experience with PPP cases specifically, and who understands the prosecutors and judges in your district. The decisions you make in the next few weeks will affect the rest of your life. Make them carefully, and make them with experienced counsel by your side.