Small Business Bankruptcy: A Guide to Chapter 11, Subchapter 5
Chapter 11, Subchapter 5 went into effect in February. Discover what the new law means for you, and how it affects small business bankruptcy.
COVID-19 Relief Fraud: PPP & EIDL Loans Under Heightened Investigation & Prosecution Contact us today.
Book a Consultation CallDerrick Worrell, 48, pleaded guilty to charges of money laundering and organizing a scheme to defraud $50,000 or more in connection with certain SBA COVID Loans authorized for disbursement under the CARES Act.
Mr. Worrell was imposed a mitigated sentence of 10 years, which could be reduced to under 6 years if Worrell complies with the terms of his plea agreement. To qualify for the reduced sentence, Worrell has been ordered to turn himself in to the court to avoid any further legal violations.
Worrell was among 6 individuals arrested for allegedly stealing over $3 million from the SBA COVID-19 Loan Program, enacted in 2020 under the CARES Act – which was designed to provide economic relief to small businesses actually affected by the COVID-19 pandemic.
During the course of investigation, it was discovered that Worrell secured an SBA COVID Loan disbursed in the amount of $491,000 for his company with 26 employees and a monthly payroll of $184,000. Worrell also paid $52,000 in wages, taxes and payroll fees while using the remainder of the SBA COVID Loan for his own personal expenses - approximately $254,000 or 52% of the loan, which included rental cars, groceries, and online shopping – all of which were apparently flagged as misuse of COVID relief funds.
Understand Your Risk
This case serves as a reminder of the severe consequences of exploiting the COVID PPP & EIDL Loan Program.
With the recent uptick by the SBA of conducting COVID PPP & EIDL non-compliance audits and business closure reviews where borrowers are required to produce financial statements, tax returns, bank and credit card statements in response to an Information Document Request, there is a paper trail and treasure trove of information that could be used against you and land you in trouble if allegations of ineligibility, false certification and/or misuse of proceeds can be proven.
If you obtained COVID PPP or EIDL funds for your small business and think you could find yourself in the crosshairs of an investigation and potential prosecution of false certification, misuse of proceeds or other financial mischief, then you should consult with qualified legal counsel to help assess your situation.
Government authorities have been encouraging the public to report suspicious activity related to pandemic relief funds, and with the extended 10-year statute of limitations to investigate COVID PPP & EIDL Loan fraud, there is ample time for enhanced scrutiny and possible prosecution ranging from civil penalties to criminal allegations.
Establishing a robust compliance strategy is crucial in preparing for an SBA non-compliance audits or business closure reviews. Begin by reviewing your business practices against SBA guidelines to pinpoint any potential areas of non-compliance. Regular internal audits can help you identify and rectify discrepancies before they become problematic. Furthermore, consulting with professionals specializing in SBA loans can provide insights into maintaining compliant financial records. Remember, being proactive in compliance can significantly mitigate risks during an audit or investigation.
Strategies
Engaging legal counsel experienced in SBA regulations should be a priority if faced with an SBA non-compliance audits or business closure reviews. An attorney can help you navigate the complexities of the non-compliance audit or business closure review process, advise on your legal rights, and represent your interests. They can also assist in developing a strategy for responding to inquiries and defending against potential findings of non-compliance. Moreover, if the non-compliance audits or business closure reviews reveal significant issues, your attorney can guide you through the steps for pursuing options.
Navigating an SBA non-compliance audit or business closure review doesn't have to be an overwhelming ordeal. By understanding the process, prioritizing compliance, enlisting legal support, and taking action post-audit, you can mitigate the impacts of such scrutiny on your business or you - as a owner/officer. If you're facing an SBA audit or have concerns about your business's compliance with SBA regulations, contact Protect Law Group today. Our team is dedicated to guiding small business owners through financial challenges and ensuring their rights are protected.
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
Clients borrowed and personally guaranteed an SBA 7(a) loan. Clients defaulted on the SBA loan and were sued in federal district court for breach of contract. The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan. We were subsequently hired to intervene and aggressively defend the lawsuit. After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.
Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
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