Can You Go to Jail for PPP Fraud?

The Paycheck Protection Program (PPP) provided economic benefits for small businesses to cover payroll and other expenses during the coronavirus pandemic. If the business met the terms of the loan requirements, the Small Business Administration (SBA) would forgive the amount of the loans that were used to cover qualifying expenses, including payroll, rent, and utilities. However, some individuals and business owners took the forgivable loans and used the money for unapproved purchases, committing PPP loan fraud.

Loan fraud and other deceptive practices can involve complex state and federal law. This page gives a broad overview of PPP fraud with links to more detailed articles that can help you answer specific questions about your case. Because criminal law is set by each individual state, we suggest consulting a criminal fraud defense attorney in a city near you to give you the best advice about your individual situation.

The Paycheck Protection Program

As part of the 2020 Coronavirus Aid, Relief and Economic Security Act (also known as the CARES Act), Congress created the PPP by allocating billions of dollars for small businesses for payroll and other expenses during the COVID-19 pandemic. Eligible small businesses—those with 500 or fewer employees—could take loans of up to 2.5 times the average monthly payroll expenses of the previous year.

The entire amount of the loan was eligible for loan forgiveness if the expenses were used for payroll costs, mortgage interest, rent for business lease agreements, and utility payments. For payroll costs, the loan expenses could be forgiven when employee numbers and salaries or wages were maintained. Other expenses were included in second draw loans, including expenditures, property damage, and worker protection expenses.

What is PPP Loan Fraud?

Like with any loan, it is possible to get into legal trouble with PPP loans. Fraud involving PPP funds can result in a number of ways, such as misrepresentations regarding the loan application or use of the funds made to lending institutions, the SBA, or other federal government agencies. For example, if you use false information to apply for a loan, you can be criminally liable fraud.

Even after you have received the PPP loan, if you use the funds for nonqualifying expenses while seeking loan forgiveness for COVID-19 relief funds, or otherwise misrepresent how the funds were used, you can also be liable. In some cases, a business owner may have applied for the loan with the intention of using the funds as intended. However, after receiving the loan, the business owner may have tried to keep some of the loan proceeds for their personal gain and alter business records to make it appear the loan funds were for the approved purpose.

Can You Go to Jail for PPP Loan Fraud?

If you are convicted of loan fraud or plead guilty to fraud, the penalties can include jail time. How long you can go to jail for PPP loan fraud may depend on several factors, including:

• Specific criminal charges
• The extent of the fraud
• Any other additional criminal charges you may be facing
• Prior criminal record for fraud or other crimes
• Whether the fraud involving multiple loans
• Whether the loan fraud as part of a criminal enterprise

For example, if a defendant is charged with bank fraud involving PPP loans, under U.S. Code 18 U.S.C. 1344, the penalty includes up to 30 years in federal prison and a fine of up to $1 million. Even a first-time offense can carry the possibility of jail time for financial institution fraud.

Who Can Go to Jail for Loan Fraud?

Depending on the type of fraud involved and the extent of the fraudulent practices, a defendant can be charged with multiple criminal offenses, including:

• Bank fraud
• Wire fraud
• Identity theft
• Money laundering
• Making false statements to a federally insured financial institution
• Conspiracy to commit fraud

What Is an Example of PPP Loan Fraud or Abuse?

Potential fraud would involve the use of PPP loan money for anything other than the permitted uses. The following are a few examples:

• Falsifying bank statements to increase the amount of the loan by showing an increased monthly payroll
• Applying for PPP loans from multiple lenders (loan stacking)
• Helping others make fraudulent loan applications
• Applying for PPP loans by using another person’s identity (this would also be considered identify theft)
• Using the loan money for personal gain
• Falsely claiming that the business was in operation during the qualifying period
• Using fraudulent IRS forms to get loan approval
• Creating fake companies or using false certification for a business
• Misrepresenting the number of employees to get additional funding

How Do I Report PPP Loan Fraud?

The Department of Justice and other federal law enforcement has taken measures to combat abuse of the payment protection program. If you suspect that a business owner is falsely claiming PPP money for their personal gain, you can report it to the SBA. The SBA’s Office of the Inspector General Hotline (OIG) receives information about suspected fraud, waste, abuse, mismanagement of PPP funds, and other illegal activity.

If you suspect that someone applied for a PPP loan using your information, you can report identity theft. If you know the lender that issued the loan, you may want to contact the lender to report the fraud themselves. You can also go to the Federal Trade Commission’s (FTC) identity theft website to report the theft.

You may be able to receive a financial award for reporting fraud. Under the False Claims Act, a whistleblower may be eligible to receive up to 30% of the recovered money. Whistleblowers who report fraud are also given protection under federal law.

PPP Loan Fraud Investigations

A PPP loan investigation for alleged fraud can involve multiple law enforcement and government agencies. The SBA Office of Inspector General conducts audits and loan reviews, and will investigate fraud or abuse involving federal PPP money. Other federal and local law enforcement agencies, including the Federal Bureau of Investigation (FBI), Justice Department, and Internal Revenue Service (IRS), also investigates government fraud.

If you have been contacted by government investigators asking you questions about how you used PPP loan money, or if you believe that you may be under investigation for alleged fraud, you should contact a criminal fraud defense attorney for representation. Do not wait until an arrest to contact a criminal defense lawyer. An experienced lawyer can represent you in an investigation and help you avoid saying the wrong thing that could result in criminal charges.