Can You Be Prosecuted for PPP Fraud if You Didn’t Obtain a Loan?

With “at least” 70,000 Paycheck Protection Program (PPP) loans showing signs of fraud and the total cost of fraud under the program exceeding $80 billion, federal authorities are carefully scrutinizing loan recipients’ applications and forgiveness certifications. But loan recipients aren’t the only ones under the microscope. Federal authorities are scrutinizing unsuccessful applications as well, and the U.S. Department of Justice (DOJ) has filed charges against several individuals that failed to obtain PPP loans through fraud.

Red Flags for Fraud in Unsuccessful PPP Loan Applications

The Internal Revenue Service’s Criminal Investigation Division (IRS CI) is one of the primary federal authorities involved in investigating PPP fraud. It regularly issues press releases touting its successes—including charges, guilty pleas, and convictions in PPP loan fraud cases.

These press releases highlight several recurring factors in IRS CI’s PPP loan fraud investigations. Based on IRS CI’s recent cases, some of the factors that Special Agents clearly consider to be “red flags” for fraudulent applications include:

• Evidence of falsification of tax returns submitted with PPP loan applications
• Evidence of inflated payroll data
• Evidence of inflated pre-pandemic revenue figures or fabricated losses
• Applications submitted on behalf of newly-formed businesses and shell companies
• Multiple applications submitted by or on behalf of the same individuals or companies

While IRS CI is not scrutinizing all unsuccessful PPP loan applications, it is clear that IRS CI is prioritizing unsuccessful applications alongside fraudulently obtained loans and fraudulent loan certifications. As a result, individuals who knowingly submitted fraudulent applications should consult with a lawyer regarding the options they have available. Unsuccessful PPP loan applicants who are facing scrutiny should engage a defense lawyer promptly as well—as submitting false documents to the federal government can lead to charges of wire fraud, conspiracy and other federal crimes.

IRS CI and the DOJ Are Also Targeting Individuals Who Assisted with the Submission of Fraudulent PPP Loan Applications

Along with prosecuting successful and unsuccessful PPP loan applicants, IRS CI and the DOJ are also targeting individuals who assisted with the submission of fraudulent PPP loan applications. For example, in one recent press release, IRS CI announced that multiple individuals have pleaded guilty to a scheme that involved two of the defendants preparing fraudulent PPP loan applications in exchange for 25 percent of the loan proceeds obtained by others. Even though these defendants did not obtain any PPP loans directly, their involvement in submitting fraudulent loan applications nonetheless led to charges of conspiracy and other crimes.

Contact Thorn Law Group for a Confidential Consultation in Boston

Tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, represents clients in PPP and other pandemic-related fraud cases in Boston. If you are under investigation by IRS CI or the DOJ, or if you have concerns about facing scrutiny related to a PPP loan application, we encourage you to contact us promptly for more information. Call 617-692-2989 or contact us online to schedule an appointment today.