Feds Now Prosecuting PPP Loan Fraud

For those who received PPP money during the pandemic and misused it, the time of reckoning is already here. More than a dozen criminal cases have been filed across 11 states involving PPP loan misuse. As the Los Angeles Times reports, these first cases involve “blatant fraud” by small businesses and individual business owners, not large corporations.

“One Los Angeles business owner allegedly went to Las Vegas and gambled away some of the $9 million he received in emergency government loans earmarked for his employees,” Staff Writer Sarah D. Wire reports. “A Texas man is accused of using his $1.5-million Paycheck Protection Program funds to pay off a mortgage, while another loan recipient in Georgia is charged with using his $2-million loan to buy a car, jewelry and to pay child support. A Washington, D.C., applicant fabricated Social Security numbers in an attempt to collect money for employees he didn’t really have, federal prosecutors say.”

The U.S. Treasury Department, along with the Small Business Administration, have outlined safe harbor rules—or protection from prosecution—for small businesses that borrowed money through the PPP. When submitting a PPP application, all borrowers certified in “good faith” that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Furthermore, anyone eligible who received PPP loans with an original principal amount of less than $2 million “will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” The reasoning is that “borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.”

So the Texan cited above would have been OK if he had used the business funds in a responsible manner and not for personal gain.

Borrowers receiving more than $2 million in PPP funds, on the other hand, will be audited for compliance when they ask for loan forgiveness. And, per federal FAQ guidelines, “if SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from SBA, SBA will not pursue administrative enforcement or referrals to other agencies based on its determination with respect to the certification concerning necessity of the loan request.”

The SBA has a long road of policing ahead of it. The Washington Post reports that nearly 90,000 companies in the PPP program took the aid without promising they would rehire workers or create jobs, which is a requirement.

“[The SBA also handed out loans to private schools catering to elite clientele, firms owned by foreign companies and large chains backed by well-heeled Wall Street firms,” the paper points out.

Among these offenders, however, will be small businesses and business owners without a clear-cut case of defiance. For them, good faith may have been attempted, but not fully achieved.

Texas attorney and Forbes contributor Bruce Brumberg offers some warnings for those businesses on the fringe, including insights from prosecuting attorneys who investigated and prosecuted individuals who fraudulently received relief funding during the financial crisis of 2008-2009. You can read the full article here, which includes these key points:

  • If you signed the documents, you’re responsible for the claims they make. Don’t rely on what you’re told, especially if it means ignoring inaccurate or suspect information.
  • Your definition of “employee versus independent contractor” could be questioned if your independent workforce pushes your total workforce numbers past 500 people.
  • No fish will be too small for the net,” the attorneys warn. Once fraud is suspected (like self-dealing), the amount of the loan won’t matter. Random reviews may happen as well.
  • Prior loans/lines of credit may be reviewed, and discrepancies in application information you provided may need to be explained.

PPP loan forgiveness is out there, but it requires several hoops to jump through—perhaps even more than receiving the funds in the first place. Feel free to contact us with questions.

Photo from 123rf.com

Client Spotlight

A terrifying home invasion involving men with masks and guns set Pam Wood on an unexpected path to business ownership in 1981….
What happens when you combine a passion for creating, a knack for business, and deep family values? For Scott Klingler, owner of MergeWorks, it resulted…
Bessie M. Irizarry loves embracing a good challenge. It’s one of the many reasons she’s earned respect as a female engineer and business owner in…
San Antonio native Mark Lopez can’t recall a time he didn’t envision himself following the footsteps of his father, a project manager, into the construction…
Siew Pang knows that the key to unlocking the American dream can be discovered by embracing unexpected opportunities….
If you’re a San Antonian, you may not want to imagine your weekend without brunch at the city’s beloved Magnolia Pancake Haus….
Greg Thompson has long respected money and how it can catalyze greater things….
You may not be aware of it, but Don Lasseter has helped you throw a party. How do we know that? He’s the franchise owner…
Land surveyors aren’t known for exceptional customer service. But why shouldn’t they be? David Breaux set out in 1998 to prove that treating customers right…
When Lance Rose sees a business need, he fills it. That’s how he and Terri, his wife of 30 years, have evolved into the proud…
Matt and Lara Bruhn met while in graduate school at Harvard. He served as an officer and F-15C pilot with the U.S. Air Force….
Growing up in Piedras Negras, Coahuila, Mexico—just south of Texas along the Rio Grande—Oscar E. Flores dreamed of becoming a designer….

Blogs and Articles

Bankler Partners, LC, Expands into a New Name and Space

This is a pivotal moment for our firm. The transformation to Bankler Partners and move to our new, modern space represents our dynamic growth and...

Bankler Partners, LC, Expands into a New Name and Space

Read More

Digital Assets and Your Taxes

You may have reveled in the Wild West days of cryptocurrency and other digital assets, but we’re entering an era of meticulous record keeping and...

Digital Assets and Your Taxes

Read More

The Goldilocks Rule for Tax Withholding

If you’re like half of Americans this year, you are more dependent on your tax refund to pay for necessities than you have been in...

The Goldilocks Rule for Tax Withholding

Read More

How Inherited Assets Affect Your Taxes

Inheriting assets can be a financial blessing, but it also raises essential tax questions that many heirs overlook. How you manage those assets can have...

How Inherited Assets Affect Your Taxes

Read More

Getting Hit by Someone Else’s Bankruptcy

Finding out that another business or individual who owes your business money has declared bankruptcy can feel like a kick to the stomach....

Getting Hit by Someone Else’s Bankruptcy

Read More

Welcome to Texas: Cutting Tax Ties with Your Previous State

San Antonio is currently one of the fastest-growing metro areas in the nation. If you’re among our new residents, welcome! Before you enjoy the tax-friendly...

Welcome to Texas: Cutting Tax Ties with Your Previous State

Read More

Reaching the Unreachable IRS

Reaching the IRS has always been challenging. With the IRS workforce reduction continuing, many believe your odds of reaching a warm body to resolve a...

Reaching the Unreachable IRS

Read More

How Is Costco Gold Taxed?

Gold, silver, and other precious metals have emerged as standout assets in today’s unpredictable economy due to their ability to remain somewhat independent from stock...

How Is Costco Gold Taxed?

Read More

Yes, You Do Still Have to File Taxes

Early filing numbers are measurably down this year, data security concerns are high, and IRS staffing is in disarray. But if you’re considering scrapping it...

Yes, You Do Still Have to File Taxes

Read More

Retirement Plan Perks for Texas Small Businesses

Retirement Plan Perks for Texas Small Businesses

Read More

Top 6 Worst Social Media Tax Tips

Top 6 Worst Social Media Tax Tips

Read More

What’s Happening with the Corporate Transparency Act?

In March 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule removing the requirement for U.S. companies to report beneficial ownership information...

What’s Happening with the Corporate Transparency Act?

Read More

Love & Marriage & Your Business Assets

Love & Marriage & Your Business Assets

Read More

How Small Business Owners Reduce Taxable Income

How Small Business Owners Reduce Taxable Income

Read More

Spot These Tax Scam Signs Before It’s Too Late

Spot These Tax Scam Signs Before It’s Too Late

Read More

Now Accepting New Clients

Let’s Start the Conversation

Let’s take a look at your finances together. We offer a complimentary 1-hour call to review your past tax returns. If we see a way to help you, we will.