Business Partner Committed PPP Fraud – Am I Liable

Business Partner Committed PPP Fraud – Am I Liable

Your business partner committed PPP fraud. You didn’t know. You didn’t participate. You didn’t sign the application. And now federal investigators are asking questions about you. Here’s the uncomfortable truth that nobody wants to explain: under federal conspiracy law, you can be convicted of crimes you didn’t commit, didn’t know about, and didn’t want to happen. The law treats your partner’s criminal acts as if they were your own criminal acts. That’s not an exaggeration. That’s a legal doctrine called Pinkerton liability, and it has been destroying “innocent” business partners since 1946.

The Supreme Court established this rule in a case involving two brothers. Daniel Pinkerton was convicted of tax offenses that his brother Walter committed. The twist that makes this doctrine so terrifying? Daniel was literally in prison when Walter committed those crimes. He couldn’t have participated because he was behind bars. But the brothers had an agreement – a conspiracy – to evade taxes together. And under federal law, that agreement made Daniel responsible for everything Walter did to further their shared goal. Even acts Daniel knew nothing about. Even acts committed while Daniel was incarcerated.

If you had any kind of business agreement with your partner that touched the PPP loan – even if you didn’t realize the application was fraudulent – you may face the same fate as Daniel Pinkerton. This isn’t about whether you’re morally guilty. It’s about whether federal prosecutors can draw a legal line from your business relationship to your partner’s crimes. And conspiracy law gives them an extremely wide brush to draw that line.

Pinkerton Liability – How Your Partner’s Crime Becomes Your Crime

Heres how prosecutors turn your partners PPP fraud into YOUR PPP fraud.

Federal conspiracy law treats co-conspirators as “agents” of each other. Every email your partner sent in furtherance of the scheme – legally, YOU sent that email. Every phone call to the bank, every wire transfer, every fraudulent statement on the application – if it was in furtherance of an agreement you were part of, you made those communications. Thats not metaphor. Thats the legal standard that federal courts have applied for nearly 80 years.

The practical effect is devastating. Instead of having to prove YOU personally submitted a false PPP application, prosecutors only have to prove three things:

• That an agreement existed between you and your partner
• That PPP fraud was part of or foreseeable from that agreement
• That you knowingly joined the agreement

Once they establish those elements, Pinkerton liability kicks in. Your partners 50 fraudulent emails become YOUR 50 counts of wire fraud.

Think about what that means. Your partner could have been submitting false information for months without your knowledge. Each false statement is a seperate count. Each wire transfer is a seperate count. Wire fraud carries up to 20 years per count. If the fraud affected a financial institution, each count carries up to 30 years. The math gets terrifying fast.

Under conspiracy law, your partners actions ARE your actions. Not similar to. Not related to. ARE.

This is why federal prosecutors love conspiracy charges. They get to hold you responsible for everything your co-conspirator did without having to prove you personaly did any of it. They dont need your fingerprints on the application. They dont need your signature. They dont need evidence you even saw the documents. They just need evidence of an agreement – and your business partnership is that evidence.

The “I Didn’t Know” Defense That Doesn’t Work

OK so heres were people get destroyed. You say “I didnt know my partner was committing fraud.” You think thats a defense. Prosecutors hear something completly different. They hear an admission of willful blindness.

Willful blindness – sometimes called “deliberate avoidance” – is a legal doctrine that treats deliberately not knowing the same as actualy knowing. If you suspected something was wrong and chose not to investigate, your ignorance becomes evidence of your guilt. Read that again. Your ignorance becomes evidence of your guilt.

Heres the paradox that catches business partners. Not asking questions about suspicious activity isnt neutral. Prosecutors will argue that not asking questions proves you already knew the answers. Why didnt you ask your partner were those payroll numbers came from? Becuase you already knew they were inflated and didnt want to confirm it. Why didnt you review the PPP application before it was submitted? Becuase you didnt want to see evidence of fraud.

Your silence isnt neutral. Your silence is proof of knowledge.

The cascade works like this. You notice something seems off but dont investigate. Investigators note that you didnt investigate. They argue that failing to investigate was “deliberate avoidance.” Deliberate avoidance equals knowledge under federal law. Knowledge plus agreement equals conspiracy. And suddenly your legaly identical to your guilty partner – facing the same charges, the same potential sentence.

Heres the inversion that traps sophisticated business people. You thought delegating the PPP application to your partner was responsible management. You trusted them to handle it. But prosecutors will argue that delegation without oversight is evidence you didnt want to know. The more removed you were from operations, the more they argue you deliberately avoided learning what was happening.

What “Reasonably Foreseeable” Actually Means

Now we get to the doctrine that makes things even worse. Your not just liable for what you agreed to – your liable for everything that was “reasonably foreseeable” from what you agreed to.

The standard isnt what you actualy knew. The standard is what a jury thinks you SHOULD have anticipated. If your business agreement with your partner involved anything that made PPP fraud a natural or probable consequence, your on the hook. Even if you never imagined they would submit a false application. Even if PPP fraud was never discussed. Even if you would have been horrified to learn about it.

Lets make this concrete. You and your partner agree to keep the business running during the pandemic. You agree to pursue every available funding source. You agree that your partner will handle the PPP application while you handle operations. Your partner, without telling you, inflates the payroll numbers on the application. That inflation constitutes fraud.

Were you part of an agreement to commit PPP fraud? No. But were you part of an agreement to pursue pandemic funding? Yes. And was it “reasonably foreseeable” that agressive pursuit of funding might include exaggerated or false statements? A jury might say yes. And if they do, your liable for your partners fraud.

The question prosecutors ask isnt “did you know about the fraud?” The question is “given what you did know, should fraud have been on your radar?”

Heres the even more uncomfortable truth. You dont have to profit from the fraud to be liable. You dont have to know the details. If prosecutors can convince a jury that fraud was a foreseeable outcome of your business arrangement, your responsible wheather you benefited or not. In fact, the less you profited personaly, the MORE prosecutors argue you knew – becuase why else would you stay in a partnership that wasnt benefiting you?

When Your Partner Cooperates Against You

Heres the scenario that terrifies business partners. Your partner gets charged with PPP fraud. The FBI arrests them. There facing serious prison time. And now there lawyer is negotiating a cooperation agreement with federal prosecutors.

Your partner will cooperate against you to reduce there own sentence. This is how the federal system works. This is what happens in the vast majority of multi-defendant cases.

Think about what your partner knows. They know every conversation you had about the business. They know what information you provided. They know what questions you asked – or didnt ask. They know wheather you seemed curious about the PPP application or wheather you told them to “just handle it.” All of this becomes there testimony against you.

And heres the devastating irony. Your partner – the one who actualy committed the fraud – may get a lighter sentence then you. Why? Becuase they cooperated. They provided “substantial assistance” to prosecutors. They testified truthfully against there co-conspirators. The government rewards cooperation with sentence reductions. The person who didnt cooperate – who maintained there innocence, who went to trial – faces the full weight of the sentencing guidelines.

The guilty partner who cooperates often serves less time then the “innocent” partner who fights.

Heres the consequence cascade nobody thinks about. Your partner gets arrested. There lawyer explains the sentencing guidelines. There looking at 10-15 years. The government offers a deal: plead guilty, testify truthfully against your business partner, and we’ll recommend 3-5 years. Your partner takes the deal. Most people take the deal.

Now your partner is sitting in front of a grand jury explaining that you “must have known” about the fraud. They testify about conversations were you seemed “suspicious” or “concerned.” They characterize your delegation as “willful blindness.” Your “I didnt know” defense has collapsed – becuase your partner is testifying that you knew exactly what was happening.

Real Cases: Partners Sentenced Together

Lets look at what actualy happened to business partners charged together in PPP fraud cases.

Michael and Tiffany Fullerton – In October 2024, this Texas couple was sentenced to a combined 32 years in federal prison for PPP fraud. They worked with two other co-conspirators to submit six fraudulent applications totaling over $3.5 million. Michael got 286 months. Tiffany got 108 months. Both were ordered to pay over $3 million in restitution. The partnership that was supposed to build there businesses destroyed there lives.

Tommy Hawkins was a bank branch manager who coordinated with multiple partners to submit 38 fraudulent PPP loans totaling approximately $5 million. He worked with recruiters who found people with dormant companies. He helped them submit applications with false representations about employees and payroll. Hawkins was sentenced to 65 months in federal prison in October 2024. His co-defendants – the partners he worked with – faced there own sentences.

The Whitaker and Coleman scheme is even more instructive. Edward Whitaker and Schunda Coleman operated a nationwide network from Texas, helping people commit PPP fraud in exchange for 25% of the loan proceeds. As of August 2024, 22 defendants had been sentenced to prison for there roles in this single scheme. Twenty-two people. Partners, recruiters, applicants – everyone connected to the conspiracy faced federal charges.

These arent the biggest cases. These arent unusual cases. These are representative of what happens when PPP fraud involves multiple people. The government dosent just charge the person who submitted the application. They charge everyone connected to the scheme. Everyone who had an agreement. Everyone whos conduct made the fraud possible.

The Only Defense That Actually Worked

Heres something that offers a sliver of hope. Theres one defense that has actualy worked for “innocent” business partners – but it requires specific facts that most people dont have.

In United States v. Patterson (Eastern District of New York, 2023), an ex-partner won full acquittal by proving he exited the partnership BEFORE the specific fraudulent transactions occurred. Patterson had left the business in June 2020. All the charged fraudulent loan applications were submitted between August and November 2020 – after he was gone.

Even though prosecutors had emails showing Patterson “suspected something wasnt right” in May 2020, the court held that suspicion before departure does not equal knowledge of specific fraud that occurred after departure. His defense worked becuase he could prove he wasnt there when the crimes happened.

Exit timing matters. If you left before the fraud occurred, you may have a defense. If you stayed, your exposure continues.

Heres the critical lesson. Patterson didnt win by arguing “I didnt know.” He won by proving “I couldnt have known – I wasnt there.” The distinction is everything. “I didnt know” is willful blindness territory. “I literally wasnt present” is a factual defense that cuts off Pinkerton liability.

But most people facing this situation didnt leave before the fraud. Most people were still partners when the fraudulent applications were submitted. Most people were still recieving distributions from the business while the scheme was underway. For them, the Patterson defense isnt available.

The Distributions Problem

If your still recieving any money from the business – any distributions, any buyout payments, any earnout payments – while your partner is under investigation, your in serious trouble.

Every dollar you recieve can be used as evidence your profiting from a criminal enterprise. This comes from RICO “continuing criminal enterprise” theory applied to business fraud cases. Even if you didnt know about the investigation. Even if the payments are legitimatly owed to you. The fact that money is flowing from a business involved in fraud to your bank account creates evidence prosecutors will use.

Heres the trap. You stop taking distributions becuase you heard about the investigation. Now prosecutors argue that stopping proves you knew something was wrong. You keep taking distributions becuase there legitimatly yours. Now prosecutors argue your continuing to profit from the fraud. Theres no clean option.

This is why you need a federal criminal defense attorney the moment you learn your partner is under investigation. The decisions you make about money, about communications, about continued involvement with the business – all of these decisions create evidence. You need someone who understands how prosecutors will interpret every action you take.

Joint and Several Liability – You Could Owe Everything

Heres another doctrine that destroys “innocent” partners: joint and several liability.

If your convicted of conspiracy, you can be held liable for the ENTIRE amount of the fraud – not just your portion. Lets say three partners conspired to obtain $500,000 in fraudulent PPP loans. You personaly recieved $50,000. Your partner recieved $200,000. The third partner recieved $250,000. Under joint and several liability, you could be ordered to pay restitution for the full $500,000.

This happens becuase conspiracy makes each conspirator responsible for the entire scheme. The government dosent have to figure out who got what. They dont have to divide the fraud by participant. They can pursue any conspirator for the full amount. Usually they pursue whoever has assets they can seize.

Heres the irony that catches people. Your partner spent there share on luxury cars and vacations. The money is gone. You put yours in savings becuase you wanted to be responsible. Guess whos assets get seized? The responsible one. The one who still has something to take.

The restitution order follows you for years. Interest accumulates. The government can garnish wages, seize tax refunds, and pursue any assets you aquire in the future. Your not just facing prison time – your facing financial devastation that extends decades beyond any sentence.

And heres the cascade nobody mentions. You cant pay restitution. You face contempt proceedings. Willful failure to pay can result in additional jail time. The financial consequences create there own criminal exposure. The trap has layers upon layers.

How to Protect Yourself Starting Now

If you learn that your business partner is under investigation for PPP fraud, or if federal agents have contacted you about your partners conduct, you need to take immediate action.

First, hire your own federal criminal defense attorney immediatly. Do not share an attorney with your partner. Do not communicate with your partners attorney. Your interests and your partners interests are not the same – and they may become directly opposed. Your partner may cooperate against you. Anything you tell there lawyer could be shared with prosecutors. You need completly independent representation.

Second, preserve all documentation of your business relationship. Emails. Meeting notes. Financial records. Anything that shows what you knew, when you knew it, what questions you asked, what role you played. This documentation could support your defense – or it could incriminate you. Either way, you need to know what exists before prosecutors do.

Third, do not contact your partner to discuss the investigation. Do not try to “get your stories straight.” This is obstruction of justice. Witness tampering. It will create additional charges that are easier to prove then the original fraud conspiracy. Whatever relationship you had with your partner is now adversarial. Treat it that way.

The partnership is over. Your partner may become the governments primary witness against you.

Fourth, stop making any business decisions without consulting your attorney. Every decision you make – about distributions, about business operations, about communications – creates evidence. You need someone who understands how prosecutors will interpret your actions.

The question isnt wheather your partner committed fraud. The question is wheather prosecutors can connect you to that fraud through conspiracy doctrine. The question is wheather your business agreement made the fraud “reasonably foreseeable.” The question is wheather your conduct – not your partners conduct – demonstrates knowledge or willful blindness.

Your partner submitted the false application. But under Pinkerton liability, you may be just as guilty as if you submitted it yourself. Thats the reality of federal conspiracy law. Thats why you need a defense attorney who understands how to fight conspiracy charges. And thats why you need to act now – before your partners cooperation agreement makes your defense impossible.