The Paycheck Protection Program (PPP) created through the Coronavirus Aid, Relief, and Economic Security (CARES) Act offered financial relief to businesses directly impacted by the COVID-19 pandemic. However, numerous unscrupulous businesses have applied for PPP loans even though they do not qualify. This often occurs through false certifications in their applications, misrepresenting ownership, miscounting employees, and hiding their true corporate structure. For employees that discover such fraud and wish to report it, certain laws such as the False Claims Act (FCA) prohibit retaliation against whistleblowers who report employers and in addition, reward whistleblowers with a percentage of any recovered funds.
The FCA is the government’s primary vehicle for recovering federal funds obtained by fraud. Under the FCA, 31 U.S.C. §§ 3729-3733, a violation occurs when any person knowingly or recklessly “presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the government or knowingly or recklessly “makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim…” In addition, liability exists where a person knowingly or recklessly “makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money . . . to the Government…” The FCA also has a criminal component. In certain cases, the same false statements made to the government to obtain PPP loans and forgiveness could be used by the government to seek criminal charges.
What does PPP fraud look like? Businesses that apply for loans, which the Small Business Administration (SBA) channels through banks and other lenders, must certify that the funds are necessary to support operations. Businesses must also certify the number of their employees and the size of their payroll. If a business misrepresents these facts, it commits fraud on the federal government in violation of the FCA. More specifically, here are the common scenarios:
- False Certification on a PPP Application: This means misrepresenting the true number of employees, distorting the need for the PPP funds, and applying for multiple loans.
- Improper Use of PPP Funds: Only a specific percentage of the PPP funds can be used for non-payroll costs.
- Improper PPP Loan Forgiveness: An example of this is seeking loan forgiveness after making layoffs.
In reality, these fraudulent actions hurt us all as taxpayers are the ones being taken advantage of. Further, people are stealing from a program designed to help struggling businesses keep employees on the payroll. Sadly, these fraud cases are appearing, and unfortunately will likely continue for some time. If you are aware of serious fraud or face retaliation for opposing such fraud, you have the ability to file a whistleblower lawsuit under the FCA, a state equivalent, or both.
If you have any questions regarding PPP fraud, please do not hesitate to contact attorney Matthew M. Fischer (matt@fischerlawpa.com). Matthew specializes in health and business law related issues and is a former Assistant General Counsel at the FBI and Senior Attorney Advisor at the U.S. Department of Health and Human Services.