Justice Department Announces First Civil Settlement in PPP Loan Fraud Case
The Eastern District of California in January obtained the very first civil settlement for fraud in the government’s continuing battle against Paycheck Protection Program fraud. U.S. Attorney McGregor W. Scott announced the settlement between the Department of Justice and SlideBelts, Inc., an internet retail company and debtor in bankruptcy, and the company’s president and chief executive officer, Brigham Taylor, who are alleged to have fraudulently obtained COVID-19 relief funds by making false claims on multiple PPP loan applications submitted to different financial institutions. With millions of dollars in PPP loans potentially subject to fraud, waste or abuse, the federal government has prioritized scrutinizing PPP borrowers and rooting out fraudulent schemes associated with the Paycheck Protection Program. If you are facing criminal charges for PPP loan fraud in connection with the CARES Act, or if you think the government may come after you for civil penalties and damages related to a PPP loan you obtained, you don’t have to face the federal government on your own. Consult our seasoned PPP attorneys as quickly as possible for reliable advice on how best to proceed with your loan fraud case.
The CARES Act and PPP Loan Fraud
The CARES Act was introduced in March 2020, at the very beginning of the COVID-19 pandemic, as a means of providing emergency financial assistance to millions of Americans and small business owners struggling to withstand the economic impact of the nationwide pandemic and mandated shutdowns. The cornerstone of the CARES Act was a forgivable loan program designed to provide small businesses with forgivable loans to be used for employee retention and eligible business expenses during the coronavirus crisis. Known as the Paycheck Protection Program, the loan program initially authorized up to $349 billion in loans backed by the U.S. Small Business Administration (SBA), though Congress increased funding for the program by a whopping $300 billion just one month after the CARES Act was enacted. Congress approved an additional $285 billion in PPP funds in December 2020, as the COVID-19 pandemic dragged on and small businesses continued to suffer financially.
With billions of dollars in government funds on the table and a push to get the money to borrowers as quickly as possible, there was a high risk of fraudulent activity occurring in connection with the Paycheck Protection Program. Particularly since the PPP loans are forgivable, meaning the loans do not have to be repaid so long as borrowers meet certain loan forgiveness criteria. The prospect of obtaining a loan under the Paycheck Protection Program and having the loan 100% forgiven led to millions of PPP loan applications being submitted to banks by businesses of all types and sizes, some of whom may not have been eligible for emergency financial relief. In total, more than 5.2 million loans were approved under the Paycheck Protection Program, with a total of more than $525 billion in COVID-19 relief funds disbursed to PPP loan applicants nationwide.
Criminal Charges for Fraud Linked to COVID-19
Early on in the coronavirus pandemic, the Justice Department made it clear that it would be thorough in its investigation and prosecution of fraud allegations linked to COVID-19 relief funds. In May 2020, just a few weeks after the CARES Act was enacted, the government announced the first charges against two borrowers accused of committing PPP fraud, and federal prosecutors and investigators have moved quickly over the past 10 months to investigate additional allegations of PPP fraud and hold those accused of committing fraud liable for their crimes. To date, criminal charges have been filed against nearly 200 borrowers over allegations of PPP loan fraud.
Civil Settlements for PPP Fraud Allegations
While the federal government already has dozens of criminal prosecutions under its belt in its ongoing fight against COVID-19 fraud, this case against SlideBelts and president and CEO Brigham Taylor marks the first civil settlement for fraud involving the CARES Act Paycheck Protection Program. This is noteworthy, as it demonstrates the Justice Department’s commitment to using every tool in its arsenal to fight fraud and bring alleged offenders to justice.
As part of the PPP fraud settlement agreement, SlideBelts and Taylor admitted that they made false statements to federally insured banks, failing to disclose on three PPP loan applications that SlideBelts was a debtor in bankruptcy, in order to fraudulently obtain PPP funds guaranteed by the SBA. As a result of those false statements, SlideBelts received a $350,000 PPP loan, which has since been repaid in full. SlideBelts and Taylor also admitted that their false statements caused false claims to be made to the SBA in connection with the PPP loan.
“The defendants made false statements to multiple banks in order to obtain a Paycheck Protection Program loan that should have been disbursed to an honest small business suffering financially from the economic effects of the COVID-19 pandemic,” stated U.S. Attorney Scott in the Justice Department press release. “The Department of Justice and our partners at the SBA will use all tools at our disposal, including civil fraud statutes, to aggressively pursue those who exploit federal programs intended to help those in need during this national emergency.”
What is the False Claims Act?
The False Claims Act (FCA) is a federal law that allows the government to hold individuals and companies liable for fraudulent activity committed in connection with government programs, such as the CARES Act and Paycheck Protection Program, and recover damages and penalties from those individuals or companies. An example of a False Claims Act violation connected to the Paycheck Protection Program would be knowingly making false or fraudulent claims to the federal government for payment of PPP funds. The civil penalty for damages under the False Claims Act currently maxes out at $23,331 per false claim, up to three times the actual damages sustained by the government, plus attorney’s fees.
What is FIRREA?
The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) is a powerful anti-fraud tool that gives the government the authority to sue for civil penalties in cases involving violations of more than a dozen specified criminal statutes, including bank fraud, mail fraud, wire fraud, or false statements involving or affecting federally insured banking institutions. Even if the Justice Department decides against filing criminal charges in a PPP loan fraud case (or even if it does pursue criminal charges), it can seek up to $2 million in penalties per fraud violation (after adjusting for inflation) or up to $10 million in penalties for a continuing fraud violation under FIRREA.
Penalties and Damages for FCA, FIRREA Violations
To resolve claims that they committed PPP loan fraud and that their misconduct violated the False Claims Act and FIRREA, SlideBelts and Taylor have agreed to pay a combined $100,000 in damages and penalties to the United States. To give you a better idea of the extent to which the government can pursue civil penalties against individuals and companies accused of committing PPP fraud, consider this: SlideBelts and Taylor were accused of fraudulently obtaining only $350,000 in PPP funds yet the company’s liability amounted to $4,196,992 in damages and penalties under the FCA and FIRREA, according to the government. The settlement agreement notes that the government was willing to accept $100,000 rather than the full $4.2 million in civil claims due to SlideBelts’ and Taylor’s poor financial situation.
SlideBelts’ and Taylor’s case was handled by U.S. Attorney Matthew R. Belz and the investigation was carried out in coordination with the Office of Inspector General (OIG) for the SBA. “This is a critical time for our nation’s small businesses,” said the SBA-OIG’s Western Region Special Agent in Charge, Weston King. “Greed has no place in SBA programs that are intended to provide assistance to the nation’s small businesses struggling with the pandemic’s challenges. I want to thank the U.S. Attorney’s Office and our law enforcement partners for their dedication and pursuit of justice.”
How Our Experienced PPP Attorneys Can Help
The potential civil penalty exposure PPP borrowers may face under the False Claims Act and FIRREA is significant. Together, these civil fraud statutes allow the government to pursue massive settlement amounts from borrowers alleged to have committed PPP fraud. And the statute of limitations for FCA and FIRREA violations is 10 years, which means the government has years to investigate PPP borrowers for potential fraudulent activity. Furthermore, because most settlement agreements involving FCA violations do not cover criminal conduct, defendants who settle with the government may still be exposed to criminal charges for fraud.
If you have been charged with fraud in connection with the Paycheck Protection Program, or if you are concerned about your potential exposure to civil penalties, do not hesitate to retain qualified legal counsel. The government is motivated to aggressively investigate and prosecute PPP fraud cases and if you find yourself in the Justice Department’s crosshairs, you will need an expert PPP fraud attorney representing your case. Contact our skilled PPP attorneys today to find out how we can help.