The Small Business Administration’s Paycheck Protection Program (PPP), created as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, is a crucial Covid-19 relief effort. Because the program is vulnerable to fraud whistleblowers are key to ensuring that taxpayers are not defrauded.
The PPP gives monetary assistance to businesses to help address with the economic impact of the Covid-19 pandemic and to keep employees on the payroll. As of February 2021, Congress had authorized a total of $993 billion for the PPP, which makes loans available to businesses that meet certain criteria, and which businesses must repay unless they spend the funds on permitted activities.
To speed up the program, the Small Business Administration, which administers the PPP, permitted lenders to rely on borrower certifications to determine borrowers’ eligibility. Self-certification, however, raises the potential for fraud.
With so much money at stake and so many loans issued, the SBA needs the help of whistleblowers to provide information about PPP-related frauds.
The government is investigating hundreds of cases of suspected PPP fraud. So far, DOJ has announced charges in more than a dozen cases of potential misuse of PPP funding involving more than $65 million in PPP loans.
HOW THE SBA’S PAYCHECK PROTECTION PROGRAM LOANS WORK
The CARES Act and the Paycheck Protection Program and Health Care Enhancement Act authorized a total of $659 billion in forgivable loans to small businesses for job retention and related expenses through the PPP. The program was designed to provide loans to small businesses to help them keep employees on the payroll.
The PPP allows qualifying small businesses and other organizations to receive loans with a maturity of two years and an interest rate of 1%. PPP loans, however, may be forgiven provided that employers retain or rehire employees.
Two key points about PPP funds:
- PPP loans must be used for payroll costs, interest on mortgages, rent and utilities.
- PPP loans may be forgiven if businesses spend the money on these expenses within a set period of time and dedicate at least 60 percent of the loan proceeds towards payroll expenses.
PPP loans are made by lenders but are fully guaranteed by the SBA. Minimal loan underwriting – such as confirming receipt of borrower certifications – is required from lenders. This leaves the program susceptible to fraudulent applications.
The CARES Act requires eligible PPP borrowers to make a good faith certification that:
- The loan is necessary due to the uncertainty of economic conditions caused by COVID-19.
- They will use the funds to retain workers and maintain payroll, lease and utility payments.
- They are not receiving duplicate funds for the same uses from another SBA program.
In addition, to qualify for a PPP loan as with any federal assistance, a business must not have any current federal debarments, suspensions or any delinquent federal loans or have defaulted on any federal loans.
If a business violates any of those terms, then it could be committing fraud and be subject to a “qui tam” lawsuit that whistleblowers may bring against any companies or individuals for defrauding the federal government or a government agency.
Borrowers apply to lenders for forgiveness on PPP loans, but the SBA may refuse forgiveness for any portion of a loan that doesn’t meet the eligibility criteria.
HOW TO REPORT PPP FRAUD – WHISTLEBLOWERS’ ROLE
Whistleblowers can play a crucial role in stopping fraud schemes and ensuring that CARES Act funding, including PPP loans and other pandemic relief assistance, is used for its intended purposes.
“This kind of fraud reaches deep into the community by diverting critical funds intended to help struggling businesses survive and help people hold onto their livelihoods,” said Hannibal “Mike” Ware, inspector general of the US SBA, in a press release. “It is unconscionable that anyone would attempt to steal from the community using the CARES Act to line their own pockets during this national crisis.”
In cases where fraud involves government funds – such as loans issued under the PPP – the False Claims Act may apply.
The False Claims Act incentivizes whistleblowers to sue individuals and entities defrauding the government and recover funds on the government’s behalf. The law requires that whistleblowers in qui tam lawsuits be represented by an attorney. (Most attorneys who represent whistleblowers in qui tam cases do so on a contingency basis.)
After the qui tam lawsuit is filed, the government investigates the allegations and decides whether to join the case and prosecute.
Whistleblowers who file “qui tam” lawsuits under the False Claim Act are entitled to rewards of 15% to 30% of the funds recovered as a result of their case.
The False Claims Act protects whistleblowers from employment retaliation. Those who suffer demotion, job termination and other forms of retaliation may sue and collect compensation, damages and attorneys’ fees.
RECENTLY ALLEGED PPP FRAUD CASES AND ENFORCEMENT – EXAMPLES
- The owner of a Texas wedding planning company was charged with fraudulently seeking over $3 million in SBA PPP loans. In applying for the loans, the company owner claimed he had 120 employees, when he had none. He received over $1.5 million in PPP loans, which he allegedly funneled into personal investments, home mortgage payments and the purchase of a Tesla.
- A Houston funeral director was arrested and charged with fraudulently seeking over $13 million in PPP loans for a business that did not exist, falsifying his identity, misrepresenting the number of employees and payroll expenses, and submitting falsified tax and bank documentation. He received over $1.6 million of the $13 million for which he applied.
- A Hollywood film producer was charged with bilking $1.7 million out of the SBA’s PPP after he applied for a PPP loan to support payroll expenses for three film production and distribution companies. After receiving a $1.7 million PPP loan, he allegedly pocketed the money to pay off credit card bills, car loans and other personal expenses.
- A Georgia TV personality was arrested for an alleged PPP fraud scheme after applying for a loan for his company. After certifying that the loan would be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments for his company, he was granted a loan of over $2 million. He allegedly used nearly three-quarters of the government loan to purchase jewelry – including a Rolex watch, a diamond bracelet and a 5.73-carat diamond ring.
BUSINESSES THAT HAVE RECEIVED PPP LOANS
Loans of $150,000 or more account for over three-quarters of the funds lent through the PPP program. More than 661,000 businesses received loans over $150,000. The government issued over 4,800 loans between $5 million and $10 million. PPP loans larger than $150,000 have allegedly helped businesses retain over 31 million jobs. All PPP loans combined have helped support over 51 million jobs.
WHISTLEBLOWER ATTORNEYS FOR PPP FRAUD CASES
If you are aware of fraud involving PPP loans or any other type of fraud involving COVID relief payments or government funding, you may be able to file a “qui tam” (whistleblower) lawsuit by working with a whistleblower attorney. Before blowing the whistle, it is generally a good idea to consult with an experienced whistleblower attorney to learn how to protect yourself and how to get a whistleblower reward.
Julian Burns King graduated with honors from Harvard Law School and founded King & Siegel in 2018. As head of the Firm’s discrimination and harassment practice areas, she champions the rights of working parents and victims of workplace discrimination and harassment. She has been recognized as a “Rising Star” by Super Lawyers annually since 2018 and has recovered tens of millions of dollars on behalf of her clients.