2021 brought us the first PPP Fraud FCA Settlement and the COVID-19 Fraud Enforcement Task Force
As we’ve covered in past blogs (here, here, and here), the government’s infusion of money into the economy, designed to help those in need during the pandemic, has also enticed fraudsters of all kinds.
This makes being a whistleblower more important than ever. We must protect federal dollars intended to alleviate the economic struggles produced by the pandemic.
By way of review, the money at stake is from the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which Congress enacted on March 29, 2020. An important source of relief to many small businesses that the CARES Act funded was the Paycheck Protection Act (PPP), which we covered in detail here.
PPP Fraud Becomes a Civil Matter
Given that cases whistleblowers file under the federal and state false claims acts remain under seal while the government investigates them, nearly all of the reported fraud actions involving COVID relief funds to date have been criminal enforcement actions.
The Department of Justice (DOJ) has prosecuted more than 100 individuals to date in actions that have largely involved obvious fraudulent conduct, such as the purchase of luxury goods with PPP funds, falsifying payroll records, or using nonexistent businesses to secure loans.
That changed on January 12, 2021, when the United States Attorney’s Office for the Eastern District of California announced the first-ever civil settlement of a PPP fraud case for violations of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).
In this case, SlideBelts Inc., an internet retail company, filed a bankruptcy petition on August 25, 2019, and turned around and submitted multiple PPP loan applications in 2020 while still in bankruptcy, which is against PPP and SBA rules.
SlideBelts and its CEO, Brigham Taylor, falsely certified on both applications that SlideBelts was not presently involved in any bankruptcy. After the first lender discovered the bankruptcy and rejected the loan application, Taylor and SlideBelts applied for a third PPP loan, once again falsely certifying that SlideBelts was not presently involved in any bankruptcy.
In the end, the second lender disbursed a $350,000 PPP loan to SlideBelts based on its false representations. Although the government asserted $4 million in damages and penalties, it accepted a $100,000 settlement based on SlideBelts’ and Taylor’s financial conditions, but the parties were also required to fully repay the $350,000 loan. However, if Slidebelts defaults on its payment obligations, the government can collect much more given that SlideBelts entered into a $2 million consent decree with the DOJ.
What the SlideBelts Settlement Means for PPP Fraud
This settlement is instructive because it shows that the government is motivated to go after PPP fraudsters, regardless of their financial status or the size of the loan at issue.
Another important takeaway from this settlement is that it demonstrates that the government will bring FCA actions for PPP fraud even before a borrower seeks forgiveness. Up until this settlement, it was unclear whether the government was interested in pursuing pre-forgiveness PPP loan cases. This is because an FCA claim requires an allegation the defendant either made – or caused to be made – false claims for payment from the federal government.
In PPP loan situations, however, it is the lenders, not the government, who provide the funding before the PPP loans are forgiven. This makes the damages to the government under an FCA theory fairly small. But that did not stop the government in the SlideBelts case.
In the end, the government used the $17,500 in loan processing fees the SBA (a government entity) had paid to the lender as the basis for its FCA allegations.
US Attorney General Introduces Special Fraud Task Force
The SlideBelts settlement was a portent of things to come. On May 17, 2021, U.S. Attorney General Merrick Garland announced the establishment of the COVID-19 Fraud Enforcement Task Force.
According to the DOJ Press Release:
“The Task Force will augment and incorporate the existing coordination mechanisms within the Department and will continue to work in close coordination with other efforts underway throughout the federal government. It will work closely with the Department’s interagency partners to share information and insights gained from prior enforcement experience, in order to reduce the potential threat to the American people and COVID-19 relief, and will help agencies tasked with administering these significant relief programs increase their fraud prevention efforts by providing any appropriate information law enforcement learns about fraud trends and illicit tactics. Additionally, it will also bolster efforts to investigate and prosecute the most culpable domestic and international criminals, prevent the exploitation of government assistance for personal and financial gain, and recover stolen funds.
Organized and led by the Deputy Attorney General, the Task Force includes several entities within the Department of Justice, including the Criminal and Civil Divisions, the Executive Office for United States Attorneys, and the Federal Bureau of Investigation. Key interagency partners, such as the Department of Labor, the Department of the Treasury, the Department of Homeland Security, the Small Business Administration, the Special Inspector General for Pandemic Relief (SIGPR), the Pandemic Response Accountability Committee (PRAC), and others, have been invited to be part of the Task Force.”
In the memorandum that accompanied the Task Force announcement, the Attorney General emphasized that “a well-informed public is one of our strongest weapons in combating fraud” and that the Task Force “will enhance our public awareness campaign to educate individuals and businesses about…how whistleblowers can report corporate fraud.”
Contact Our Atlanta Whistleblower Attorneys Today
The AG’s message serves to highlight the continued and critical importance of whistleblowers in reporting all manner of COVID-19 related fraud. As experienced financial fraud attorneys, we can make sure your information gets to the right people (and potentially qualify you for a reward).
At Bracker & Marcus LLC, we offer free consultations and want to hear about fraud of all kinds, including those related to COVID-19. If you see something that you think is fraudulent, give us a call.