When the federal government unleashed the Paycheck Protection Program, it quickly became obvious that while it would help many people and businesses in need, it would likely be plagued with fraud.
Fraud on the PPP program is a violation of the False Claims Act because it involves getting money from the Government to which the perpetrator is not entitled. There are various ways to report PPP fraud, but an FCA case is (in our opinion) the best because it can result in the best recovery to you for being a whistleblower.
If you believe you have spotted an outlier in the data—whether it be PPP loans, Medicare funds, customs payments, or otherwise—contact our PPP fraud whistleblower lawyers for a free consultation.
Early PPP Fraud And The FCA: A Tenuous Link
Under the PPP program, applicants received loans from private banks. Accordingly, there were seemingly only two sources of damages for False Claims Act relators.
First, the federal government pays the banks a processing fee based on the size of the loan. Second, if the loan is forgiven, the federal government reimburses the bank for the loan.
Only in the latter situation, it seemed, would the full amount of the loan be subject to the trebled damages of the False Claims Act. Otherwise, the damages in the case where your cousin fraudulently obtained a loan for $100,000 is only the 3.5% processing fee, or $3,500, plus a potential penalty.
This was not exactly the reward a lot of our callers were expecting. Few wanted to go forward with a lawsuit after learning this. Still, fortunately, we were able to convince many of them to file anonymous tips so that the authorities could investigate the fraud nonetheless.
We immediately started receiving calls from individuals who were aware of people applying for and receiving loans based on falsified information. Just as quickly, the government announced criminal indictments for people who got the loans and spent them on expensive vacations, apparel, and cars.
This seemed obvious for bringing False Claims Act cases, but nobody knew whether that was appropriate. Ultimately, the Department of Justice informed whistleblower lawyers that the ill-gotten loans were not necessarily subject to the False Claims Act.
Early settlements and unsealings give clarity on what to expect with these cases
I was recently contacted and interviewed by a Bloomberg Law reporter writing an article about PPP and the False Claims Act. The reporter asked me about these cases settling for the amount of the loan and a small penalty, and I explained: If the loans had not been forgiven, then the only damages to the government was the small processing fee.
One “small fine”…
After he published the article about this lawyer, I could see my understanding was correct. As was reported, “One settlement made public by the DOJ gave the whistleblower a payout of $4,500, after a Florida duct-cleaning company agreed to pay a small fine and return one of two $170,000 loans it received.”
In other words, his relator’s share was based on the “small fine” of $30,000, premised on the $8,500 processing fee. A copy of the settlement can be found here.
…And then another
A day after the article was published, another settlement was announced: a Virginia-based IT firm repaid a $192,000 loan in addition to $31,000 in damages and penalties. The whistleblower will receive a share of the latter amount in that case as well.
Needless to say, this whistleblower isn’t likely to become a millionaire from uncovering and reporting these crooks, but what must be said is that the financial rewards are not why he did this in the first place. I reached out to him, and he wrote back:
“The thought of the likely fraud involved in this program bugged me. Not many members of the public have the ability to research/data-mine the loans, research and understand the False Claims Act, and draft and file lawsuits. As a lawyer, I was able to do all that. Hopefully, I uncovered some criminal fraud activity that enabled the DOJ to pursue charges. As for payback for all the time, effort, and money I put into this little project, that would be nice but unlikely.”
This trait is common in whistleblowers—the goal is not to make a fortune but to right wrongs. This whistleblower should be commended for his efforts. He has given the federal government the playbook by which it may uncover more fraudulent loans on its own.
Moreover, when some of the loans turned out to be legitimate, he stopped filing the lawsuits because he didn’t want innocent people to get into trouble. This highlights an issue with data-mined cases: you don’t know what you don’t know. It is easy to find outliers in the data, but it’s not always as clear why they are outliers.
Are they a hospitalist billing for more time than a human can bill? That seems pretty clear until you discover they supervise a team of medical students. Are they a contractor that’s violating multiple federal regulations? Again, that seems like a clear case to the outsider until you learn they received a special exemption from the federal agency.
What Types of PPP Fraud Make Good False Claims Act Cases?
The company doesn’t exist or was already closed
This is a great claim factually, but whether it has merit as a False Claims Act case primarily depends on whether the owner has any money to pay back. Also, these people often go to jail instead of paying the civil penalty of an FCA case. But there’s always a chance they pay the money back, and you get good karma for reporting a criminal.
The owner used the PPP money to build a swimming pool
This type of case has two problems. First, money is fungible. That means that if the employer already has a lot of money, it can claim to have used the PPP funds for payroll and then used the money it would have normally used to build the pool. You would need to be able to show that the money from the PPP loan went into a particular account—separate from any other money—and then was used for the pool to show that was how it was spent.
Alternatively, let’s say your employer runs a small business that can barely make payroll half the time and definitely cannot afford a swimming pool. That’s great evidence that he used the money for improper purposes. But once that money is spent, we are back to an employer who can barely make payroll and is unlikely to be able to repay the money to the Government.
The company didn’t need the money
This claim is difficult because of the subjective nature of the “financial necessity,” but the loan must have been for more than $2 million. Ideally, you have good evidence that the money was spent on something like bonuses or something else that shows the company wasn’t concerned about the pandemic affecting its profits.
The company fired a lot of people after taking PPP money
Without much context, this is a tough case and not one we will likely take. Sometimes the money legitimately was not enough to keep a company fully staffed. If your employer was operating a dojo where everyone was in an enclosed space, sweating and breathing heavily, odds are they lost a lot of business during the pandemic, and the PPP funding may not have been enough to survive.
Also, if your employer met the forgiveness obligations and then fired everyone, there’s no crime. They met the purpose of the PPP funding, which was to try to keep people employed for at least the additional 2.5 months the Government was paying for.
The company went out of business immediately after accepting the PPP funds
It is possible this was legitimate, like in the dojo example above, but the biggest problem here is collectability. If the company no longer exists to repay the funds, it will be difficult to recover anything in this case.
The company lied about its payroll figures
A business might have gotten more money than it deserved by fudging up the employment numbers. This can be a good FCA case, depending on how much they fudged, but your damages will likely be the difference between what they received and what they should have received. In other words, if a business with 100 employees claimed to have 200 employees, they probably doubled their loan amount, so the difference (50%) is the damages.
By fudging the numbers down, a business that was otherwise too large might have become qualified to receive PPP funds reserved for small businesses. This is an even better case because the entire loan may be forfeited, but it’s much harder to prove. That’s because there are other ways the employer might show they would have qualified even if they had not lied. Sometimes this is entirely legitimate if an employer qualified for a loan under a revenue standard and then listed exactly 500 employees so that they received the maximum amount available to them but not a penny more.
The company was not eligible for the loan
This is our favorite type of claim because it’s an all-or-nothing proposition. The PPP loan applications required applicants to certify yes or no to questions such as whether the applicant or any owner is/has:
- Presently involved in any bankruptcy?
- Delinquent or defaulted on a previous SBA loan?
- Incarcerated or subject to criminal charges?
- Convicted or pleaded guilty to a felony of fraud, bribery, embezzlement, or false statement in a loan application in the previous five years?
- Received another PPP loan?
- Engaged in illegal activity under federal, state, or local law?
- Operates as a lobbyist, think tank, foreign agent, or has significant operations in China (for Second Draw loans)?
These are just some examples of the many eligibility requirements and exclusions.
The owner/manager has lots of companies that each separately received loans
PPP was meant for small businesses, not large companies broken up into many smaller entities. So even if each “affiliate” qualified independently, when they had common management or ownership, the applicant was required to add up the employees and revenues of its various “affiliates” to determine if it was still eligible as a whole. These cases can be difficult because of the various ways to become eligible under this rule besides just a total employee count. Still, if you know the owner purposely hid this information to get multiple loans, it can also be a very lucrative claim.
Those are just some examples of potential PPP cases we have seen and often filed. If you know someone who obtained PPP funds to which they were not entitled, call us for a free evaluation.
How Can I Tell If My Employer Committed PPP Fraud?
The easiest way to determine if your employer committed PPP fraud is to call us and explain why you suspect that might have happened. Fraud on the Paycheck Protection Program was so prevalent that there are too many ways the fraud could have occurred to list them all here, but we have listed some examples below, as well as whether they make good or bad False Claims Act cases.
First things first, you need to know if your employer actually received a PPP loan, what it reported, and whether it was forgiven. You can find this information on websites such as ProPublica.
Once you have that, you can decide whether the company reported something that gives you pause. Sometimes the evidence of the fraud is clear. For example, if you went to work in 2020 and saw 1,000 coworkers, but the PPP data says they applied for a loan with a claim of 500 employees, that is probably worth looking into. There are good reasons (maybe most of those employees are 1099 contractors, or maybe they were eligible under a different standard for up to 500 employees), and there are bad reasons, i.e., lying to get the loan approved.
From there, consider what evidence you can access, such as payroll records, P&L statements, pictures of the Lamborghini the owner purchased that year, etc.
How Do I Report PPP Fraud?
PPP fraud claims can also be reported to the Department of Justice via a FIRREA notification. These penalties are often applied to PPP fraudsters who did not receive loan forgiveness. This should be done with the FCA lawsuit to maximize your reward.
How Much Time Do Whistleblowers Have to Report PPP Fraud?
The False Claims Act generally has a statute of limitations of six years from the date of the fraud (which could be the date of the application or the date of the forgiveness application, depending on what the fraud is), but Congress passed a law saying that PPP fraud can be prosecuted for up to ten years from the violation. Whether that will eventually apply to FCA cases remains to be seen.
Can my Employer Retaliate Against Me if I Report Suspected PPP Fraud?
Because PPP fraud reporting falls under the False Claims Act, you likely will have the same protections under the FCA as any other whistleblower. Look at our page on Whistleblower Retaliation for more information.
Get A Complimentary Evaluation From A Government Fraud Attorney
Ultimately, you can’t find out whether the perceived fraud is actual fraud until you file and put the government on the case. Sometimes it works out, but often it doesn’t. If you believe you have spotted an outlier in the data, contact our PPP fraud whistleblower lawyers for a free consultation.