Our law firm has filed over a dozen False Claims Act cases alleging Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) fraud, and we have more in the works. A recent federal report evinces that PPP and EIDL fraud remain fertile ground for whistleblowers.
A recipe for fraud
Since the COVID relief programs were first implemented—the Paycheck Protection Program and Economic Injury Disaster Loans—our phones have been ringing off the hook with interested whistleblowers. These programs were implemented very quickly, with an aim towards getting money into the people’s hands as quickly as possible, a recipe for fraud. Very quickly, we started to see news reports of owners of fake companies using PPP funds to purchase sports cars and mansions.
Recently, the SBA OIG completed an analysis of the fraud and determined that over $200 billion of COVID relief funds had been disbursed to potentially fraudulent actors. Approximately 4.5 million of the 22.1 million loans and grants were fraudulent. This represents more than 17% of the total funds–$1.2 trillion—paid out under the PPP and EIDL programs.
This publication comes on the heels of an Associated Press News report that calculated an approximate $280 billion in COVID relief fraud, and another $123 billion in waste and misspending. According to that report, the DOJ inspector estimated tens of billions of dollars, maybe exceeding $100 billion, in fraud. The article also cited a University of Texas study that calculated as much as $117 billion in possibly fraudulent loans. Both, apparently, woefully underestimated the true extent of the fraud.
Hundreds of arrests made in pandemic-related schemes
Fortunately, whistleblowers and government agencies have been working diligently to try to recapture some of the money. According to the SBA OIG report, through May 2023, there have been 1,011 indictments, 803 arrests, and 529 convictions for pandemic-related fraud. SBA OIG continues to investigate the 90,000+ actionable leads and 250,000+ hotline complaints it has received.
In FY 2021 and 2022, SBA OIG recovered $9 billion through investigative recoveries, fines, and forfeitures. Another $28 billion in EIDL funds was returned by borrowers and financial institutions. These are meaningful amounts, but a drop in the bucket in terms of the overall fraud in the programs.
The government has settled qui tam cases with PPP fraudsters on a number of bases. Most settlements have been with companies that applied for and received multiple loans when applicants were only eligible for one loan at a time. Other settlements have been based on PPP loan eligibility, such as a failure to register as a foreign agent. And some settlements have even been with lenders who awarded funds to individuals they knew were ineligible.
Our friends in the Northern District of Mississippi have recovered millions of dollars from individuals who facilitated PPP and EIDL fraud, such as attorneys and tax preparers. As the U.S. Attorney for Northern Mississippi stated, “We anticipate focusing on PPP fraud for several years to come…” Recognizing how much fraud occurred and how it would take to ferret it out, Congress even extended the statute of limitations on PPP frauds from six years to ten years.
Whistleblowers remain a pivotal force in bringing down fraudsters
Although some of the frauds can be discerned from public data—such as whether a company received two loans—many require an insider to disclose the fraud to the Government. For example, it was easy for medium-sized companies to fudge its employment numbers or revenues so as to qualify for small loans. That a company did business with foreign governments and needed to be registered with FARA is information that is readily known by an employee but not easily discovered by investigators otherwise. Employees are also far more likely to know that a single individual owns many small businesses, making them all ineligible for PPP loans.
More importantly, it was easy to make mistakes when applying for PPP loans, and so it is easy to claim that you made a mistake. Insiders are vital for evidence of scienter, i.e., that they knew they were not eligible or that they were overstating their jobs or payrolls when they applied for the loans, and subsequently for the forgiveness of the loans.
If you have information regarding PPP, EIDL, or other COVID relief funding, such as the Restaurant Revitalization Fund or Coronavirus Relief Fund (payments to state, local and tribal governments), contact our False Claims Act lawyers today to discuss a potential case.