Fradulent PPP Loan Certifications Can Create False Claims Act Liability

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress and signed into law on March 27, 2020. This over $2 trillion economic relief package, passed amid the unprecedented economic conditions resulting from the global coronavirus pandemic, includes the Payroll Protection Program or “PPP” for small businesses. In short, the program authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms are the same for everyone. The loan amounts will be forgiven as long as: 1) The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and 2) Employee and compensation levels are maintained. Fraud surrounding these programs—by fraudulently obtaining PPP funds, misusing them, or lying to get loans forgiven—is likely to be the basis for False Claims Act cases for years to come.

Given the pressure on financial institutions to issue these loans and the high number of applications, the likelihood of fraudulent loan applications and those looking to take advantage of the crisis is high. For example, the first criminal charges were announced on May 5, when two businessmen in Rhode Island were charged in connection with submitting fraudulent PPP loan applications for more than half a million dollars of taxpayer funds by allegedly falsely certifying payroll costs for businesses that they did not own, were not open, or did not have employees. One week later, Love & Hip Hop: Atlanta star Maurice Fayne was arrested after obtaining a PPP loan of more than $2 million and allegedly spending it on jewelry, a Rolls Royce, and child support payments.

Additionally, the SBA announced new guidelines in April after a flurry of news reports and backlash regarding high profile national businesses getting millions of dollars’ worth of loans. The new guidelines require a number of certifications, including a certification of need by the applicant which takes into account other sources of capital/liquidity. And in the case of recent loan recipients receiving funds prior to the certification requirement, the new guidelines allowed those businesses to return the loan if they could not meet the new certification guidelines. False certifications of financial need can also form the basis of a False Claims Act violation.

Under CARES and PPP, a massive amount of public funds is being distributed with very little oversight. Whistleblowers will have to play a vital role in protecting taxpayer funds and preventing fraudsters from obtaining loans under false pretenses, misusing the funds once obtained, or submitting false information to obtain loan forgiveness. If you are aware of CARES or PPP fraud, contact Bracker & Marcus LLC to help you file a False Claims Act case.