In the Spring of 2020, the Small Business Association (“SBA”) began administering the Paycheck Protection Program (the “PPP” or the “Program”) to provide SBA-backed loans to help eligible businesses maintain their workforces during the COVID-19 pandemic. The Program received three rounds of funding by Congress over the course of the pandemic and allowed eligible borrowers to receive completely forgivable loans (up to $10 million in “first draw” loans and up to $2.5 million in “second draw” loans). When the Program ended on May 31, 2021, the SBA had approved nearly 12 million loans totaling over $800 billion through over 5,000 lenders.
The funding available through the Program was only an option for certain borrowers and the loans are only forgivable under certain circumstances. To demonstrate they met the eligibility requirements, borrowers were required to provide documentation and signed certifications to the government supporting their applications for the loans. Borrowers are required to do the same on their applications for loan forgiveness. Lenders—acting as intermediaries between the borrower and the SBA—also communicated certifications to the government in order to act as a lender in the Program and thus incurred certain obligations.
Not surprisingly, the borrower and lender communications with the government for the purpose of obtaining government money necessarily created False Claims Act (“FCA”) risk. Also not surprisingly, since the beginning of the COVID-19 pandemic the government has been actively investigating and prosecuting PPP fraud. The first year of the pandemic largely saw the government targeting the low-hanging fruit through criminal cases. DOJ reports over 100 defendants have been charged with crimes related to PPP fraud as of the summer of 2021, with a large amount of these charged in 2020. See Fraud Section Enforcement Related to the CARES Act, U.S. Dep’t of Justice, available at https://www.justice.gov/criminal-fraud/cares-act-fraud. 2021, however, saw the government’s first use of a familiar tool—civil enforcement actions under the FCA—to target PPP fraud. With the Program over, the government now has the time to conduct more thorough investigations of more sophisticated PPP fraud (rather than reacting during the pandemic to the obvious cases of fraud with criminal indictments to deter such fraud in real time). In other words, FCA actions brought by the government are in the offing. So, too, are relator-initiated FCA actions, because it can take months and even years before such cases come to light under the FCA’s whistleblower provisions (which require the sealing of the whistleblowers’ complaints while the government investigates). In order to catalog and summarize the FCA cases involving PPP fraud as they come to light, and to stay abreast of the latest news in this area for our borrower and lender clients facing FCA risk, we are pleased to provide this resource to track these important cases. We hope you find it useful.
For more resources (including Updates and Webinar playbacks) relating to stimulus programs, please visit our Stimulus Acts page. This includes information on the CARES Act, SBA, Main Street Credit, state programs and other governmental stimulus topics.
|Date Case Became Public
||Date Complaint Filed [and/or Settlement / Judgment]||District||Case Name / Defendant(s)||PPP Loan Amount 1||Related Documents|
|01/12/2021||[01/12/2021]||Eastern District of California||Slidebelts, Inc. and CEO||$350,000||
|Summary: In a pre-suit settlement agreement, and without admitting liability but stipulating to certain facts, borrower Slidebelts, Inc. and its CEO admitted it submitted false statements regarding the company’s eligibility for its PPP loan (falsely representing that it was not presently involved in bankruptcy proceedings), and that such statements caused the SBA to guarantee the loan and pay the lender $17,500 in loan processing fees. The company returned the loan prior to settling the allegations, and the company and its CEO agreed to pay $100,000 as part of the settlement. Notably, according to the settlement agreement the settlement amount “represents the amount the United States is willing to accept in compromise of its civil claims arising from the [alleged violations] due solely to the [company and its CEO’s] financial condition.”|
|04/21/2021||[04/21/2021]||Eastern District of California||Walia Professional Medical Corporation and Owner||
$283,000 (first draw)$430,000 (second, first draw)
|Summary: In a pre-suit settlement agreement, and without admitting liability, borrower Sandeep S. Walia, M.D. agreed to pay back all of its second first draw PPP loan with interest ($434,377) and an additional $70,000 to settle allegations that the borrower submitted a false claim by applying for a second first draw loan after it had already received a first draw loan of $283,300 (and by representing, on its second application, that it had not received a prior PPP loan). Notably, the borrower had not sought forgiveness of either loan, but notwithstanding the government alleged the borrower’s false statements caused a false claim to be made to the Small Business Administration as a result of the $12,900 in processing fees the government paid to the lender for the second loan.
|06/02/2021||06/02/2021||Eastern District of Virginia||KC Investments Group, Inc. and Owner|| $208,333 (first draw)
$208,333 (second, first draw)
|DOJ Press Release|
|Summary: KC Inc. and Sunu entered into a settlement agreement with the government to settle allegations that KC Investments, Inc. and its sole owner, Sunu P. KC, obtained multiple first draw PPP loans, even though the Program only allowed borrowers to obtain one first draw loan. More specifically, the government alleged Sunu P. KC applied for and received loans in the amount of $208,333 each for KC Inc. and a defunct company called KC Investments Group, LLC, and that Sunu deposited the proceeds from both loans into KC Inc.’s bank account even though Sunu certified that KC Inc. would not receive multiple PPP loans. Under the settlement agreement, KC Inc. and Sunu agreed to pay $230,414.65 representing the loan processing fees paid to the bank by the SBA and damages under the FCA. They also agreed to repay the second PPP loan within 30 days of the settlement.|
|Southern District of Florida
||U.S. ex rel. Victoria Hablitzel v. All In Jets, LLC and Seth A. Bernstein||$1,173,382||
|Summary: Relator Victoria Hablitzel (“Relator”), a former employee of defendant All In Jets, LLC dba Jet Ready (“Jet Ready”), filed a sealed qui tam complaint on July 13, 2020 alleging that Jet Ready and its principal, defendant Seth A. Bernstein (“Bernstein”), misappropriated and diverted $98,929 of Jet Ready’s $1,173,382 PPP loan to pay for Bernstein’s person, non-company related expenses. As part of the settlement agreement between the United States, Relator, and Bernstein (Jet Ready was not a party to the agreement, presumably because Jet Ready filed for bankruptcy shortly after receiving the PPP loan), Bernstein agreed to personally pay the United States $287,055. Bernstein also agreed that should he fail to pay the settlement amount, a consent judgment may be entered against him for $458,223 plus interest. From the settlement amount, the United States agreed to pay Relator $57,411, and Bernstein agreed to pay Relator’s counsel nearly $80,000 in attorneys’ fees and costs.
|09/22/2021||09/22/2021||Eastern District of New York
||Eric Bieber v. Cayuga Capital Management, LLC, Sea Wolf Services, LLC, Jacob Sacks, and James Wiseman
$411,217 (first draw)$575,704 (second draw)
|Summary: Plaintiff filed a retaliation claim against defendants solely under the anti-retaliation provision of the FCA (31 U.S.C. § 3730(h)), alleging defendants terminated his employment for complaining to management that Sea Wolf Services, LLC unlawfully spent its PPP loan proceeds to pay defendants’ friends, family, and business associates.
1 The information in this column was either obtained from the relevant court filings or settlement agreements, or from the publicly available data on PPP loans available here: https://projects.propublica.org/coronavirus/bailouts/.