False Claims Against the Paycheck Protection Program

 Two federal laws—one old, one new—could dominate headlines for the months to come. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is intended to provide relief to individuals and businesses financially harmed by the coronavirus pandemic. To prevent the economy from sliding into a recession, the law provides direct cash payments to individuals and loans to small and big businesses.

The Paycheck Protection Program (PPP) 

One CARES Act program in particular has been subject to heightened scrutiny: The Paycheck Protection Program (PPP). That program provides small business with financial resources “to maintain their payroll, hire back employees who may have been laid off, and cover applicable overhead.” [1]. If a loan recipient meets a number of criteria, their PPP loan will be fully forgiven.

Alongside the economic boon of this program comes the increased risk of fraudulent requests for government funds. Enter the False Claims Act.

What is the False Claims Act?

Signed into law by President Lincoln, the False Claims Act is a crucial tool in the fight against fraud in government contracts and aid programs. The law authorizes qui tam lawsuits. Qui tam stands for qui tam pro domino rege quam pro seipse or “he who sues for the king as for himself.” Therefore, under the law’s qui tam provision, private individuals, who are aware of present or past fraud against the federal government, can sue the perpetrator on behalf of the government.

What constitutes fraud under the False Claims Act?

All False Claims Act suits have two essential features:

  1. First, an individual or entity makes a claim for payment from the government.
  2. Second, the claim is fraudulent.

In the context of the CARES Act, a fraudulent claim for payment from the government can include submitting false information on a PPP loan application. For the most part, only companies with 500 employers or fewer are eligible for these loans. Furthermore, PPP loan “forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.” [2] Plus, hedge funds and private equity firms are prohibited from participating in the program. [3]   

Companies who apply for a loan and forgiveness are required to certify to these conditions. Therefore, if a company falsely certifies its compliance with the program, it opens itself up to a False Claims Act qui tam suit. For example, a hedge fund would violate the False Claims Act by merely applying for and receiving PPP loans.

Who can bring a qui tam suit?

A private individual who brings a qui tam suit is called a relator or a whistleblower. A whistleblower may bring a suit even if they have not been personally harmed by the fraud. However, the purpose of qui tam suits is to expose fraud that the federal government could not investigate itself. Therefore, a whistleblower cannot bring a qui tam suit based on publicly available information, such as a news report or government investigation.

Some large corporations have come under fire for applying for and receiving PPP loans. For example, Shake Shack received $10 million in PPP loans. After public criticism, the corporation announced it would return the funds.

Responding to calls for increased oversight, Treasury Secretary Steve Mnuchin said that the Small Business Administration would conduct a “full review” of PPP loans that exceed $2 million. Therefore, a whistleblower may not file a qui tam suit based on this reporting or other information that the Treasury Department unearths in its review.

What monetary awards are available for successful qui tam suits?

If a qui tam suit is successful, the individual who committed the fraud is liable for up to three times the amount of damages sustained by the federal government plus a $5,000 to $10,000 penalty. The whistleblower is entitled to 15% to 30% of the those proceeds plus attorney’s fees.

For example, if a private equity firm applies for and receives a $100,000 PPP loan, a whistleblower could receive upwards of $33,000 and attorney’s fees for a successful qui tam suit.

What protections are available for whistleblowers under the False Claims Act?

Individuals who blow the whistle are often afraid their employer will punish them for their actions. Under the False Claims Act, an entity or individual may not retaliate against an employee, contractor, or agent because the individual has pursued a qui tam suit or other efforts to stop violations of the False Claims Act. Unlawful retaliatory actions include discharging, demoting, suspending, threatening, harassing, or otherwise discriminating against an employee, contractor, or agent. If a whistleblower experiences retaliation, they are entitled to reinstatement at their previous seniority status, double back pay plus interest, and attorney’s fees.

Whistleblowers should contact Hawks Quindel 

Since a whistleblower is suing on behalf of the federal government, they must be represented by a licensed attorney. Contact us if you have knowledge of violations of the Paycheck Protection Program or any other present or past fraud perpetrated against the federal government or if you have been retaliated against for your efforts to stop a False Claims Act violation.

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