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National Roofing Company Resolves PPP Fraud Claims, Pays $9M False Claims Act Settlement
An Overview of the Paycheck Protection Program (PPP)
When COVID-19 forced businesses to shut down and the whole world to shelter indoors, the unemployment rate in the United States reached a staggering 14.7% in April of 2020. The surge in unemployment was exacerbated by thousands of small businesses shuttering their operations and being forced to let go of their employees, in part by mandatory shutdowns, lockdowns and government action in response to COVID. In response, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, which provided billions of dollars for both businesses and individuals in a time of great economic uncertainty.
One component of the CARES Act was the Paycheck Protection Program, which was designed to help businesses mitigate the impact of the COVID-19 pandemic. While the primary purpose of the PPP was to help small business owners pay their employees, loans were also provided to help with rent, utilities, and other basic operating costs. Furthermore, a borrower could apply for loan forgiveness if they had used all the money they garnered within a certain period for purposes consistent with the program. For many PPP loan recipients, the funds were the difference between going bankrupt versus continuing to keep their businesses operating and paychecks flowing and further allowed people to keep working when for some businesses there just wasn’t a whole lot to do.
While many of these loans represented a crucial lifeline for small business owners, they were also an exploitable source of unregulated taxpayer funds for fraudsters. Given the ease at which loans were acquired and forgiven, PPP loan fraud was extremely common during the pandemic. The SBA estimates that of the “$1.2 trillion in federal aid disbursed on an emergency basis to small businesses during the pandemic, at least $200 billion — or 17% — may have gone to scammers.” However, as more insiders have begun reporting PPP loan fraud, the government has been steadily recovering the fraudulently obtained funds and has prioritized holding PPP loan fraudsters accountable.
The False Claims Act and How it Applies to PPP Loan Fraud
Fraud is a crime that can be committed against anyone–even the government. In cases of government fraud, it is vital for people with insider information to aid the investigations of federal agents for uncovering such crimes. The False Claims Act (FCA) is one of the nation’s first laws designed to combat government fraud. Signed into law by President Lincoln in 1863, the False Claims Act allows private parties to file suit under “qui tam” provisions against both individuals and businesses that have defrauded the government. In return for their cooperation, these private citizens may receive a portion of the government’s recovery. In 2022, the U.S. government recovered over $2.2 billion and rewarded relators over $500 million as a portion of the recovered funds. By working in tandem, private citizens and the U.S. government can both benefit from exposing fraud against the government.
Over the course of the COVID-19 pandemic, the Small Business Administration (SBA) disbursed an estimated $1.2 trillion in Economic Injury Disaster Loan (EIDL) and PPP funds. With such a large pool of money, it is inevitable that fraudsters would attempt to claim some of those funds for themselves. In a June 2023 report, the SBA estimated that over $200 billion in EIDL and PPP funds were fraudulent, with only around $30 billion having been seized or returned to the SBA.
The FCA is an important tool to report PPP loan fraud. While the SBA is working diligently to recover these funds, a government agency can only do so much. The FCA provides an avenue for insiders to report PPP fraud, consequently aiding in the recovery of these federal funds.
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The Allegations Against Empire Roofing
The U.S. Attorney’s Office in the Northern District of Texas announced on December 11, 2023, that Empire Roofing, Inc. and its affiliates agreed to pay $9 million to resolve the allegations that they violated the FCA by receiving unqualified PPP loans during the COVID-19 pandemic. The Fort Worth-based commercial roofing company and its network received approximately $6.7 million in PPP loans, which were all forgiven in full. Empire and its affiliates certified that they each employed less than 500 employees, but under the relevant Small Business Administration (SBA) rules, applicants for PPP loans must also count the employees of any affiliated companies. According to the press release, “the government contends that the Empire Roofing network of affiliated companies employed more than 500 employees and therefore that none of Empire Roofing’s affiliates were eligible to receive PPP loans or loan forgiveness under the CARES Act.”
The case, United States ex rel. Sidesolve v. Empire Roofing, Inc., et al., was settled under the qui tam provisions of the FCA. The relator, Sidesolve, Inc., was rewarded a $1 million share of the recovery. The case is a prime example of how reporting PPP loan fraud can result in significant PPP loan whistleblower rewards.
Whistleblowing PPP Fraud
If you believe a business or institution has committed PPP loan fraud, it is best to first consult a PPP loan fraud lawyer. Experienced whistleblower firms can skillfully assist whistleblowers navigate the complex filing process in an FCA qui tam lawsuit. There are presently billions of fraudulent PPP loans yet to be reported, and if you believe you have sufficient information to blow the whistle, consult a PPP loan fraud lawyer today.
Citations
https://ifightforyourrights.com/blog/ppp-loan-fraud-whistleblowers-faqs/
https://www.justice.gov/civil/false-claims-act
https://www.npr.org/2023/06/27/1184555444/200-billion-pandemic-business-loans-fraudulent