PPP Loan Fraud vs. The False Claims Act: Justice Triumphs over Fraud
The Paycheck Protection Program (PPP) was created to provide financial assistance to small businesses amidst chaotic government decisions leading to business shutdowns during the pandemic. However, like other government programs, the PPP was susceptible to rampant fraud, waste, and abuse. Unfortunately, billions upon billions of dollars were pilfered from this taxpayer lifeline program from a variety of scams against the PPP.
The PPP Loan Fraud schemes range from businesses who were ineligible by concealing their interrelated companies or true payroll or employee count to qualify and bust through the 500 employee or $10 million cap, businesses that were ineligible for other reasons as defined by the program, such as gambling entities or non-profits, inflation of the actual payroll to obtain a greater reimbursement than an entity was entitled to and laying off the workforce and keeping the money. Of course, there’s the outright fraud where the businesses didn’t even exist, and those will and should most likely go criminal.
To level the playing field, insiders and data miners are bringing a litany of litigation under the the False Claims Act (FCA), which is a legal tool available to combat economic fraud against the government and also incentivize whistleblowers to step forward by giving them up to 30% of what the government recovers. With billions in fraud, it’s projected that over the next decade hundreds of millions of dollars will go to PPP loan fraud whistleblowers under the FCA.
What is the False Claims Act?
The False Claims Act (FCA) is a federal law that imposes liability on individuals and companies that defraud the government by knowingly submitting false or fraudulent claims for payment. The FCA allows the government to recover damages and penalties, as well as providing strong economic incentivizes for whistleblowers to report fraudulent activity by offering them a percentage of the funds recovered if they blow the whistle the right way. Each year hundreds of millions of dollars go to whistleblowers utilizing the FCA. Since its inception during the Civil War, the FCA has been used to recover billions upon billions of dollars in taxpayer funds.
How the False Claims Act Applies to PPP Loan Fraud?
The FCA has been used in recent years to combat fraud related to government programs, including PPP loan fraud. The FCA can be used to hold individuals and companies accountable for submitting false or fraudulent loan applications, misusing funds, and committing other fraudulent acts related to the PPP. The FCA is particularly useful because it provides treble damages (triple the amount of actual damages), civil penalties, and attorneys’ fees, which can act as a deterrent for future fraudulent activities.
Instances of Prosecution of PPP Loan Fraud under the False Claims Act
Since the inception of the PPP in March 2020, numerous cases of PPP loan fraud have been prosecuted under the False Claims Act. Below are some notable examples:
David Hines, a Florida resident, was charged with fraudulently obtaining $3.9 million in PPP loans by submitting false loan applications on behalf of several companies. Hines used the funds to purchase luxury items such as a Lamborghini Huracan sports car, a Rolex watch, and a mansion. He was arrested and charged with one count of bank fraud, one count of making false statements to a financial institution, and one count of engaging in transactions in unlawful proceeds.
Jae H. Choi
Jae H. Choi, a California resident, was charged with fraudulently obtaining $1.5 million in PPP loans by submitting false loan applications on behalf of several companies. Choi used the funds to purchase a 2020 Bentley Continental GT and a 2020 Mercedes Benz S560, among other luxury items. He was arrested and charged with one count of bank fraud and one count of aggravated identity theft.
Joshua Bellamy, a former NFL wide receiver, was charged with fraudulently obtaining $1.2 million in PPP loans by submitting false loan applications on behalf of his company. Bellamy used the funds to purchase luxury goods such as jewelry, designer clothes, and entertainment. He was charged with wire fraud, bank fraud, and conspiracy to commit wire fraud and bank fraud.
Andrew Marnell, a California resident, was charged with fraudulently obtaining $9 million in PPP loans by submitting false loan applications on behalf of several companies. Marnell used the funds to purchase a Ferrari, a Lamborghini, and a Bentley, as well as to gamble at various casinos in Las Vegas. He was charged with one count of bank fraud and one count of engaging in transactions in unlawful proceeds.
Please note that charges are not indicative of guilt and each of these individuals must be presumed innocent, unless and until there is a guilty plea or conviction. Allegations, however strong, are not dispositive of what may have actually occurred. One can see a common theme in the allegations where the money did not flow to the employees as planned, but instead went to wave a lavish decadence.
Judging by the volume of PPP loan fraud intakes our qui tam law firm does, these are just a few examples of the numerous cases of PPP loan fraud that exist under the False Claims Act.
How to Report PPP Loan Fraud
If you suspect PPP loan fraud, it is important to report it the right way if you want to potentially receive a whistleblower reward. You should consult with an experienced PPP Loan Fraud attorney who is also experienced in False Claims Act cases to learn more about your legal options and how you can help combat fraud.
The PPP has been a critical program in providing financial assistance to small businesses during the COVID-19 pandemic. However, it is important to ensure that justice is measured against the exploiters and defrauders. The False Claims Act provides a powerful legal tool for combatting PPP loan fraud, holding individuals and companies accountable, and helping to ensure that justice triumphs over fraud. As demonstrated by the cases cited above, the government is actively pursuing those who engage in PPP loan fraud, and the FCA is an effective means of recovering fraudulently obtained funds and deterring future fraudulent activity. By working together to report suspected fraud and holding perpetrators accountable, we can help ensure that PPP funds are used as intended to provide much-needed relief to small businesses during this difficult time and that those who defrauded it are brought to justice.