PPP Loan Fraud Whistleblower Information
Here’s how the prominent whistleblower law firm Brown, LLC evaluates PPP loan fraud cases. Insiders (and outsiders) with information about PPP Loan Fraud may be eligible for whistleblower awards up to 30% of what the government recovers under the False Claims Act, but it is believed based on how black and white most of these cases are and the fact that the federal government is prioritizing prosecution of PPP Loan fraud cases that are viable will result in intervention and a whistleblower reward around 20%. To file a False Claims Act case requires the use of a qui tam law firm.
PPP loan stands for “Paycheck Protection Program” loan. It was a financial assistance program initiated by Congress and administered through the U.S. Small Business Administration (SBA) to provide loans to help businesses keep their workforce employed during the COVID-19 pandemic.
Here are some of the PPP Loan Fraud concepts that are critical in case evaluation:
- Amount in controversy – collectability
- Criminal vs civil
- Falsification of payroll amounts
- Insider vs outsider
PPP Loan Fraud – Eligibility
Headcount – No More than 500 Employees for First Draw Loans, 300 Employees for Second Draw Loans, Affiliate Rules in Effect, with some Small Business Concern Exceptions
We start by discussing PPP loan eligibility, because this is where we believe the sweet spot is for viable PPP loan fraud cases under the False Claims Act (FCA). Companies that concealed interrelated companies and thus exceeded the head count or aggregate revenue caps are the most likely cases to have a degree of success and recovery under the FCA, since they poached loan money that was supposed to be for smaller businesses and probably have resources to pay the funds back.
For head count the employer should have had no more than 500 employees and the applicant had to certify to that. Additionally, pursuant to question 3 the applicant had to disclose, “Is the Applicant or any owner of the Applicant an owner of any other business, or have common management (including a management agreement) with any other business?”
The SBA promulgated guidance about the loans and interrelated companies. FAQ PPP for Borrowers and Lenders Questions 1-72 V13 (FINAL 6-13-23).pdf (sba.gov)
For a First Draw PPP Loan, the company has to certify that that the borrower has no more than 500 employees, is a small business concern as defined in section 3 of the Small Business Act (15 U.S.C. 632) that meets the applicable SBA employee-based or revenue-based size standard, or meets the tests in SBA’s alternative size standard, after applying the affiliation rules, if applicable. As a rule of thumb if the employer had more than 500 employees and concealed the actual headcount our PPP whistleblower law firm would provide you a free, confidential consultation about your rights as the case may be actionable.
Amount in Controversy – Cases Below $1 Million – Collectability
The government is always triaging cases and although it has prioritized PPP Loan Fraud prosecutions, some of the smaller cases will continue to go to the bottom of the pile, albeit a few will percolate to make an example of the bad guys. The smaller the fraud, the less likely a False Claims Act law firm will take the case because of a variety of factors, including, but not limited to, the amount of resources a law firm needs to put in to make the qui tam case succeed, versus likely outcomes and collectability. Smaller businesses will probably and unfortunately not be able to pay the funds back, so as a conscious threshold our whistleblower law firm will not take cases in which the loan amount is less than $ 1 million unless there are compelling circumstances. If the PPP loan is less than $100,000 it will be just too small to handle considering that on average the firm spends at least $100,000 of time working up the case from start to finish and it’s doubtful a smaller entity will be able to pay the fees and costs of the litigation back. If the amount of loan is indicative of payroll then smaller loans indicate smaller businesses which generally means liquidity issues.
Criminal vs Civil PPP Loan Fraud Prosecutions
In its haste to provide for businesses during the economic uncertainty, and to make sure that employees weren’t laid off extensive loans were provided without much scrutiny. As a result it is estimated that over $200 billion was fraudulently distributed. Some of the monies will be clawed back from cases involving entities that falsified its head count and are solvent. Those will also probably primarily be civilly litigated, although there’s a case to be made that there should be criminal consequences, the False Claims Act provisions to provide triple damages back to the taxpayers should be consequential. In terms of a False Claims Act litigation, criminal implications can grind the civil case to a halt.
Cases involving outright fraud with phony companies, extra-territorial entities and outright scammers will most likely go criminal. It will be difficult to bring those cases as False Claims Act lawsuits since with an outright crime it’s generally hard to recover any assets and asset recovery, if any, may go through criminal forfeiture first and generally the defendant, if caught, will have to consume a great deal of those funds for criminal defense attorneys. The firm is always open to understand why you think the PPP Loan Fraud money is collectable from a completely phony defendant, but in all likelihood, our firm will not take those cases because of the collectability factor.
Certification of Necessity
We will not take cases in which the only purported violation was that the whistleblower believes that the business did not need the money. If the money flowed to the employees then we do not think there is a violation or if there is it would be too hard to prove. Even if the money was not properly segregated to flow to the employees, if the employees stayed employed were paid, it is not a viable case in our estimation. The key purpose of the PPP was to keep individuals working and if the employer did just that despite uncertainty then we do not view the case as actionable. In order to obtain the loan, the employer needed to certify that, “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” With the pandemic and continual shutdowns, supply chain issues, derivative collectability issues, there was too much economic uncertainty for almost any business to build a case along these lines. Maybe there’s an argument to be made that businesses whose economics were fueled off the pandemic, i.e. filtered mask suppliers, who had guaranteed government contracts for orders could not credibly assert uncertainty, but even with that fact pattern, if that’s all there is, our firm would not take the case because there’s too many potential defenses.
Falsification of Payroll Amounts
The amount of the PPP Loan was dependent upon the actual payroll of the company. If the company falsely inflated the payroll by double counting or triple counting the wages the PPP Loan Fraud False Claims Act lawsuit may be actionable if the other criteria are met. This would, however, border on criminal fraud as it would require falsifying documents regarding payroll which would have criminal implications in addition to the false claims for the PPP funds.
Insider vs Outsider – Naics Codes vs True Business Purpose
Generally, the whole concept of blowing the whistle is from an insider who discloses information others wouldn’t have access to via a whistleblowing mechanism like the False Claims Act. A company insider would be able to shed light about falsification of payroll amounts, eligibility issues like exceeding the employee cap and interrelated companies. Another thing an insider may know is that the nature of the company was ineligible for a loan and that the company is falsifying what it actually does to obtain the PPP Loan. The government may be able to build a case from the inside information that would have evaded detection. With the emerging technological advancements for whistleblowers and information that is abundantly online, outsiders are able to cobble together information industriously to build False Claims Act cases. For example, with Medicare fraud, outsiders can statistically see who are the disproportionate billers of certain codes and target them for possible billing fraud actions, if they could cobble together other public information like patients complaining about unnecessary procedures. Similarly, investigators into PPP loan fraud could assemble information which shows that the companies have lied about their head count, their NAICS code, or concealed interrelated companies and could potentially bring their own PPP Loan fraud case under the False Claims Act since the amount of loans taken and the claimed headcount is a matter of public record. We have taken some of these cases and will continue to litigate other promising ones, but in all likelihood a successful PPP loan fraud recovery from an outsider will result in a lessened relator share whistleblower award.
As you can see there’s many dimensions to bringing a successful PPP loan fraud lawsuit and these criteria are just our law firm’s evaluation criteria. One thing is for certain, if you think there is fraud, you should call our PPP Loan Fraud Whistleblower Law Firm to have a free, confidential consultation so you can be advised of your rights and know whether or not the whistle is ripe to blow.