Nonprofit Organizations Settle $5.8M Allegations of PPP Loan Fraud

Four nonprofit entities, including two private country clubs and two homeowners’ associations, agreed to pay $5,809,021.60 to resolve allegations of violating the False Claims Act. They were accused of improperly obtaining Paycheck Protection Program (PPP) loans, which were meant to provide emergency financial support during the COVID-19 pandemic, by submitting false claims and applying despite being ineligible under the program’s guidelines as by the SBA guidelines many non-profits were ineligible to receive PPP loans.

Background on the PPP Loans

The PPP, established in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was designed to help small businesses keep their workforce employed during the economic downturn caused by the pandemic. The program provided forgivable loans to businesses to cover payroll and other essential expenses. However, the CARES Act specified that certain entities, such as those organized under section 501(c) of the Internal Revenue Code, otherwise known as non-profits, were not eligible for these loans.

Details of the Alleged PPP Loan Fraud Violations and PPP Settlements

1. Rancho Santa Fe Association

   • Location: Rancho Santa Fe, San Diego County, CA
   • Description: A 501(c)(4) nonprofit homeowners association serving a community with various amenities, including a golf club, tennis club, sports fields, and extensive private trails.
   • Loan: Received $1,542,100 in April 2020.
   • Settlement: Paid $2,037,451.44 to resolve allegations of knowingly violating the False Claims Act by receiving and having the loan forgiven despite being ineligible as a 501(c)(4) entity.

2. Pine Mountain Lake Association

   • Location: Groveland, near Yosemite National Park, CA
   • Description: A gated 501(c)(4) nonprofit homeowners association offering amenities like a private lake, golf course, and various recreational facilities.
   • Loans: Received $687,500 in April 2020 and an additional $950,000 in January 2021.
   • Settlement: Paid $2,372,440.98 for allegedly knowing it was ineligible for the PPP loans and causing the SBA to forgive the loans and pay related fees.

3. Glendora Country Club

   • Location: San Gabriel Valley, CA
   • Description: A private 501(c)(7) nonprofit country club with a golf course, swimming pool, and dining facilities.
   • Loan: Received $471,685 in April 2020.
   • Settlement: Paid $708,843.42 to settle claims that it knowingly obtained and had the loan forgiven despite its ineligibility as a 501(c)(7) organization.

4. The Palms Golf Club

   • Location: La Quinta, CA
   • Description: A private, single membership 501(c)(7) golf club featuring a golf course designed by Fred Couples, along with extensive facilities for practice, fitness, and dining.
   • Loan: Received $327,035 in May 2020.
   • Settlement: Paid $690,285.76 on an ability-to-pay basis to resolve allegations that it knowingly violated the False Claims Act by receiving and having the loan forgiven despite its ineligibility.

Jason T. Brown, head of the whistleblower law firm Brown, LLC, commented on the importance of holding entities accountable for PPP Loan Fraud:

“This settlement underscores the critical role whistleblowers play in protecting public funds. It’s a stark reminder that no entity, regardless of size or status, is above the law when it comes to defrauding programs intended to help those truly in need.”

Whistleblower’s Role and Case Resolution

The settlements resolve claims brought under the qui tam provisions of the False Claims Act by a whistleblower, who will receive nearly $700,000 as a whistleblower award for his role in the recovery.