In January 2021, the Eastern District of California settled the first Paycheck Protection Program (PPP) False Claims Act (FCA) case. In the settlement agreement, SlideBelts, Inc. and its president and CEO, Brigham Taylor, agreed to pay the United States $100,000 after the company repaid a $350,000 PPP loan. The case arose from a false statement in a certification on the PPP loan application, signed by Taylor, stating that SlideBelts was not in bankruptcy when in fact it was it was.
The FCA imposes liability on a defendant who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” using federal funds. 31 U.S.C. § 3729(a)(1)(A). To establish a violation under §3729(a)(1)(A), courts require (1) a false or fraudulent claim, (2) made or carried out with requisite scienter, (3) that was material, and (4) that caused the government to pay or forfeit money. The term knowingly in the FCA is broadly interpreted by courts and means that a person, (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information. The FCA requires no proof of a specific intent to defraud.
The SlideBelts settlement agreement alleges that the defendants’ conduct violated the FCA and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), 12 U.S.C. § 1833a, predicated on violations of the statutes cited in the PPP loan application including (1) 15 U.S.C. §645 (knowingly made false statement in loan applications), (2) 18 U.S.C §1001 (knowingly and willfully made false, material representation within any matter within the jurisdiction of the United States) and (3) §1014 (knowingly made false statement in loan and credit applications) and violations of the wire fraud (18 U.S.C. § 1343) and bank fraud statutes (18 U.S.C. § 1344). https://www.justice.gov/usao-edca/press-release/file/1352931/download.
The use of FIRREA in this case is significant because the FIRREA statute provides for a civil penalty for each violation of $2,048,915, as adjusted for inflation. Thus, while the government could have recovered treble damages and a penalty totaling over $1,000,000 under the FCA, by alleging the FIRREA violation the amount at issue was significantly increased. Specifically, the agreement stated that government had a $4.2 million civil claim, for which they were willing to accept $100,000 based on the defendants’ financial inability to pay more. FIRREA will likely be an important tool in future FCA cases because of the increased penalties.
It is also noteworthy that this case involved a small PPP loan, totaling approximately $350,000. Therefore, even borrowers to received small loans will not be immune from government scrutiny.
Because the basis for criminal and civil prosecutions will be the certifications in the PPP applications, it is critical that a borrower ensure that the certifications are and continue to be accurate. If a borrower is concerned about the accuracy of the certifications, they should proactively address potential issues. See https://wirskyelawfirm.com/how-borrowers-can-protect-themselves-from-paycheck-protection-program-fraud-prosecutions/.
Obtaining funds from the government is a highly regulated area and well-intentioned individuals can find themselves in a federal investigation if they are not careful. The government will undoubtedly continue to examine potential PPP fraud because there is simply too much money and potential for abuse for the government to not do so.