This provision could be used to pursue affiliate companies, owners, loan brokers or other individuals who participated in the process
Violation of the FCA exposes offenders to treble damages and per-claim penalties in excess of $21,000. Last year, DOJ recovered over $3 billion from cases brought under the FCA.
The statute is unique in that it provides a right of action for not only the government but private whistleblowers (known as relators) as well. Relators are typically, but not always, insiders who witness fraudulent conduct. The relators can file, under seal, a case in the name of the government, known as a qui tam case. The relator is entitled to a significant portion of the recovery as a reward for bringing the case to the government’s attention. Following the money, relators accounted for a significant number of cases brought in the wake of other recent financial crises and the attendant federally funded disaster and recovery operations.
Liability under the FCA stems from the submission of false claims, causing others to submit false claims (i.e., claims submitted through an intermediary) or submitting false statements material to false claims. The FCA also includes a “reverse false claims” provision that imposes liability for retaining overpayments or avoiding an obligation to repay money to the federal government. These provisions encompass the submission of fraudulent loan applications or requests for loan forgiveness. The statute also proscribes conspiracy to engage in conduct that would violate the FCA.
Unlike most of the aforementioned criminal statutory provisions, the FCA does not require specific intent to defraud the government. Liability can attach for recklessly disregarding the rules. It is for this reason that the statute will be deployed widely during the fund and chase enforcement regime.
Aside from cases of true criminal intent, most of the scrutiny on the PPP loans will be viewed through the lens of the FCA. The reverse false claims provision in particular will be used to pursue companies that improperly take advantage of loan forgiveness.. It will be applied towards companies that did not need the loan financially and failed to return the funds. It may also apply to companies that realized they were not in fact eligible size-wise or used the funds for unauthorized purposes without returning the money.
Borrowers will need to document the purposes for which the loan was spent and provide a detailed accounting in order to obtain loan forgiveness. Entities should scrupulously track where they directed the money to be spent, their employee counts and compensation levels. Maintain receipts and logs in the moment; again, posthumous records are viewed with scrutiny by enforcement entities. This not only makes good compliance sense, it also will help in any forthcoming audit or enforcement action. Companies must keep in mind that while money is fungible, enforcement audits follow the money, tracking a straight line of money in and money out.
Holland and Knight’s White Collar Defense and Investigations Team is working closely with the firm’s COVID-19 Response Team to keep clients apprised of developments in this rapidly changing program. If you are the subject of an audit or inquiry from any of the aforementioned entities, our team is here to assist you in responding and addressing any concerns.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact your responsible Holland & Knight lawyer or the authors of this alert for timely advice.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
The PPP application thus requires a certification that the “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant
Does the business need the loan? Loans under the PPP program are intended to keep struggling businesses afloat during the COVID?19 crisis. “
- are a tax-exempt nonprofit organization described in Section 501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in Section 501(c)(19) of the IRC, a tribal business concern described in Section 31(b)(2)(C) of the Small Business Act , or
Providing misleading information about historical payroll costs, number of employees and total salary for those employees is an area of risk. Applicants must provide accurate information about the historical number of employees and the amount of payroll for those employees. In most cases, this can be done through the payroll records maintained by the employer or third-party vendors. Amendments to or deviations from any contemporaneous or independently prepared documents will be viewed suspiciously.
Though not identified in the PPP application, enforcement will also occur through the civil False Claims Act, 31 U.S.C. § 3729 et seq. (FCA). The FCA is a venerable statute that serves as one of the government’s priages from fraud.