February 10, 2023

False Claims Act and Pandemic-Related Fraud

The Department of Justice recently announced that three California companies have agreed to pay a total of $530,000 to settle allegations that they violated the False Claims Act by abusing the Paycheck Protection Program, more commonly known as “PPP” during the pandemic. One of the companies, La Baguette, a bakery located in Palo Alto, allegedly unlawfully applied for, and received not one, but two loans through the PPP.

In April 2020, La Baguette submitted an application for a PPP loan to a lender and in doing so, certified that from February 2020 through December 2020, the company had not and would not receive another loan under the PPP. La Baguette ultimately received $214,700 from the lender. However, while that loan was still pending, La Baguette submitted an application for another PPP loan to a second lender, asserting that it had not and would not receive another loan through the program during the same time period. The company winded up receiving $215,000 from a second lender through this application. Not only did La Baguette keep both loans, but it also applied for and received forgiveness for them from the Small Business Administration. Under the settlement agreement, the bakery agreed to pay the government $430,000.

Dynamic Integrated Solutions, Inc., an industrial equipment supplier in Santa Clara, and Priority Acquisitions Inc., a licensed general contractor in Castro Valley, both agreed to pay $50,000 each in civil penalties to resolve claims that they also received and retained a duplicative loan.

PPP was created to provide cash flow assistance to small businesses through 100% federally guaranteed loans to employers who maintained their payroll during the pandemic. PPP was part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was designed to provide emergency financial support to those individuals and businesses that were struggling. There were few requirements to obtain a PPP loan and it appeared that the government was not very concerned with screening the needy or worthy businesses from those who were not entitled to any such funding. Under the PPP, if the employer maintained its payroll, then the portion of the loan used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven. These rather appetizing conditions attracted thousands of hungry scammers throughout the country.

In the aftermath of the PPP, the Department of Justice has been diligent in bringing those who abused the program to justice. On February 1, 2023, the House Oversight Committee held its first public hearing on Covid-19 fraud. We can continue to expect the Department of Justice to crack down on those fraudsters using the False Claims Act.


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