January 20, 2023

False Claims Act and PPP Loans

It seems like an eternity ago, but during the height of the Covid-19 pandemic, the United States government implemented the Paycheck Protection Program, more commonly known as PPP, 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.

Earlier this month, the Department of Justice announced that four agricultural companies and their owner agreed to settle allegations that they violated the False Claims Act by knowingly submitting false information to obtain PPP loans. The companies allegedly inflated the employee headcount on their PPP loan applications by improperly including non-employee contract workers, who were actually employed by other entities. When applying for PPP loans, applicants were required to certify the truthfulness and accuracy of all information they provided, including the number of employees employed at their business and their average monthly payroll. The inclusion of these non-employees in the PPP loan application caused the agricultural companies to receive an excess of approximately $1.8 million.

This settlement demonstrates the government’s strong interest in holding those who take advantage of financial programs accountable. Pandemic-related fraud was rampant and now the government appears to be cracking down on those who thought their wrongdoing would go unnoticed. The False Claims Act in particular is a powerful tool at the disposal of the government and whistleblowers to combat fraud and other misconduct.



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