What is the False Claims Act Under PPP Loan Investigations?

The Paycheck Protection Program (PPP), initiated in response to the economic downturn induced by the COVID-19 pandemic, was intended to offer financial relief to struggling businesses. Millions of businesses applied for and used this program legally. However, the rushed implementation and sheer volume of loan applications opened the PPP up to many fraudulent claims.  


As a result of the many fraudulent claims, the federal government is now using a long-established law, the False Claims Act (FCA), to seek civil penalties and restitution from businesses and individuals who engaged in PPP fraud. 


Stechschulte Nell, Attorneys at Law are vigorously defending parties who are targeted by the federal government’s civil False Claims Act (FCA) litigation. Defendants named in the current wave of FCA lawsuits need legal representation from experienced False Claims Act defense counsel with a deep understanding of the law’s requirements and the effective defenses. 


If you have received notice from the Small Business Administration (SBA), Department of Justice (DOJ) Office of General Counsel (OGC), or the Office of Inspector General (OIG), you need to contact qualified False Claims Act defense lawyers immediately. It is unwise to communicate with any of these agencies before speaking with and receiving guidance from an FCA defense attorney. 



Overview of the Paycheck Protection Program (PPP) 


The PPP was a loan program set up by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its primary objective was to aid businesses in maintaining their payroll and cover essential operational expenses. If used appropriately, these loans could be fully or partially forgiven. However, to qualify for the program, businesses were required to satisfy specific criteria, including the demonstration of genuine need. 


What Is the False Claims Act (FCA)? 


Originally enacted during the Civil War to counteract fraud against the federal government, the FCA imposes liability on individuals or entities that knowingly submit false claims to the government for payment. The FCA provides for the imposition of expensive penalties, including three times the government’s damages plus additional fines for each false claim. 


A massive amount of PPP funds were distributed with little oversight and the potential for misuse has made the False Claims Act one of the government’s primary tools for investigating and prosecuting fraudulent loan applications or misuse of loan proceeds. 


What Is a Violation of the False Claims Act (FCA)? 


The government must provide evidence that a PPP loan recipient committed particular acts to prove that they violated the False Claims Act. 


Knowingly Submitting False Information is the primary act targeted by government lawyers when using the FCA to recover wrongly obtained PPP funds and loan recipients. 


The government (or a private citizen, see Whistleblower Provisions) can initiate a False Claims Act civil suit in the context of the PPP if a business submitted documents in support of their PPP loan application that inflated their payroll costs. Another basis for the FCA suit to recover wrongfully obtained funds would be if a business exaggerated the financial hardship it was experiencing to get a PPP loan. Knowingly providing incorrect information about their business operations to receive a loan or secure loan forgiveness will also open a business up to an FCA civil claim. 


Reverse False Claims? 


An action can also be commenced against a business under the FCA for what is sometimes called a “reverse false claim.” A reverse false claim is one that involves knowingly providing false information during a government audit with the intention of reducing the amount of money the business would owe to the government or to avoid repaying money they were overpaid. 


Whistleblower Provisions 


The government is not the only entity that can initiate an FCA claim against a PPP loan recipient. The FCA includes provisions that allow private citizens to act as whistleblowers and to bring an FCA claim against a business it believes submitted a false PPP claim. 


The theory in law is known as qui tam. This legal doctrine allows private individuals, often insiders within an organization, to file lawsuits on behalf of the government against businesses that are defrauding it. Whistleblowers, known as “relators,” can be awarded a portion of the recovered funds. With the largely uncontrolled distribution of PPP funds, whistleblowers can play an essential role in identifying and reporting fraudulent claims. And they stand to be rewarded with a huge slice of the financial recovery if they succeed in identifying and proving the defendant’s fraud. 


What Are the Penalties for Violating the False Claim Act with a PPP Loan? 


Businesses found guilty of violating the FCA in relation to PPP loans can face treble damages (three times the amount of money the government lost) and fines that now range from $13,508 to $27,018 for each false claim. The government increased the fines in January 2023 to account for inflation. 


Effective Defenses Against FCA Allegations in PPP Loans 


Businesses under investigation or facing allegations of PPP fraud under the FCA have legal defenses that can successfully defeat a government or private civil claim alleging fraud. Certain defense law firms have experience representing businesses and others who are targeted with fraud allegations under the FCA. 


Among the defense that these law firms have found to be most effective are the following: 


Demonstrate Good Faith: One of the pivotal elements in an FCA case is the demonstration that the accused “knowingly” submitted a false claim. Although FCA litigation is a civil proceeding, the government or private plaintiff must prove fraudulent intent.  


If businesses can prove they acted in good faith and any inaccuracies were unintentional, they will often successfully counteract FCA charges. In some cases, errors and misstatements resulted from a lack of clear guidance in the instructions issued when the PPP loan program was administered. 


Detailed Record Keeping: Maintaining thorough records of how PPP funds were used can be invaluable. Documentation demonstrating that funds were used appropriately – primarily for payroll, rent, utilities, or mortgage interest – will be extremely useful in supporting a strong defense against allegations of misusing the PPP funds. 


The government is escalating the volume of civil FCA claims to enforce the provisions of the PPP loan program. When the government or a private party has evidence of fraud, the FCA will continue to be a central means by which to recover PPP loan funds. 


Secure Your Business Against PPP Fraud Allegations with Expert Legal Defense 


Only the help of an experienced False Claims Act defense lawyer will provide the most effective defense against a PPP fraud allegation.  


If you are a Florida business being investigated for PPP loan fraud and the False Claims Act, contact Stechschulte Nell, Attorneys at Law today by calling 813-280-1244. Your initial consultation is a crucial step toward understanding your situation and exploring viable defense strategies. It’s more than legal advice – it’s a solid shield in your uncertain times. 

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