Important lessons from the second FCA regulation involving alleged misrepresentation by the PPP borrower and its CEO – Finance and Banking
United States: Important lessons from the second FCA regulation involving alleged misrepresentation by the PPP borrower and its CEO
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On April 21, 2021, the Department of Justice (“DOJ”) and the United States Attorney’s Office for the Eastern District of California announced a second settlement resolving alleged violations of the False Claims Act (“FCA”) on the basis of false statements made by a company and its managing director in connection with the company’s loan application under the paycheck protection program (“PPP”) of the CARES law (Coronavirus Aid, Relief, and Economic Security).1 The announcement comes just months after the DOJ announced an FCA settlement with Slidebelts, Inc. and its CEO resolving allegations of PPP-related wrongdoing, discussed in our previous article on the subject.2
According to the DOJ press release and the settlement agreement, Sandeep S. Walia, MD, a professional medical company (“Walia PMC”), received two PPP loans from two different lenders despite the fact that during the first round of PPP loans, borrowers were not allowed to receive more than one loan. Indeed, just a month after Walia PMC received its first PPP loan of approximately $ 280,000, its CEO, Dr. Sandeep Walia, signed a note for a second PPP loan of $ 430,000. Loan applications and related notes were submitted and signed by Dr Walia. In the second PPP loan application, Dr Walia certified that Walia PMC “has not received and will not receive another loan” and that she “has not received another. [PPP]”. As a result of these false statements, Walia PMC obtained its second PPP loan. Significantly, the borrower had not requested the cancellation of the PPP loans. Either way, the government alleged that the borrower’s misrepresentation resulted in the Small Business Administration misrepresenting the processing fee. The DOJ contends in the settlement agreement that “Walia PMC and Dr. Walia knew, knowingly ignored or recklessly ignored that Walia PMC was not entitled to a second PPP loan.” Walia PMC and Dr Walia agreed to pay a total of $ 70,000 in damages and repay the second PPP loan of $ 430,000, with interest, to resolve allegations that they knowingly made false statements to obtain a PPP loan in violation of the FCA.
Key points to remember:
- Expect increasing use of the FCA as the government continues efforts to recover emergency relief funds. The Walia PMC settlement, which came shortly after the Slidebelts settlement, demonstrates that the DOJ is likely to increasingly use the FCA as a powerful tool to uncover fraud against government programs related to the pandemic, as discussed in our previous articles.3 In announcing this most recent FCA rulebook, the DOJ said that it and its SBA partners “will use all tools at the [their] provision, including civil fraud laws, to recover funds for federal programs intended to help those in need during this national emergency. ”
- The DOJ will review federal loans, regardless of the amount. The government will pursue enforcement measures, even for relatively small loans, such as those at issue in these first two FCA regulations linked to the PPP. Increasingly vigorous enforcement action can be expected as the government reviews larger loans under the PPP, as well as those under other CARES Act programs, including the main street loan program.
- Repaying a PPP loan will not protect a borrower from potential FCA liability. The government will pursue wrongdoing claims whether or not the borrower requests the cancellation of their loan, as was the case in the Slidebelts and Walia PMC cases.
- The government will take action when eligibility requirements and program limitations are deliberately ignored or recklessly overlooked. Thus, it remains essential that borrowers gain a thorough understanding of all of these requirements and limitations and adhere to them, as the consequences of not doing so could be catastrophic and could result in treble damages, legal penalties and in some cases. , even criminal liability.
- Individuals will be held accountable. In the Slidebelts and Walia PMC cases, the government held each borrower’s CEO responsible, making it clear that people who knowingly submit and certify false statements will be held responsible for wrongdoing.
- Being proactive and taking positive steps is essential to minimize the risk of FCA liability. The organization and individuals responsible for preparing and submitting applications for pandemic relief funds should carefully review program eligibility criteria and ensure they are in compliance. Proactive efforts in this regard, as well as prompt corrective action when problems are discovered, will go a long way in preventing larger problems in the future.
1. The DOJ press release is available here: https://www.justice.gov/usao-edca/pr/bakersfield-medical-practice-agrees-resolve-false-claims-act-allegations-involving. The settlement agreement reached by DOJ, Walia PMC and Dr Walia is available here: https://www.justice.gov/usao-edca/press-release/file/1388591/download.
See also 85 Fed. Reg. 28013.
2. “DOJ Announces First Settlement to Resolve Alleged FCA Violations by PPP Borrower and CEO,” January 22, 2021, available at https://www.mondaq.com/unitedstates/insolvencybankruptcy/1028784 / doj-announces-first-establishment-to-resolve-alleged-violations-of-the-FCA-by-a-ppp-borrower-and-its-CEO and https://www.winston.com/en/ thought-leadership / doj-announces-first-settlement-to-resolve-alleged-FCA-violations-by-a-borrower-ppp-and-his-CEO .html
3. “Mitigation of FCA liability risks associated with Covid-19 relief programs”, Bloomberg Law, May 6, 2020, available at https://www.winston.com/images/content/2/0/v2/204436/MitigatingFCALiabilityRisksECO49129.pdf; “7 False Claims Law Enforcement Trends To Watch Out For”,
Law360, February 15, 2021, available at https://www.law360.com/employment-authority/articles/1352593/7-false-claims-act-enforcement-trends-to-watch.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.
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