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Whistleblowers for PPP Fraud

In response to widespread economic uncertainty due to COVID-19, the federal government enacted the Paycheck Protection Program (PPP). Because that program is especially vulnerable to fraud, whistleblowers are key players in addressing illegal conduct.

Just last week, a Roanoke city jury convicted Roanoke City Councilman Robert Jeffrey of fraudulently obtaining pandemic relief funds.[1] Mr. Jeffrey fraudulently claimed he had over five full-time personnel on staff when, in fact, he had none.[2] Councilman Jeffrey will forfeit his seat on city council because of the conviction.[3]

What is PPP?

PPP is a federal program providing eight weeks of cash-flow assistance to small businesses through 100 percent federally guaranteed loans.[4] The loans are subject to specific conditions for which the employer must abide. Specifically, the employer must:

  • use the funds to retain employees and maintain payroll, lease, and utility payments;
  • actually be a “small business” as defined under the statute; and
  • cannot receive duplicate funds from another government program.[5]

The Problem with PPP

With so much uncertainty in the broader economy due to COVID and the sheer number of businesses impacted, the government waived the requirement for lenders to verify employers met PPP requirements. Instead, PPP let employers self-certify they met program requirements.

The problem with self-certification is increasing the risk of fraud.

Whistleblowers for PPP Fraud

Whistleblowers are key players in bringing to light PPP fraud. Oftentimes, these individuals are employees who “blow the whistle” on the fraud committed by their employer. In most cases, these individuals are entitled to a significant financial reward under the False Claims Act (FCA). Whistleblowers who file suit under the FCA are entitled to rewards of 15% to 30% of the funds recovered.[6] Additionally, there are myriad protections under the FCA and Virginia law for whistleblowing employees to prevent and address retaliatory conduct by an employer.

Whistleblowers throughout the country, including Virginia, continue to identify cases of PPP fraud. A recent study estimates businesses fraudulently obtained $76 billion of PPP funds.[7]

For example, Arlington based Zen Solutions agreed to pay damages and civil penalties to settle allegations that it improperly secured multiple PPP loans.[8] Zen Solutions provides staffing services for information technology, data analytics, cyber security, and litigation support. The settlement resolved a lawsuit filed under the False Claims Act brought by an internal whistleblower.

A Houston funeral director was arrested and charged with fraudulently seeking over $13 million in PPP loans for a business that did not exist, falsifying his identity, misrepresenting the number of employees and payroll expenses, and submitting falsified tax and bank documentation.[9]

The owner of a Texas wedding planning company was charged with fraudulently seeking over $3 million in PPP loans.[10] In applying for the loans, the company owner claimed he had 120 employees when he had none. He received over $1.5 million in PPP loans, which he allegedly funneled into personal investments, home mortgage payments, and the purchase of a Tesla.

Whistleblower Claims Viable for Years

PPP funds are no longer available to businesses. PPP concluded on May 31, 2021.[11]

Even if the employer fraudulent obtained the PPP loan some time ago, whistleblowers may bring a lawsuit years later. Under the FCA, a whistleblower may file a lawsuit up to 10 years after the date of the alleged violation.[12]

In other words, even in cases where the fraud occurred years prior, PPP whistleblowers should not be discouraged from bringing to light fraudulent conduct.

 

[1] Sturgeon, Jeff. Roanoke City Councilman Robert Jeffrey Guilty of Taking Money By False Pretenses. The Roanoke Times (Mar. 15, 2022). Available at https://roanoke.com/news/local/crime-and-courts/roanoke-city-councilman-robert-jeffrey-guilty-of-taking-money-by-false-pretenses/article_c6d3a642-a494-11ec-b635-2b9de6d19daa.html; Roanoke Councilman Found Guilty of Embezzlement. WDBJ7 Staff (Mar. 17, 2022). Available at https://www.wdbj7.com/2022/03/17/roanoke-councilman-found-guilty-embezzlement/#:~:text=ROANOKE%2C%20Va.,maximum%20sentence%20of%2020%2Dyears.

[2] Sturgeon, Jeff. Prosecution Presents Fraud Case Against Roanoke Councilman Jeffrey. The Roanoke Times (Mar. 15, 2022). Available at https://roanoke.com/news/local/crime-and-courts/prosecution-presents-fraud-case-against-roanoke-councilman-jeffrey/article_e106108a-a3e1-11ec-b0e2-9f4e11341bce.html.

[3] Sturgeon, Jeff. Roanoke City Attorney: Jeffrey Forfeits Council Seat With Conviction. The Roanoke Times (Mar. 18, 2022). Available at https://roanoke.com/news/local/govt-and-politics/roanoke-city-attorney-jeffrey-forfeits-council-seat-with-conviction/article_56f53422-a6eb-11ec-a886-a789d3c303e5.html.

[4] Paycheck Protection Program Resources. U.S. Senate Committee on Small Business & Entrepreneurship (accessed on Feb. 18, 2022). Available at https://www.sbc.senate.gov/public/index.cfm/paycheck-protection-program.

[5] Yin, Owen, et al., Do I Qualify for the PPP Loan? Bench Accounting Blog (May 5, 2021). Available at https://bench.co/blog/operations/qualify-ppp-loan/.

[6] 1 U.S.C. §§ 3730(d)(1) – (d)(2).

[7] Griffin, John et al., Did FinTech Lenders Facilitate PPP Fraud? SSRN (Dec. 6, 2021). Available at https://ssrn.com/abstract=3906395 or http://dx.doi.org/10.2139/ssrn.3906395.

[8] Virginia Company Settles Claim Regarding COVID-19 Loan. Associated Press (Feb. 12, 2022). Available at https://apnews.com/article/coronavirus-pandemic-business-health-virginia-lawsuits-e99962607451af06526116d37432e098.

[9] Press Release, U.S. Dep’t of Justice, Texas Man Charged with COVID Relief Fraud (June 24, 2020), available at https://www.justice.gov/opa/pr/texas-man-charged-covid-relief-fraud.

[10] Press Release, U.S. Dep’t of Justice, Texas Man Charged with COVID-Relief Fraud, False Statements and Money Laundering (June 23, 2020), available at https://www.justice.gov/opa/pr/national-dental-management-company-pays-24-million-resolve-fraud-allegations

[11] Kriss, Randa. PPP Is gone, But Government Help For Small Businesses Isn’t. Seattle Times (Oct. 21, 2021). Available at https://www.seattletimes.com/business/ppp-is-gone-but-government-help-for-small-businesses-isnt/.

[12] United States ex rel. Hunt v. Cochise Consultancy, 139 S.Ct. 1507 (2019).

Bo Frith