The Justice Department has announced a civil settlement of the first Paycheck Protection Program (PPP) fraud whistleblower case in which the government intervened. This milestone should remind PPP borrowers they should immediately seek the advice of counsel if made aware that they may have received COVID-19 relief funds to which they were not entitled. Taking the proper steps to return the portion of PPP funds that may have been received unlawfully, with guidance from counsel, can significantly decrease a borrower’s criminal and/or civil exposure. The case also highlights the role whistleblowers play in reporting suspected COVID-19 fraud.

The CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, provided emergency financial assistance through the PPP in the form of forgivable loans to businesses to cover payroll and other specified expenses.

To obtain a PPP loan, a business had to sign and submit a PPP loan application online through a lender’s application platform. The PPP loan application required the business to acknowledge the PPP rules and make affirmative certifications in order to be eligible for the PPP loan. Borrowers were required to certify as true and accurate that the applicant had not and would not receive more than one loan under the PPP prior to Dec. 31, 2020.

The False Claims Act

The False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733, prohibits fraudulent conduct in connection with federal programs, including the knowing submission of false claims to the government in order to receive government loans. The FCA states that violators are liable for treble damages, plus a penalty that is linked to inflation.

In addition to allowing the government to pursue fraud claims, the FCA also allows private citizens to file suits on behalf of the government (“qui tam” lawsuits). Private citizens who successfully bring a qui tam lawsuit may receive a portion of the government’s recovery. This financial incentive provides a strong motivation for individuals, including employees of companies receiving COVID-19 relief funds, to bring whistleblower actions. Companies should be aware that current and former employees who believe they have uncovered such fraud are financially incentivized to assert whistleblower claims under the False Claims Act.

The First Whistleblower Case in Which the Justice Department Intervened

Pan African Interchange LLC and its owner Stanley Damas were accused of submitting false certifications in connection to their PPP loans by stating that Pan African Interchange would not receive more than one PPP loan prior to Dec. 31, 2020. However, Pan African Interchange applied for and received two loans prior to that date.

Pan African Interchange received a $312,000 PPP loan on or about May 22, 2020 and then a second PPP loan of $208,332 on or about June 24, 2020.

The case was originally brought by a whistleblower in a qui tam action in the U.S. District Court for the Southern District of Florida. On April 14, 2022, however, the United States intervened in the case and on May 20, 2022, filed its Complaint in Intervention against Pan African Interchange and Mr. Damas, making the matter the first PPP False Claims Act whistleblower case in which the United States has intervened.

After the United States filed and served its Complaint in Intervention, Mr. Damas and Pan African Interchange repaid the United States $208,332 in order to satisfy the second Pan African Interchange PPP Loan. The claims resolved by the settlement were allegations only and there has been no determination of liability.

What to Expect

Because the FCA permits private citizens to seek monetary recovery for penalties related to false claims for federal funds, there is a strong incentive for employees to report their employers for perceived COVID-19 related fraud. For this reason, businesses should assume they are under a microscope not only by the government, but also by their own workers. The government makes reporting alleged fraud easy by dedicating a national hotline to reports of pandemic-related fraud as well as providing an accessible online complaint form.

Federal authorities have continued to receive an outpouring of complaints from whistleblowers related to suspected fraudulent activity. The Justice Department’s decision to intervene in this matter further demonstrates that investigators and prosecutors are continuing to intensify their efforts to eliminate COVID-19 related fraud. Any business owner who is concerned about CARES Act compliance or potential exposure to fraud allegations related to COVID-19 aid programs should immediately consult counsel. Do not wait to be contacted by law enforcement.

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