Last month, I had the privilege of being a panelist during the Federal Bar Association’s 2021 Qui Tam Conference. Referred to as “the Oscars for False Claims Act nerds,” this year’s conference included such speakers as Senator Chuck Grassley and focused on the False Claims Act (FCA) in times of crisis. The panel I spoke on, titled “Civil Fraud Issues Arising from SBA’s CARES Act Programs,” covered the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), FCA liability risks small businesses may face participating in the PPP, and how small businesses can protect against or avoid those risks. During our discussion, a representative from the Department of Justice (DOJ) indicated that there are several dozen qui tam cases currently filed related to the PPP and that several settlements have already been announced. This comes as no surprise. Given the unprecedented outlay of money last year through the PPP, enforcement actions were sure to follow. And it appears this is just the beginning. SBA is starting to ramp up the process through which it will determine forgiveness of PPP loans, and this is sure to renew a lot of the eligibility questions we grappled with at the start of the program.
In this climate, small businesses should anticipate scrutiny of their PPP loan and application for forgiveness. Even though SBA has indicated it will not scrutinize loans below $2M, this is no guarantee that such loans will not face any questions or could not be the subject of a potential FCA case, depending on the circumstances. And, for loans over $2M, the “need” certification is one that looms large in SBA’s forgiveness determinations and potential enforcement actions. Plus, the scrutiny I’m referring to here does not have to come only from SBA or DOJ—it could come in the form of a qui tam case brought, for example, by a disgruntled former employee.
As I said during the panel, I think the government and relators will face difficulty bringing enforcement actions in all but the most egregious cases. This is due to the extreme fluidity in the guidance from the Department of the Treasury and SBA between April and June last year. Understanding the guidance was no easy task at that time, and often boiled down to how many times you refreshed your browser to check for the latest updates. But this probably will not stop relators and the government from initiating FCA cases, so PPP borrowers should be prepared.
Documenting your circumstances, your need for the PPP loan, and how you used the funds is one of the best ways to protect against potential exposure. Having internal compliance processes and procedures, and sticking to them, is another. Your good-faith efforts to understand and keep up with the ever-changing PPP guidance and rules will also work in your favor. And, as we have maintained since the CARES Act first passed: if in doubt, do not seek forgiveness of your PPP loan. In my view, it will be very unlikely for DOJ or a relator to bring or maintain an FCA action related to a PPP loan if the borrower pays back the loan with interest.
With the second round of PPP afoot and the first wave of FCA cases filed against PPP loans, it feels like we are in the calm before a storm of PPP FCA investigations and litigation. However, as I channel my inner Lee Corso, I say “Not so fast, my friends.” When you peel back the onion of exigent circumstances caused by an unprecedented global pandemic, rapid and numerous changes in guidance, and a lack of meaningful damages if the loans are repaid, I think there may end up being fewer PPP FCA cases than anticipated, with settlements involving obvious instances of fraud, like the ones we have seen so far. Of course, we will have to wait and see. And, in the meantime, PPP borrowers should be prepared to weather the storm if it materializes.