The US Department of Justice announced the first civil settlement involving allegations of fraud against a PPP borrower.

SlideBelts Inc. received a PPP loan under the CARES Act.  SlideBelts is an internet retail company and debtor in bankruptcy.  SlideBelts and its president/CEO agreed to resolve the allegations in connection with the PPP loan by paying the government damages and penalties of $100,000.  SlideBelts had already repaid the $350,000 PPP loan it had received.

The announced civil settlement resolves claims that the conduct of SlideBelts and its president/CEO violated the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).   The False Claims Act allows the government to recover damages and penalties for the presentation of false claims for payment to the United States. FIRREA allows the government to impose civil penalties for violations of federal criminal statutes, including those that affect federally-insured financial institutions such as the PPP loan lender involved here.

This civil settlement serves as an important notice to PPP loan borrowers.  If a PPP loan was received through fraud and misrepresentations by the borrower, giving the loan back may not be sufficient to avoid liability, and the borrower may be subject to government claims for civil damages and penalties.  Depending on the nature and extent of the fraud involved, the borrower – and its officers – may also be subject to criminal prosecution by the government.

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