When COVID-19 hit the US, businesses shut down and struggled to keep their workers employed. Congress passed the Paycheck Protection Program (PPP) as a means for small business owners to continue to pay their employees.
Despite the good intentions, many people saw the program as a way to get “free government money.” The levels of fraud were as unprecedented as the times. Fortunately, the government provides a method for workers to report PPP loan abuse and get a reward.
What does PPP fraud look like?
PPP fraud occurs when business owners falsely represent their business, employees, or payroll amounts on their loan applications. Further, misuse of the proceeds is also considered fraud, including purchasing luxury cars, homes, renovations, or jewelry with PPP funds. Identity theft was also widespread during the pandemic, with serial fraudsters using the identity of closed or unaware businesses to obtain funds.
How To Report PPP Loan Frauds
If you have evidence of PPP fraud, you have two options to report the fraud.
Make a Report to the OIG
First, you can submit a complaint to the Office of Inspector General (OIG), which oversees the SBA and other federal agencies. When the OIG detects fraud, it will report the violation to the US Attorney General for prosecution. This method is best for fraud with a small value. Since the start of the PPP, the OIG has identified more than 70,000 potentially fraudulent loans totaling over $4.6 billion.
File a “Qui Tam” Suit under the False Claims Act
The False Claims Act (FCA) makes it illegal to knowingly submit false claims to the government. Additionally, the FCA empowers private parties to sue wrongdoers for FCA violations on behalf of the government, known as “qui tam” suits. If found guilty, the fraudster must pay:
- Treble (3x) damages;
- A statutory penalty between $5,000 and $10,000 (adjusted for inflation); and
- The whistleblower’s expenses, attorney fees, and costs.
Further, the FCA allows for a PPP whistleblower reward. When a lawsuit is successful, the person who brought it can get up to 30% of the money collected. The Department of Justice reports that over 598 qui tam suits were filed in 2021, recovering over $1.6 billion.
Do I need an attorney to file under the False Claims Act?
A private citizen needs an attorney to file an FCA claim. If you attempt to file and the defendant proves that the case is frivolous, clearly vexatious, or brought primarily for purposes of harassment, you can owe attorneys fees and other penalties. Further, you must prove that:
- The defendant submitted the fraudulent application knowingly, with deliberate ignorance, or with reckless disregard;
- That the certifications regarding the PPP application were legally or factually false; and
- The false certification was material in that it induced an unwitting government payment.
An experienced attorney will help you navigate the complex elements of a fraudulent PPP claim. We can help you collect evidence of the insider knowledge needed to make a successful qui tam claim under the FCA.
Why is PPP fraud a big deal?
The qualifications and limitations on loan forgiveness are complex. During the early days of the pandemic, the SBA valued speed to reach as many businesses as possible. The complicated, speedy process and the possibility of forgiveness made the program vulnerable to fraud. Further, the application process requires the business owner to self-attest their employee numbers and payroll amounts.
Fraudulently applying for SBA loans is a criminal offense, subject to jail time and fines. On March 10, 2022, the Department of Justice had already investigated 1,800 people and businesses in connection with pandemic relief loans totaling over $6 billion and filed criminal charges against over 1,000 people for claimed losses reaching $1.1 billion.
What is the PPP?
The March 2020 CARES Act established the $813.7 billion PPP to support small businesses and their workers during the COVID-19 pandemic. Business owners could apply for a forgivable loan during intermittent periods between April 2020 and May 31, 2021. While the US Small Business Administration (SBA) backed the loans, private lenders and credit unions processed and issued the loans.
What are the Qualifications for Getting a PPP Loan?
To obtain a PPP loan, applicants had to attest that they needed the loan to maintain operations during uncertain economic conditions. They also had to promise to use the money for certain things, like payroll and other approved costs. Additionally, the business must qualify as small through one of the following methods:
- The business had less than 500 employees;
- The business met the standard size for its industry;
- The business met the alternative size standards;
- The business was an accommodations and food services business with more than one physical location that had less than 500 employees per location; or
- The business qualified as a small business concern under section 3 of the Small Business Act.
Finally, the company must have been active and paying its workers (including the owner) as of February 15, 2020. Sole proprietors, independent contractors, and self-employed persons could qualify. However, publicly traded companies could not receive PPP loans.
How Can a Small Business Use PPP Loans?
A PPP loan is meant to make it easier for small businesses to keep their workers on the payroll. To qualify for forgiveness, the business must use 60% of its PPP loan for payroll and other qualifying expenses, such as:
- Payroll costs, including salaries, wages, commissions, and tips;
- Benefits for employees (i.e., healthcare and retirement benefits);
- Mortgage interest payments (not including payments on the mortgage principal);
- Costs of operations (like software or cloud computing services);
- Damage to property from public disturbances in 2020;
- Supplier costs; and
- Costs for worker safety (masks, plexiglass shields, gloves, and more).
Once a business meets the 60% threshold, it must also show that the loan enabled it to maintain employee and compensation levels. Then, the company can apply for loan forgiveness.
Know About PPP Fraud? Consult with Sonn Law Group Attorneys
You don’t have to stay silent if you have insider information about PPP loan abuse. The federal government recognizes the importance of civilian whistleblowers and provides whistleblower protection. Plus, when you report PPP loan abuse, there is a reward. You can trust the Sonn Law Group to work to maximize your reward and secure justice for government fraud.