Since the government first announced the Payroll Protection Program, tens of thousands of businesses and self-employed individuals have signed up. Because the program was rushed in order to get relief to businesses hurt by the pandemic, neither the government nor the SBA did much due diligence. We trusted applicants to be honest.
Most applicants were honest. Unfortunately, billions of dollars were lost to companies and individuals who scammed the system. Since the program was first announced, the Department of Justice has criminally prosecuted over 50 fraudsters for ripping off the PPP program. Because the program is funded with tax dollars, these fraudsters are ripping off both the American people and the government.
On January 12th, the U.S. Attorney in Sacramento announced the first civil PPP fraud prosecution brought under the federal False Claims Act. Under that law, whistleblowers with inside information about fraud involving government funds or programs can receive large cash rewards for reporting the fraud.
PPP Program and Eligibility Requirements
According to the SBA, the Paycheck Protection Program (PPP) is a forgivable loan designed to provide a direct incentive for small businesses to keep their workers on payroll. The first round of PPP loans was issued in the spring of 2020 to help fund payroll costs, including benefits, and to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, and certain other expenses.
Beginning in January 2021, a second round of PPP was opened with slightly different eligibility requirements.
On paper, the program is only available to:
- Sole proprietors, independent contractors, and self-employed persons
- Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
- 500 employees, or
- That meets the SBA industry size standard if more than 500
- Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
There are several disqualifiers too:
- Your business wasn’t in existence in February 2020
- Your business is in bankruptcy
- Anyone owning 20% or more of the business is in prison, probation or was convicted of a felony within the past year
- Hedge funds and private equity firms
- Businesses in an industry deemed disqualified by the SBA
- You or your business defaulted on an SBA loan within the last 7 years.
Prosecution of SlideBelt Inc. and CEO Brigham Taylor
SlideBelts Inc is an internet retailer of fashion accessories. Brigham Taylor is the company’s CEO. In April 2020, the company filed two PPP applications, one with a local credit union in Sacramento and the other with a bank in New Jersey.
One of the standard questions in the application is whether the company is in bankruptcy. Taylor completed the applications on behalf of the company and responded the company was not in bankruptcy. Taylor’s response was false, the company had filed a Chapter 11 bankruptcy in August 2019.
The local credit union was familiar with the company and knew of the bankruptcy. A manager there declined the application and told Taylor that his company was not eligible for PPP. Three hours later Taylor made a third application, this time to a bank in Minnesota. He once again indicated his company wasn’t in bankruptcy.
The New Jersey bank approved SlideBelts PPP application on behalf of the SBA. The company received $350,000.
The government prosecuted both SlideBelts and Brigham Taylor under the False Claims Act and the Financial Institutions Reform Recovery and Enforcement Act – FIRREA. Both laws pay whistleblower rewards. Whistleblower rewards under the False Claims Act are between 15% and 30% of whatever the government collects from the wrongdoer while FIRREA awards are also based on a percentage but are capped at $1.6 million.
The government sought $4,196,992.00 but because the company was broke, the case settled for $450,000.00. (That is a common problem when prosecuting bankrupt companies and individuals.) Although Taylor and SlideBelts were allowed to settle without any admission of wrongdoing, they did acknowledge the underlying facts.
In announcing the settlement, Sacramento’s United States Attorney said,
“The defendants made false statements to multiple banks in order to obtain a Paycheck Protection Program loan that should have been disbursed to an honest small business suffering financially from the economic effects of the COVID-19 pandemic. The Department of Justice and our partners at the SBA will use all tools at our disposal, including civil fraud statutes, to aggressively pursue those who exploit federal programs intended to help those in need during this national emergency.”
PPP Fraud Whistleblower Rewards
We have long advocated for whistleblowers with inside of information of COVID-19 related fraud to step forward. (Visit our coronavirus whistleblower rewards page for more information – rewards are not limited to the Payroll Protection Program.) The action brought in Sacramento against the bankrupt SlideBelts Inc although small is validation that whistleblower cases for PPP fraud case are real.
To qualify for a reward, one must have original source (inside) information about COVID-19 related fraud. Here are the common schemes we have seen to date or anticipate:
- PPP Fraud
- Other SBA and Grant Fraud
- Procurement Violations
- Bid Rigging and Collusion
- cGMP Violations (adulterated or underpotent COVID drugs)
- SEC Fraud (phony claims of cures or financial reporting fraud)
- Off Label Marketing
- Best Price Violations
- Defective Products (PPE, Ventilators)
- Clinical Trial Fraud
To qualify for a reward involving PPP fraud, one must have inside information about the fraud.
Claiming a reward involves filing a complaint under seal (secret) in federal court. The government then has the opportunity to investigate. Ultimately the government can take over the case, allow the whistleblower’s legal team to prosecute or ask the court to dismiss the case. While the government is investigating, the case is sealed meaning no one – not even the whistleblower’s employer – knows who filed the claim.
To learn more, visit our coronavirus whistleblower page. Ready to see if you qualify for a reward? Contact attorney Brian Mahany online, by email or by phone 202-800-9791.
PPP fraud cases accepted nationwide. All inquiries protected by the attorney – client privilege and kept strictly confidential.