PPP Fraud Cases are Rising. Is Your Company at Risk?

(May 18, 2021): In the last year, to address the devastating economic impact of Covid-19, Congress has passed three massive economic relief packages allocating a total of $2 trillion dollars in aid through the legislation. That’s trillion with a “t.” Within those legislative packages have been funds earmarked for the Paycheck Protection Program to provide businesses with much needed relief from the pressures of meeting payroll with stifled revenue from the pandemic. The bills have included PPP allotments of $349 billion, $320 billion and $284 billion, for a total of $953 billion, or almost a trillion dollars to the PPP program alone, all administered through the Small Business Administration (SBA).

Compare the amount of funds distributed in one year to the new (and hopefully temporary) PPP program to Medicare’s annual budget of $644 billion (2019) or President Biden’s request for the 2021 budget for the Department of Defense ($706 billion). Within those programs, the government estimates it loses approximately 10% to fraud, waste and abuse, or, for the Medicare program for instance, about $60 billion per year.

Given those numbers with time-tested programs like Medicare and the Department of Defense, is it any wonder the government is rededicating an extraordinary number of Department of Justice personnel to investigate potential PPP fraud? Imagine how vulnerable the PPP program is to fraud if Medicare loses $60 billion per year to fraud? It does not take much imagination to noodle the potential fraud with PPP funds as a $100 billion problem. How much should the government be willing to invest to investigate the loss of $100 billion to thieves? Plenty.

I. PPP Loan Recipients Should be Alert to Investigations and Contact Counsel:

For Joe Citizen, the implications of the government’s interest and diligence in PPP loss to fraud are twofold. First, for all those PPP applicants and recipients, they should assume the government is creating algorithms to do an initial scrub of every application and distribution. Once the algorithm tags applicants for a closer examination, warm government investigator bodies will be assigned to investigate. Investigation from that point will take the traditional route: investigators will review records already available to them, they will subpoena records that are not immediately available to them (whether records of the subject of the investigation or records of third-party vendors used by the subject of the investigation, such as an accountant or phone company), and they will conduct interviews, either with or without the use of subpoenas.

Preliminary investigations are frequently done behind the scenes without the knowledge of the subject of the investigation. But as investigations heat up, the subject usually becomes aware of the investigation, such as by an FBI agent showing up with a request for an interview or by a call from one’s banker that her bank records have just been subpoenaed by a grand jury (despite requests from the government that the subpoena recipient keep the existence of the subpoena hush-hush). What does the normal Jane Citizen do when learning of such an investigation? Many reach out immediately to the investigator, certain that they can mollify whatever “misunderstanding” the investigator must have about the records accessed and reviewed to that point. But the wiser Jane Citizen immediately calls her counsel to intercede on her behalf regarding whatever investigation exists.

There are several things to keep in mind when getting wind of an investigation into your PPP application or loan grant. First, by the time you learn of such an investigation, the government has already conducted a considerable background investigation of available records and circumstances. If the government can see from an initial review that there are no improprieties, the agents will close that investigation and move on to the next one. If the government believes that there are $100 billion in losses to find and recover, its agents have no interest in investing in non-issues and non-cases. Instead, by the time the subject of an investigation learns of the investigation, the agents usually have already made a preliminary determination of something untoward afoot. In other words, when the subject of the investigation reaches out to the investigator to provide the innocent explanation, that explanation will be received with great suspicion. Moreover, that explanation by the subject of the investigation becomes evidence, good or bad.

That is why it is critical to get your lawyer involved from the first sign of an investigation, PPP or otherwise. Unlike the common misunderstanding, having a lawyer call the government on your behalf does not create additional suspicion in the investigator’s mind. It is usually the contrary. There is usually a mutual respect between investigator and lawyer such that a lawyer’s willingness to conduct an internal investigation and report the findings often cuts through the tape of a longer government investigation. And whatever the lawyer says to the investigator is not evidence, so if the government decides there is still more to examine, the lawyer’s information does not provide anything of evidentiary value to the investigator; whereas all statements provided by the subject of an investigation are admissible evidence, whether inculpatory or exculpatory. The bottom line: if you learn you are the subject of a PPP investigation, contact a lawyer immediately.

II. Whistleblower Initiated PPP Fraud Investigations:

The second truism for Joe Citizen is that Joe Citizen may not be the applicant of a PPP loan, but rather an employee or otherwise insider of the applicant. With $100 billion of projected fraudulent government PPP distributions floating around among U.S. employers, there will be plenty of people who know what the government does not know: such-and-such PPP loan application was bogus. Or parts of it were bogus. Or something material about it was bogus. What should these Joe Citizens know in such circumstances? These Joe Citizens should know that the U.S. has laws that reward those citizens who come forward with information of fraud against the government about which the government would not otherwise know. Whistleblowers of fraud against the government can be entitled to a reward of up to 30% of the fraudulent loss recovered by the government.

By way of simple example: if Jane Citizen works in the bookkeeping department of her medical equipment manufacturer’s company and learns that the owner of the company submitted two $10 million PPP loan applications, one for the legitimate company Jane Citizen works for and another for a bogus manufacturing company the owner created on the books to apply for a PPP loan for the fictitious company, then Jane Citizen can blow the whistle on the fraudulent application. When the government recovers the $10 million it never should have granted to the phony application, Jane Citizen may be in line for a $3 million reward.

The laws that incentivize honest Americans to report fraudulent government payments to dishonest citizens are called whistleblower or qui tam laws. The laws recognize the realism that the government does not have the resources to identify all times that the taxpayers’ coffers fall victim to fraud, so it wants the incentivize Joe and Jane Citizen to help police against fraud. In the circumstances of the PPP loan program, instituted by the government on the fly to address a catastrophic and unexpected financial crisis, there is not the usual framework in place to create natural guardrails against fraud.

Consider again the Medicare and Department of Defense programs. The annual allocation of taxpayer funds to those programs is less than the amount of PPP loans distributed in the last year. And the PPP loan program is designed to forgive the loans under normal circumstances. The Medicare and defense expenditures are made within a system of existing checks and balances. The agencies involved in Medicare and defense expenditures each have Inspectors General to conduct internal audits of the programs to ensure safety valves against fraud are in place. The agencies also have investigative and enforcement arms built into the agencies, commensurate in heft to the typical annual budget and dedicated to conduct follow-up investigations to agency money distributed to recipients.

What framework exists for safeguarding PPP loans? Not much. Sure, the Small Business Administration has an inspector general and investigators assigned to the agency. But a typical annual budget for the SBA is approximately $750 million to $850 million. With the avalanche of PPP funds distributed under the watch of the SBA during the last year, the anticipated amount paid fraudulently is more than 100 times the normal annual budget of the entire agency. The framework of oversight for these taxpayer funds simply does not exist. The government will need to rely very heavily on whistleblowing citizens to track down PPP funds distributed to fraudsters. And the government will necessarily need to reward those whistleblowers under the laws designed to incentivize whistleblowers.

To qualify for a potential whistleblower award, the law lays out a system to protect the claim. There are two fundamental requirements to potentially qualify for a whistleblower award: the whistleblower must be the original source of the whistleblowing information, and the government must not already know of the fraud or be able to know of the fraud through public information. So what should Joe Citizen do if he knows of PPP fraud? He should do the same thing that that Joe Citizen should do if he thinks he is being investigated for PPP fraud: contact a lawyer. A whistleblower lawyer will help ensure that a whistleblower claim is properly registered to preserve the chance for a reward.

The whistleblower’s claim is properly made by preparing a lawsuit laying out the claim of fraud against the government and filing it secretly under seal with the court. Simultaneously, the whistleblower’s lawyer notifies the government in secret of the claim of fraud. While the claim is under seal, the government is given the opportunity to investigate the allegations by interviewing the whistleblower and conducting other secret investigations. If the government so chooses, it can intervene in the whistleblower’s lawsuit and proceed on its own with the case. Upon completion, the government interacts with the whistleblower’s counsel regarding an award to provide the whistleblower.

Bear in mind, however, that the government’s resources to intervene in whistleblower lawsuits is limited. Most whistleblowers, through counsel, will prosecute the claim on behalf of the government. The whistleblower (and counsel) simply stand in the shoes of the government to pursue recovery of the fraudulently obtained taxpayer funds. At any given time, the vast majority of whistleblower suits being pursued on behalf of the government are being undertaken by the whistleblower and private counsel rather than through active participation of government counsel.

With the landscape of what may be $100 billion in fraudulent losses under a novel and once-in-a-lifetime government program, and very few existing government guardrails to protect against fraud in the PPP program, expect many, many honest citizens stepping to the plate with private counsel to protect the taxpayers’ coffers from PPP fraud through whistleblower lawsuits.

III. Contact Liles Parker Whether Investigated for Fraud of Know of Fraud:

Liles Parker attorneys have decades of experience representing persons and companies investigated by the government for fraud. They have successfully nipped government investigations in the bud without the need to defend against charges. But they have also successfully defended people and companies already charged with fraud. If you think you may be the subject of a government investigation, whether for a PPP loan or otherwise, contact Liles Parker right away. If you know you are the subject of a government investigation or have been charged by the government, whether for a PPP loan or otherwise, contact Liles Parker right away

Liles Parker likewise has decades of experience representing whistleblowers of fraud against the government. If you believe you have information of fraud against the government, including for a PPP loan, Liles Parker will provide a free consultation to review your options. Contact us today.

John Pierce is a Partner at the health law firm, Liles Parker, Attorneys and Counselors at Law.  John served many years as an Assistant U.S. Attorney in several offices around the country. He is experienced in handling both complex criminal and civil health care fraud cases. Are you involved in a PPP fraud matter or case?  If so, we can help.  

For a free initial consultation regarding your situation, call Robert at: 1 (800) 475-1906.