False Claims Act Penalties for PPP Loan Recipients

Thanks for visiting Spodek Law Group – a second-generation criminal defense firm managed by Todd Spodek, with over 50 years of combined experience defending federal fraud cases throughout the United States. The False Claims Act creates devastating civil liability for PPP loan recipients who made false statements on applications or forgiveness documents, imposing treble damages that triple your loan amount plus civil penalties up to $27,018 per false claim. What makes False Claims Act exposure particularly dangerous is that it operates independently from criminal prosecution – you can face FCA liability even if prosecutors never charge you criminally, the burden of proof is lower than criminal cases requiring only preponderance of evidence rather than beyond reasonable doubt, and the government can pursue FCA penalties for 10 years after you received your loan. Recent settlements in 2025 demonstrate DOJ’s aggressive use of False Claims Act against PPP recipients: Horn USA paid over $4 million in January 2025 to resolve allegations they improperly received a $2 million second-draw loan, YAPP USA settled for receiving a $9.5 million first-draw loan, and six non-profits agreed to pay over $3 million combined for False Claims Act violations. These settlements show that False Claims Act liability often exceeds double the loan amount when treble damages and civil penalties combine, threatening financial ruin for businesses and personal liability for business owners who guaranteed loans or participated in fraud.

How False Claims Act Applies to PPP Loans

The False Claims Act imposes liability on anyone who knowingly presents false claims to the federal government for payment. PPP loans qualify because they were federally funded through SBA – when you submitted your application certifying eligibility, employee counts, payroll expenses, and economic necessity, you made claims to the government that triggered FCA liability if those certifications were false. The FCA defines “knowingly” broadly: you acted knowingly if you had actual knowledge your statements were false, if you acted in deliberate ignorance of whether they were true or false, or if you acted in reckless disregard of whether they were true or false. This standard is easier for the government to meet than criminal fraud charges because they don’t need to prove you specifically intended to defraud – reckless disregard is enough. If you inflated payroll numbers without verifying accuracy, certified economic necessity without reasonable basis, or ignored red flags suggesting you weren’t eligible, that satisfies FCA’s knowledge requirement even if you didn’t consciously think “I’m committing fraud.”

What Constitutes a False Claim

Prosecutors argue that multiple false claims exist in PPP cases, multiplying civil penalties dramatically. Your initial loan application is a false claim if it contained material misstatements. Each draw of loan proceeds can be treated as a separate false claim – if you received PPP funds in multiple disbursements, prosecutors count each one. Your forgiveness application is an additional false claim if you misrepresented how you used funds or certified compliance with requirements you violated. Some prosecutors even argue that each false statement within an application constitutes a separate claim subject to individual penalties. Under this theory, your single PPP loan could generate five or more separate false claims: inflated employee count, overstated payroll expenses, false necessity certification, improper use of funds, and fraudulent forgiveness application. At $27,018 per violation, civil penalties alone could exceed $135,000 before treble damages.

Treble Damages Calculation

The False Claims Act mandates treble damages – three times the government’s loss. For PPP loans, calculating that loss includes the loan principal amount, accrued interest that was forgiven, processing fees SBA paid to your lender, and investigative costs the government incurred examining your case. If you received a $300,000 PPP loan that was fully forgiven, the government’s loss includes the $300,000 principal plus interest that would have accrued, plus the $15,000 processing fee paid to the bank, totaling roughly $320,000. Treble damages make that $960,000 – nearly a million dollars for a $300,000 loan. Recent settlements suggest DOJ is accepting multipliers between 1.5 and 2 times loan amounts rather than full treble damages, but that’s a negotiation position, not a legal limitation. If your case goes to trial and the government proves fraud, judges can and do impose full treble damages plus maximum civil penalties.

Civil vs Criminal Liability

False Claims Act liability is civil, not criminal, but that doesn’t make it less serious. Civil cases have lower burden of proof – preponderance of evidence means the government just needs to show it’s more likely than not that you made false claims, a much easier standard than criminal prosecution’s beyond reasonable doubt. Civil discovery is broader – the government can take your deposition, demand extensive document production, and force you to answer questions under oath, all of which can later be used against you if criminal charges follow. Settlements in civil FCA cases don’t prevent criminal prosecution – you can pay millions to resolve False Claims Act liability and still get indicted for bank fraud, wire fraud, or false statements. The financial penalties are often comparable – paying double your loan amount in FCA settlement can exceed what you’d pay in criminal restitution if you pled guilty, especially if prosecutors would agree to charge you with lower-loss amounts.

Personal Liability for Business Owners

False Claims Act liability isn’t limited to the business entity that received the loan – individual business owners face personal liability if they participated in preparing or submitting false applications. If you signed the PPP application as business owner, certified the accuracy of information knowing it was false or being recklessly indifferent to accuracy, directed employees to inflate numbers or fabricate documentation, or participated in deciding how to spend PPP funds in unauthorized ways, you’re personally liable under FCA. That means the government can pursue your personal assets – bank accounts, real estate, investments – to satisfy False Claims Act judgments even if your business is bankrupt or defunct. Many business owners assumed their LLC or corporation protected them from personal liability, but FCA pierces corporate structure to hold individuals accountable for fraud they personally committed or directed.

Defending False Claims Act Cases

Defending FCA allegations requires different strategies than criminal cases because rules and dynamics differ. We challenge materiality – FCA only covers false statements that were material to the government’s decision to pay; if discrepancies in your application wouldn’t have affected your loan approval or amount, they’re not actionable under FCA. We challenge damages calculations – arguing the government’s loss was less than they claim because you would have qualified for some loan amount even with accurate information, or because you actually used funds for legitimate business purposes that benefited the program’s goals even if documentation was imperfect. We present evidence negating knowledge – showing you relied on professional advice, that SBA guidance was ambiguous making your interpretation reasonable, or that you made good-faith efforts to comply with requirements even if you made mistakes. We negotiate settlements that minimize multipliers – convincing prosecutors to accept 1.5x damages rather than treble damages by demonstrating cooperation, prompt restitution, lack of sophisticated fraud, and your financial inability to pay larger amounts.

What Spodek Law Group Does

We defend False Claims Act cases involving PPP loans from investigation through trial and appeal. When you learn the government is investigating potential FCA violations, we gather documentation supporting your loan application and use of funds, identify legitimate explanations for any discrepancies, and prepare submissions to DOJ arguing that FCA liability isn’t warranted or should be substantially reduced. We negotiate FCA settlements that minimize damages – presenting financial analysis showing you can’t pay full treble damages, demonstrating mitigating factors that justify lower multipliers, and structuring payment terms you can actually meet. When the government brings FCA lawsuit or intervenes in qui tam whistleblower cases, we defend aggressively through discovery, motion practice, and trial – challenging their loss calculations, presenting evidence that alleged false statements weren’t material, and demonstrating lack of requisite knowledge. We coordinate FCA defense with criminal exposure – protecting your Fifth Amendment rights while still defending the civil case, ensuring statements you make in civil proceedings don’t create additional criminal liability, and timing settlement negotiations to maximize protection across both proceedings. At Spodek Law Group, we’ve defended False Claims Act cases for decades across multiple federal programs. You can reach us 24/7 – because FCA liability for PPP loans creates financial exposure that can destroy businesses and bankrupt individuals, requiring sophisticated defense from attorneys who understand both civil fraud litigation and parallel criminal investigation.