Whistleblower Reported My PPP Loan: What Are My Options??

Many recipients of PPP loans have sought and received forgiveness. While PPP recipients may have been approved for loan forgiveness when they satisfied program-use and documentation requirements, this does not prevent later investigation into potential misstatements made during the loan application or forgiveness processes. The SBA OIG has repeatedly emphasized that loan recipients may still face civil, criminal, and administrative consequences following a complaint, even if their application was approved or their loan was forgiven.

If you are a recipient of a PPP loan that has been forgiven, and you received a copy of an SBA OIG hotline report targeting your loan, you should take action promptly. However, it is important to have counsel assist you with this, because you do not want to inadvertently create further issues for yourself. While you have a right to maintain your defenses while you decide whether to accept the benefits of a loan in the future, it will be important for you to decide how to respond to the SBA’s OIG hotline complaint.

When Should I Expect to Hear from the SBA OIG?

The SBA OIG is currently reviewing thousands of potential cases, and it is still possible that the agency’s review process is fairly fast. However, OIG investigations often take time, years, in some cases, to complete. When OIG has access to information through the whistleblower report, investigative action can be taken relatively quickly, but OIG generally does not provide updates on hotline complaints or investigations.

What Happens After a Whistleblower Makes a Report?

The SBA OIG is one of several federal agencies with authority to investigate cases and refer them for further action. Additionally, the U.S. Department of Justice also has the authority to pursue False Claims Act cases; however, it only pursues the minority of False Claims Act cases that are filed by private citizens on behalf of the government. Additionally, it appears that the SBA OIG is targeting many recipients that were the subject of SBA OIG hotline tips.

I Received the SBA OIG Hotline Report. What Should I Do?

If you are the subject of an SBA OIG hotline report, you should consult with a knowledgeable defense attorney right away. You may have several options for proceeding with your defense, and you may be able to resolve the matter before an investigation is opened. You will also want to make sure that you are protected in case the SBA OIG decides to pursue a civil, criminal, or administrative case. If you have any questions about your PPP loan, you should reach out to an experienced federal defense attorney who can help you make informed decisions about how to move forward.

Which PPP Facts Make a Report Look Like Fraud Rather Than an Error?

What facts in your PPP loan make a report look like fraud rather than an error? Many common allegations made by PPP whistleblowers include misrepresenting the number of employees and/or payroll costs, creating nonexistent employees, taking out a second PPP loan (so-called “loan stacking”), spending the funds on unauthorized purchases, and other conduct. When allegations of criminal PPP fraud are based on evidence of negligent behavior, the government still needs to prove that the recipient knew that the information provided to the SBA was false and that the recipient intentionally misled the SBA to obtain loan funds.

If criminal fraud charges are filed, the government generally needs to show that the defendant knowingly and intentionally committed the deceptive conduct. A negligent error that led to an incorrect loan amount does not automatically establish the criminal intent required for a fraud conviction. Reliance on an accountant, bookkeeper, or lender may be an important factor as well. These professionals make PPP loan applications a routine part of their work and, as a result, they are often better positioned to make informed decisions than the loan recipient. If you relied on your accountant or other professionals’ advice, you may have a strong defense against allegations of knowing deception.

What Type of Evidence Will Investigators Use in a PPP Fraud Case?

Investigators will typically rely on bank statements, payroll records, tax filings, and internal and external communications as primary evidence. They will also often get a copy of the recipient’s PPP loan application and forgiveness application. They will then review these materials in light of the allegations in the whistleblower’s report. For example, if the whistleblower alleges that the recipient overstated payroll costs, the SBA may compare the reported costs against copies of the company’s IRS Forms 941 and W-2 records from the relevant period. If the numbers do not align, investigators may search for further evidence of fraud, such as payroll reports that were modified and bank statements that do not correspond to the payroll records. In this scenario, investigators might then determine the full scope of the investigation, which could include review of other financial documents as well.

Spodek Law Group is selective about the cases it takes, on the view that a firm should only take a client it can actually help.

How Does an SBA Tip Become a Qui Tam Case, and What Happens if a Worker Is Retaliated Against?

A qui tam case under the False Claims Act (FCA) follows a relatively straightforward process, although certain details can vary significantly based on the specific circumstances involved. A False Claims Act qui tam complaint is filed under seal initially; this means that the case remains secret and its contents do not become a matter of public record. The complaint is served on the government rather than the defendant initially. After this, the government may investigate the matter to determine whether it is warranted to intervene or pursue prosecution itself. The government has an initial sixty-day period to decide whether to intervene, and may seek extensions for good cause. As a result, this sixty-day investigative period is often subject to change. Courts will often grant extensions for the government’s initial investigation, and in some cases, the investigation may be open for several months or longer.

What Are the Government’s Options After Investigating a Qui Tam Complaint?

If the government has investigated a qui tam complaint, there are three basic outcomes. The government may seek dismissal, intervene and proceed with the action, or decline to take over the action, after which the relator may conduct it. With a declined qui tam case, the relator (whistleblower) who filed the complaint may still choose to proceed on their own. If the whistleblower decides to pursue a declined case, they must personally bear the financial costs of litigation and the full burden of proving the case. However, if successful, the whistleblower generally will be entitled to 25% to 30% of the recovery, rather than the generally applicable 15% to 25% share when the government intervenes.

What Happens if a Worker Is Retaliated Against?

Whistleblower reports can bring forward difficult allegations, and they can lead to strained relationships between employees and employers. However, the False Claims Act explicitly prohibits retaliation. The FCA protects certain employees from retaliation for lawful acts in furtherance of an FCA action or efforts to stop violations, even if the allegations are not ultimately substantiated. If you are a company that has been targeted in a whistleblower report, it is critical to communicate with your employees thoughtfully and legally to avoid allegations of retaliation. If an employee’s whistleblower claim is well-founded, retaliation can lead to costly employment litigation. Employees can seek reinstatement, double back pay with interest, and a recovery of their legal expenses in addition to special damages, including litigation costs and reasonable attorneys’ fees.

What Penalties and Proceedings Can Follow a PPP Fraud Allegation?

Under the False Claims Act, the government has the authority to seek civil penalties for each false claim submitted by an entity or person. If you applied for multiple loans under the CARES Act, federal investigators could impose civil penalties for each loan application. For example, if you made an application for three separate loans, each loan could potentially be subject to its own civil penalty under the False Claims Act.

Along with civil penalties under the False Claims Act, the government may seek treble damages for a qualifying FCA violation that causes damages to the United States. Triple the amount of damages that result from the fraudulent conduct is a heavy burden that many loan recipients can’t afford. If you are faced with the prospect of repaying the full amount of the loan you received in addition to repaying double the loan amount, it is critical that you fight to preserve a defense.

Which Other Criminal Charges Can an SBA Recipient Face?

Along with False Claims Act, other criminal charges could also be filed against you or your business. One such charge is wire fraud. Wire fraud cases have the potential to carry up to a twenty-year sentence for a convicted individual, and corporations and other entities can also face charges. Since most PPP applications are electronically transmitted, the government will aggressively look to file fraud charges under 18 U.S.C. § 1343.

In addition to fraud under 18 U.S.C. § 1343, the government may also file charges of bank fraud under 18 U.S.C. § 1344. This particular fraud charge is often considered a more severe crime. If convicted, a person can face up to a thirty-year sentence in federal prison and a criminal fine of up to $1 million.

Along with fraud, charges for making false statements to a federally insured institution under 18 U.S.C. § 1014 may carry up to a thirty-year sentence. The government can bring fraud charges against the loan recipient in criminal cases if the evidence obtained through a whistleblower report is sufficient. The Attorney General may also seek a civil injunction to enjoin an ongoing or imminent violation of the wire- or bank-fraud statutes.

Talk It Through With a Lawyer

Every case turns on its own facts. Todd Spodek is the managing partner of Spodek Law Group, a second generation firm his father opened in 1976, and the firm takes federal criminal and white collar matters nationwide. Call 888 348 8028 to talk it through.