Paycheck Protection Program and Loan Fraud: DOJ’s Response
BY: Zachary Trombly, RBFL Student Editor
It’s been just over two years since the first outbreak of COVID-19 in the United States. Since early 2020, many small businesses who were crippled by mandated lockdowns and other COVID-related restrictions are still fighting to stay afloat while some have been forced to close their doors due to diminished revenues. In an effort to provide emergency relief to these businesses, Congress enacted The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which therein established one of the cornerstones of the act, the Paycheck Protection Program (“PPP”).
For the most part, the PPP was successful in increasing the overall health of the small businesses, as these loans allowed small businesses to stay operating during the height of COVID. At the same time, the enactment of the PPP also opened the door for many individuals attempting to game the loan system and engage in fraudulent activity. As a result of this fraudulent activity, the Department of Justice (“DOJ”) and federal government have ramped up their efforts in combating this type of fraudulent activity through various measures.
The primary way the DOJ has pursued cases of PPP loan fraud is by reverting back to their playbook for dealing with mortgage fraud cases, most notably the ones around the 2016 financial crisis. The primary statutory schemes in these cases were the use of the False Claims Act (“FCA”) and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). While each of these statutes have their own pros and cons, they are typically used concurrently by the DOJ to pursue civil resolutions and damages for PPP fraud. For example, on January 12, 2021, the DOJ obtained its first civil resolution in the In re Slidebelts Inc. case out of the Eastern District of California. In this case, Slidebelts, an internet fashion retailer, and its CEO paid $100,000 in damages after fabricating information on their application in order to receive a larger loan through the PPP program. In prosecuting Slidebelts, the DOJ relied on both the FCA and FIRREA statutes, determining they had enough evidence to meet the elemental test of the FCA and the additional requirements of FIRREA. Since Slidebelts, the DOJ has continued to rely on these two statutes in prosecuting PPP fraud and have prosecuted over 500 individuals with over $569 million dollars being implicated in these fraudulent schemes.
Outside of statutory schemes used by the DOJ, the federal government has also instituted various efforts to resolve current fraud cases and safeguard from future ones. Attorney General Merrick Garland announced the DOJ would be taking a “historic enforcement initiative to detect and disrupt COVID-19 related fraud schemes,” and has subsequently prosecuted individuals at a historic rate through the Criminal Fraud Division of the DOJ. Assistant Attorney Brian C. Rabbitt also announced that data analytics would play an important role in safeguarding and detecting future fraud cases. The details around this approach have not been released to the public but Rabbitt mentioned they have leveraged their analytical tools with other state and federal agencies to detect cases of fraud.
SOURCES:
Kathy Gurchiek, Small Businesses Get Creative to Survive During the Pandemic, Soc’y For Hum. Res. Mgmt. (Sept. 19, 2020), https://www.shrm.org/hr-today/news/all-things-work/pages/small-businesses-get-creative-to-survive-during-the-pandemic.aspx [https://perma.cc/4YGJ-565H].
Coronavirus Aid, Relief, and Economic Security (CARES) Act, Pub. L. 116-36. 134 Stat. 286 (codified as 15 U.S.C. § 116).
Derek Adams, United States: Trio of DOJ Civil Resolutions Under the Paycheck Protection Program are the Tip of the Iceberg, Potomac L. Grp. (June 25, 2021), https://www.mondaq.com/unitedstates/white-collar-crime-anti-corruption-fraud/1083648/trio-of-doj-civil-resolutions-under-the-paycheck-protection-program-are-tip-of-the-iceberg [https://perma.cc/54AX-PU6N].
Press Release, Department of Justice, Combating Mortgage Fraud (Nov. 9, 2009), https://www.justice.gov/archives/opa/blog/combating-mortgage-fraud [https://perma.cc/SP5J-JRPW].
Press Release, Department of Justice, Justice Department Takes Action Against COVID-19 Fraud (Mar. 26, 2021), https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud [https://perma.cc/A7XL-WTE5].
Press Release, Department of Justice, Eastern District of California Obtains Nation’s First Civil Settlement for Fraud on Cares Act Paycheck Protection Program (Jan. 12, 2021), https://www.justice.gov/usao-edca/pr/eastern-district-california-obtains-nation-s-first-civil-settlement-fraud-cares-act.