SBA Oversight Under Scrutiny as Borrowers Secure Nearly 7,000 Potentially Fraudulent PPP and EIDL Loans Worth $400M

by Matthew P. Suzor and Quintin C. Cerione

On January 1st, Small Business Administration (SBA) Administrator Kelly Loeffler announced on X that the agency suspended “6,900 Minnesota borrowers” over suspected fraudulent activity regarding the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) payouts. Loeffler reported that these loans are worth “approximately $400M.” This article will explore PPP EIDL programs, relevant fraudulent claims in Minnesota, and how these illegally acquired loans violate the False Claims Act (FCA).

How were nearly 8,000 PPP and EIDL loans fraudulently obtained?

PPP and EIDL loans were introduced under the first Trump Administration during the COVID-19 pandemic to help provide financial relief to small businesses. The PPP supplied small businesses with funding covers up to 8 weeks of payroll costs including benefits. Similarly, EIDL programs were designed to provide loans to support small business recovery from the pandemic’s economic impacts.  During the pandemic, businesses applied for these loans through banks, which acted as intermediaries for the SBA. Currently, it is unclear how 6,900 Minnesota borrowers were able to obtain such loans. Loeffler has not provided any additional details but affirmed that efforts to crack down on this style of fraud will continue, writing on X, “This is just the first state.” Additionally, Loeffler made it clear that fraudulent borrowers would be banned from all SBA loan programs.

How does this case reflect broader failures in COVID-19 relief oversight?

Claims of fraud within the PPP and EIDL programs are not unique within larger COVID-19 relief funding, but are part of a greater issue with which the government has been grappling since the end of the pandemic. According to a 2024 report from the United States House Committee on Oversight and Government Reform, federal and state governments “failed to sufficiently identify waste, fraud, and abuse of taxpayer dollars during the pandemic.” In that same report, it was noted that the PPP was “a rifle with fraudulent claims resulting in at least $64 billion of taxpayers’ dollars lost to fraudsters and criminals.” The Committee, furthermore, stated that the failures of the SBA, reporting that $200 million of taxpayer dollars were lost as a result of the SBA’s inadequate oversight. The most recent case of fraud in Minnesota signals the potential for more instances of pandemic-era fraud to be uncovered in the coming months.

How does fraudulently obtaining PPP or EIDL loans constitute a violation of the False Claims Act?

Fraudulently obtaining PPP or EIDL loans are direct violations of the False Claims Act. The FCA is designed to prohibit people from knowingly submitting false claims for payment to the government – ultimately to prevent fraud against the government. Notably, the FCA has a qui tam provision, allowing private citizens (relators) to file lawsuits on behalf of the government and can receive a percentage (15%-30%) of recovered damages.

Although the SBA has not shared how Minnesota borrowers illegitimately acquired their loans, PPP loan fraud can happen in a number of ways. For example, those applying for PPP loans may misrepresent or make false and misleading statements on their application, ultimately misrepresenting the financial state of a company. Loan applicants inappropriately spending loan funds for unapproved purposes or applying for multiple loans would also be conducting fraudulent behavior. If the previously mentioned Minnesota borrowers received their loans through fraudulent methods, they are likely in violation of the FCA and may be subjected to legal action.

What should you do if you suspect PPP or EIDL Loan fraud?

If you suspect PPP Loan fraud, there are legal avenues for you to pursue under the FCA. The first step one should take is to report fraud, which would be to file a qui tam whistleblower lawsuit under the FCA. This allows citizens, also known as relators, to file lawsuits on behalf of the U.S. government. To do this, it is best to contact an experienced False Claims Act attorney – like the highly specialized lawyers at Miller Shah LLP – to evaluate your claims and discuss the best course of action.

It is important to note that the FCA has a “first-to-file” rule, which allows only the individual who first filed claims of fraud to receive rewards from the damages. The FCA enables whistleblowers to receive up to 30% of recovered funds if the suit is successful, making it prudent for those who suspect PPP Loan fraud and other types of fraud against the government to speak to an FCA attorney as soon as possible.