The Evolution of Whistleblower Lawsuits in PPP Loan Fraud

by Rrita Osmani and Samuel Indermaur

What is PPP Loan Fraud?

In the heat of the Covid-19 pandemic, the U.S. Congress passed the Coronavirus Aid, Relief, and Economic Security Act, more widely known as the CARES Act, to provide emergency assistance and health care response for individuals, families, and businesses affected by the pandemic. The Act established the $953 billion Paycheck Protection Program (“PPP”) to allow afflicted entities to apply for low-interest private loans to cover payroll, rent, and additional costs.

An approved PPP loan provided the business up to 2.5 times the applicant’s average monthly payroll costs. To have qualified for PPP benefits, “small business” size was requisite. Businesses generally needed to have no more than 500 employees, with varying standards in specified industries. The program was administered by the Small Business Administration (“SBA”), and the final application date was May 31, 2021.

Between April 2020 and May 2021, approximately $800 billion were granted in PPP loans. During the program’s duration, over 8.5 million employers received PPP loans to cover costs. As time passed, fraud detection rates increased. On February 10, 2021, the SBA issued a checklist of red flags under its third and final funding round. Initially, lenders authorized PPP loans without prior SBA review. The approved loans were screened post hoc to identify potential abuses.

By 2021, the SBA began conducting front-end compliance verifications on loan applications. If a business did not meet the eligibility requirements, it would be flagged and prompted to submit evidence to the contrary. Applicants were flagged for possessing a criminal record, filing bankruptcy, business inactivity, exceeding the employee count threshold, and being an unauthorized business, among other reasons.

The Office of the Inspector General (“OIG”) reported over 70,000 loans totaling more than $4.6 billion with potentially fraudulent claims. To combat such abuses, the SBA established the Fraud Risk Management Board to prevent, detect, and respond to risks of fraud. On August 5, 2022, under President Biden, Congress passed a law that established a 10-year statute of limitations for criminal charges and civil enforcement against fraudulent PPP borrowers as per the PPP and Bank Fraud Enforcement Harmonization Act of 2022.

Whistleblower Lawsuits involving PPP Fraud

Federal whistleblower claims are processed under the False Claims Act (“FCA”). The Act enables a private individual (the “Relator”) to file a lawsuit on behalf of the government when in possession of evidence that a company or individual has fraudulently obtained government funding. The FCA imposes treble damages, a statutory penalty adjusted for inflation, the government’s litigation costs, and expenses, attorneys’ fees, and costs of the whistleblower (known in FCA cases as the “Relator”) on a liable defendant.

While the current count of PPP fraud cases filed under the FCA is unknown, by January 2022, the Department of Justice (“DOJ”) had prosecuted over 150 defendants accused of PPP fraud and secured more than $75 million through recovery efforts.

Under the FCA, individuals who file whistleblower actions are protected from employer retaliation, including threats of demotion, suspension, or termination of employment.

How long do I have to report PPP loan fraud?

As per the PPP and Bank Fraud Enforcement Harmonization Act of 2022, a 10-year statute of limitations for criminal charges and civil enforcement exists against a borrower who engages in fraud with respect to a Paycheck Protection Program loan. Therefore, an individual has up to 10 years following the initial date of fraud to file an FCA PPP case.

What rewards can whistleblowers receive for exposing PPP loan fraud?

Relators in successful FCA cases are entitled to receive a percentage of the amount the government recovers. This percentage can be as high as 30% in instances where the government declines to intervene. If the government chooses to intervene, they will take over the case, and the Relator receives between 15% and 25% of the settlement’s damages.

Why choose Miller Shah LLP for a PPP loan fraud whistleblower case?

Bringing whistleblower actions against an individual or company for committing PPP fraud can be intimidating and overwhelming. It’s important for a whistleblower to know their rights and protections. Miller Shah LLP has provided extensive assistance to whistleblowers in numerous FCA cases. Please contact us if you would like to file a complaint involving PPP fraud.