In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to provide much-needed relief to government contractors and other private businesses. As part of the CARES Act, the U.S. Treasury Department and Small Business Administration (“SBA”) implemented the Paycheck Protection Program (“PPP”) to provide loans to qualified small businesses that needed money to pay their employees, mortgages, rent, and utilities. To receive PPP loans, small businesses were required to submit applications proving their eligibility.
Not long after passage of the CARES Act, the U.S. Department of Justice (“DOJ”) began to investigate and prosecute, under the False Claims Act, (“FCA”) what they perceived to be fraudulent PPP loans. Convictions began rolling in—federal contractors, private businesses, and individuals, small businesses were all in the line of fire. For example, convictions were based on the use of PPP loans for personal purposes, submission of applications containing incorrect or false information, and “double-dipping” by seeking reimbursement for costs paid through another source of federal funds.
Government contractors at risk of conviction for fraudulent activity related to the receipt of PPP loans may face a host of consequences, including among other things:
- Criminal charges. The DOJ has brought criminal charges against individuals involved in PPP-related fraud. Recently, a California federal jury convicted an individual for submitting fraudulent applications for PPP loans among other offenses. He is facing up to thirty years in prison.
- Civil penalties. By using the FCA as an enforcement mechanism, the DOJ has filed lawsuits against businesses and individuals for PPP-related fraud. If convicted, contractors are liable for treble damages plus a penalty that is linked to inflation.
- Suspension or Debarment. A contractor that is convicted of fraud in connection to PPP loans may be suspended or debarred. Suspension or debarment disqualifies contractors from bidding on future contracts and participating as subcontractors, prevents contractors from renewing existing contracts with the government, and precludes contractors from obtaining certain federal assistance, among other serious consequences.
While some contractors have faced convictions tied to intentional fraudulent activity, others have found themselves in hot water for unintentional mistakes that trigger a fraud inquiry. If you are a contractor that has been accused of PPP-related fraud, it is important that you consult an experienced and knowledgeable attorney.
Written by Senior Counsel Laura Berry and Associate Saroja Koneru