“Free Money”, the PPP – the Risks of False Claims and Insolvency

Many people, businesses, and communities have adversely suffered the physical and economic impact of COVID. The government through emergency legislation offered a great deal of money to temper the tide of furloughs and layoffs, but the purse strings come with ever-evolving conditions and various levels of scrutiny. The Department of Justice has already stepped in and arrested individuals who were allegedly engaged in some COVID-related scams including price gouging, touting of fake cures, and offering products that it did not have. Those were allegedly outright frauds, but in order to catch some of the more subtle frauds, the system relies on whistleblowers.

The myth of free money

The government’s money is not from the government. It is from the taxpayers. Nothing is free. If anyone watched the 2016 Marvel movie Dr. Strange, at the end Strange parts ways with his ally, Mordo, who is upset with Strange’s magical use of the time stone and his abuse of the rules of the time-space continuum, confronting him with the fact that, “The bill always comes due.” In contrast to the magic in the movie, money doesn’t magically appear from nowhere. Someone ultimately pays for it, and in fact at the end of the day all of the stimulus money, business loans, and grants will be borne by the taxpayer. Taxes and/or inflation will rise and/or services will have to be cut to balance budgets or else the system will collapse.

Straining the system with the PPP

As if the system isn’t strained enough there’s one force that inextricably weakens the system even further, and that is people’s love of money and their greed, which inevitably leads to fraud, especially when they perceive there’s “free money” for them. One of the most interesting emergent programs created was the Payroll Protection Program (“PPP”)[1]. It is a fascinating program conceptually put together since many businesses had to shut or interrupt. The PPP was meant to keep businesses afloat, so they wouldn’t have to lay workers off or even furloughs workers. It attempted to address the challenges businesses are encountering by offering a low interest loan (1% over 2 years) that is forgiven to the extent that the money is used for 75% payroll and for rent and certain other itemized essentials. A noble intention, but where this is nobility the flip side is ambivalence and to some extent malevolence. The malevolence will manifest when businesses reap the money without utilizing it for its intended purpose, yet falsely claim to the government that it was expended in that manner.

Whether by malevolence or ambivalence, fraud strains the system and there must be accountability. Inherently in the PPP, it cautions the beneficiaries that utilization of the program will subject the beneficiary to criminal penalties if the funds are not used properly. In addition to the criminal penalties, misuse of the funds may also give rise to Payroll Protection Program whistleblower litigation under the False Claims Act (“FCA”). Under the FCA, if an individual blows the whistle on an entity defrauding the federal government, then they may be entitled to up to 30% of the government recovery and the government may be entitled to up to triple damages. With the PPP going up to $10 million dollars, that may result in a $30 million penalty and potentially up to a $9 million dollar whistleblower award for holding an unscrupulous company accountable. But therein lies the contradiction. While there may be a proliferation of FCA cases regarding PPP malfeasance, businesses facing economic challenges are unlikely to have the solvency to pay back even the principal, much less the fines. Businesses are encouraged to seek guidance regarding the labyrinthine regulations that keep changing before they find themselves in a PPP quagmire that no sorcery will extricate them from. If the government can’t extract its pound of flesh fiscally for the violation, it will make an example of some entities criminally to publicize the face of villainy.

Jason T. Brown is the head of the firm Brown, LLC and a former FBI Special Agent and Legal Advisor. A focus of the firm is litigation under the False Claims Act.

[1] https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

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