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The False Claims Act and the Paycheck Protection Program

The False Claims Act and the Paycheck Protection Program

The U.S. Small Business Administration (SBA) created the Paycheck Protection Program (PPP) to help small business owners through the difficult economic climate caused by the COVID-19 pandemic.

Essentially, the PPP provides loans to business owners to incentivize them to keep their staff on payroll. The more employees they kept on payroll, the more their loan would be forgiven in the future.

However, several businesses that did not qualify for the PPP decided to apply for it anyway. Additionally, some businesses that did qualify for the PPP used the funds from it improperly.

Below, our Sacramento attorneys discuss how the False Claims Act (FCA) fights against PPP fraud.

What is the False Claims Act?

The FCA is a Civil War-era statute that the federal government created to combat fraud in government contracts. And since the PPP essentially is a government contract, it’s covered under the FCA.

Therefore, the FCA creates liability for any business that knowingly submits a false claim or application for the PPP. Specific examples of PPP fraud include:

  • Applying for multiple PPP loans

  • Misrepresenting the immediate need for PPP funds

  • Submitting a fraudulent PPP application with falsified business records that understate the company’s true number of employees

  • Using more than 25% of PPP funds for non-payroll expenses, or using the funds to pay for large bonuses or incentive compensation for executives

  • Making layoffs after receiving PPP funds

The penalties for an FCA violation involves the government recovering:

  • A civil penalty between $5,000 and $10,000 for each false claim

  • Three times the amount of the damages suffered

  • The costs of any civil action the government brings to recover damages

Additionally, the FCA allows workers who are aware of their employers’ PPP fraud to bring whistleblower actions to the federal government. Such individuals may recover up to 30% of the funds recovered from any ensuing litigation.

It’s important to keep in mind that you are not at risk of retaliation from your employer for reporting their PPP fraud. Several federal laws protect whistleblowers’ rights, particularly in this situation.

However, the FCA requires legal representation in order to file a claim. If you know your employer committed PPP fraud, our team can help you through the process and protect your rights.

Contact Kershaw, Cook & Talley at (916) 520-6639 to schedule a free consultation with our team.

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