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PPP borrowers must beware of False Claims Act liability

On Behalf of | Jul 15, 2020 | Business Law

The trend is clear: The government is making PPP loans more and more stress-free.

First, SBA decided it would assume the truth of the “necessity” certification for loans under $2 million. Second, the government created safe harbors for the headcount calculation. Third, Congress expanded the 8-week forgiveness period to 24 weeks. In the next chapter, it appears Congress might grant blanket forgiveness of loans under $150,000.

But PPP borrowers and lenders cannot get sloppy, because there is one huge threat that looms: The federal False Claims Act.

The statute, also known as Lincoln’s Law, was passed during the Civil War, to prevent fraud by military contractors against the Union army. It allows private individuals to pursue “qui tam” claims against companies that do business with the government. It will apply to PPP borrowers if there is proof that one of the certifications made in order to obtain the PPP loan was false.

Why would a person file such a claim? Well, for a person with bad blood against his or her employer, it is a self-explanatory. But the False Claims Act gives a huge incentive for safeguarding government money: The individual filing suit will receive between 15% and 30% of the government’s recovery, plus attorney’s fees. There are additional penalties for the business, as well.

Take, for example, a $3 million PPP loan that an office employee knows was not permitted under SBA rules. That employee might blow the whistle on the borrower and receive up to $900,000 as a reward, if successful.

It is possible a false certification made by a lender concerning forgiveness could similarly result in liability.

Cavitch will be advising individual claimants, lenders and businesses on PPP matters, including the False Claims Act. Please feel welcome to contact me at [email protected].

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