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Working With Employees, Entrepreneurs And Startups
Across Wisconsin And Nationwide

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Blowing the whistle on PPP loan fraud

| Mar 25, 2021 | Whistleblowing |

The Paycheck Protection Program (PPP) has provided U.S. small businesses and their employees an essential lifeline during the COVID-19 pandemic. Like any large-scale government funding program, however, it has also created the potential for fraud and abuse.

With the help of an experienced whistleblower rights law firm, employees and other individuals who have information about businesses that fraudulently received or misused PPP loans may receive financial compensation by blowing the whistle on the misconduct.

PPP loan limitations

PPP loans come with restrictions, most notably limitations on which businesses qualify for them and how the loan proceeds can be used.

Broadly speaking, only small businesses are eligible for PPP funding. The Small Business Administration (SBA), which administers the PPP, defines small businesses in most cases as those with no more than 500 employees (although the Program currently focuses on those with fewer than 20 employees).

Recipients of loans can only use the funds to pay for permitted expenditures.  At least 60% of PPP loan proceeds must be spent on payroll, benefits, and employment taxes. The remaining 40% can only be used for:

  • Mortgage interest
  • Rent and utilities
  • Software and similar IT upgrades, such as those to facilitate remote work or online order processing
  • Property damage related to looting and rioting
  • Restocking inventory
  • Expenses related to coronavirus safety measures

Potential PPP fraud

Fraud can occur when a business makes or benefits from false statements in connection with obtaining or using PPP loan funds. For example, it may constitute fraud on the PPP to:

  • Misrepresent the number of employees of a business in order to claim eligibility for a PPP loan.
  • Create false or misleading financial records to secure a PPP loan.
  • Funnel PPP loan proceeds to business owners or insiders through sham transactions.
  • Disguise or misrepresent the use of PPP loan proceeds in business records, such as by inflating or inventing expenses to hide misuse of funds.

These are just a few examples. Any false statement made to the government or a lender related to securing or spending PPP funds may amount to fraud.

Blow the whistle on PPP fraud using the False Claims Act

Defrauding the government or a government-backed lender is a crime. A federal law called the False Claims Act gives individuals who have information about PPP-related fraud the ability to receive financial compensation for stepping forward and blowing the whistle.

Securing compensation as a False Claims Act whistleblower involves filing what is known as a qui tam lawsuit. With the help of an experienced attorney, the whistleblower (called a relator in these lawsuits) files a confidential complaint in a federal court and sends a copy to the government. The government has the option of taking over the lawsuit or declining to pursue it. If the government declines, then the whistleblower may pursue the lawsuit on the government’s behalf.

In either case, if the lawsuit succeeds in recovering money on the government’s behalf, then the law entitles the whistleblower to receive a portion of the money recovered, ranging from 15% and 30% depending on the circumstances.

The False Claims Act serves as a powerful tool for ordinary citizens who have information about fraud on the PPP to hold businesses accountable for fraud and abuse, and to receive potentially-significant financial compensation for their efforts.