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- PPP Loan Deadline May Be Extended as SBA Issues New Rules Relating to Loan Forgiveness and Eligibility
- California Looks to Pass Legislation Concerning Business Interruption Coverage Due to COVID-19
June 29, 2020
June 22, 2020
- PPP Loan Forgiveness Application Forms Updated and Streamlined
- Nevada Division of Insurance to Disallow Policy Exclusions Related to COVID-19
- CDI Announces New Order Regarding Workers’ Compensation Premium Savings for CA Businesses Affected by COVID-19
june 15, 2020
june 10, 2020
- Note to the SBA: Debtors in Bankruptcy Are Eligible for PPP Loans
- California Modifies the Tolling of Statutes of Limitations in Civil Cases
june 8, 2020
June 4, 2020
may 29, 2020
may 28, 2020
may 27, 2020
- Hoteliers Beware: a Return to Business Post-Pandemic Brings With It Potential Legal Liability
- House Contemplates Revisions to the Paycheck Protection Program
may 15, 2020
may 14, 2020
- U.S. House Democrats Introduce HEROES Act, a New $3T Stimulus Package
- SAFE Banking Act for Cannabis-Related Businesses Included in the HEROES Act
may 12, 2020
may 8, 2020
- Treasury and the SBA Issue Guidance Regarding the Employee Retention Credit
- Businesses Reopen in Los Angeles County as Stage 2 of California’s Statewide Plan Begins
- Update: Large Employers Required to Pay Coronavirus-Related Sick Leave Under New L.A. County Ordinance
may 6, 2020
- SBA Extends PPP Certification Safe Harbor to May 14
- EPLI Insurance and Employee Benefits in the Age of the Coronavirus
may 5, 2020
- Update: PPP Guidance Issued by the SBA and U.S. Treasury at Odds With the CARES Act—Michelman & Robinson Files First-of-Its-Kind Lawsuit Challenging FAQs
- NAIC Issues Business Interruption Data Call in the Wake of COVID-19
may 4, 2020
may 1, 2020
april 29, 2020
- Planning for Your Employees' Return to the Workplace
- Los Angeles Hospitality Workers Among Those Thrown a Potential Lifeline
april 24, 2020
- Attention Cannabis Businesses: Hope May Be on the Horizon for Federal COVID-19-Related Relief
- California Department of Insurance Issues Notice Granting Tax-Filing Extension in Response to COVID-19
- SEC Approves Amendments to Nasdaq and NYSE Continued Listing Requirements Due to the COVID-19 Pandemic
April 23, 2020
april 21, 2020
- Additional Funding Is on the Way to Resurrect the PPP
- Certifying Your PPP Loan: Proceed With Caution
april 17, 2020
april 16, 2020
- Employment in the Wake of Coronavirus: EEOC and OSHA Guidance Allows Employers to Go Where They Could Not Go Before
- New Yorkers Ordered to Stay at Home Even Longer Amid the COVID-19 Crisis
- Paycheck Protection Program Funds Exhausted
april 15, 2020
April 14, 2020
- Insurance Companies Have Been Ordered to Provide COVID-19-Related Premium Relief to Businesses and Drivers in California
- What to Do If Your New York Business Has Been Deemed Non-Essential
APRIL 13, 2020
- IP Deadlines and Fees Extended Under the CARES Act
- Employment in the Wake of Coronavirus: Reintegrating Your Workforce in the New Normal
APRIL 10, 2020
- You Successfully Applied for and Received a PPP Loan Under the CARES Act: Now What?
- Safer at Home Order in L.A. Extended to May 15
- Maintaining Your Trade Secrets During the Coronavirus Crisis
APRIL 9, 2020
april 8, 2020
- Congress Looks to Bolster the PPP With Another $250B in Funding
- U.S. Treasury Provides Further Guidance to PPP Borrowers and Lenders
- L.A. Mayor Amends COVID-19-Related Paid Sick Leave Ordinance
april 7, 2020
April 3, 2020
april 2, 2020
april 1, 2020
March 31, 2020
march 30, 2020
- Large Employers Required to Pay Coronavirus-Related Sick Leave Under New L.A. Ordinance
- Insurance Coverage Potentially Triggered by COVID-19
- Attention Insurers: CDI Orders Mandatory Call for Business Interruption Coverage Information in the Wake of COVID-19
- DOL Is Requiring Employers to Post Families First Employee Rights Notice
March 27, 2020
- A Comprehensive Guide to Understanding Coronavirus-Related State Assistance Programs: Who is Giving What to Whom (Part II)
- HHS Relaxing Enforcement of HIPAA to Facilitate Sharing of Information During the COVID-19 Crisis
March 26, 2020
march 25, 2020
march 24, 2020
- Navigating the Coronavirus Pandemic: a Critical Business Review Checklist
- SBA Loans for Companies Impacted by Coronavirus
- SEC Relaxes Federal Proxy Rules for Annual Meetings
march 23, 2020
- Federal Reserve Responds Boldly to Coronavirus-Related Economic Downturn
- The Number of Jurisdictions Implementing Stay-at-Home Orders Is Increasing Exponentially
- Michelman & Robinson’s Guide to Coronavirus-Related Paid Sick Leave and Unemployment Insurance Laws in the Tri-State Area
MARCH 21, 2020
MARCH 20, 2020
- New York Governor’s PAUSE Order
- Illinois Governor’s Statewide Stay-at-Home Order
- Force Majeure Clauses in Commercial Real Estate Contracts
MARCH 19, 2020
- SEC Provides Regulatory Relief for Public Reporting Companies
- Student Loan Borrowers Can Breathe a Sigh of Relief, At Least Temporarily
- California Governor's Statewide Stay-At-Home Order
MARCH 18, 2020
- "Shelter in Place" Orders
- Telecommuting in the Age of Coronavirus
- Families First Coronavirus Response Act Just Passed by the Senate and Signed Into Law by the President
MARCH 17, 2020
MARCH 16, 2020
MARCH 5, 2020
PPP Loan Borrowers At Risk for Potential Federal False Claims Act Liability
BRYAN JOHNSON, SAMUEL LICKER
OCTOBER 12, 2020
As if the COVID-19 pandemic and its impact on small businesses have not been enough of a stressor and burden, these entities could face potential liability under the False Claims Act to the extent they have obtained Paycheck Protection Program (PPP) loans. That is right, it is possible that such liability will attach by virtue of the good faith certifications PPP borrowers were required to make to receive federal funding. Michelman & Robinson explains.
The False Claims Act (FCA)
The FCA, intended to combat fraud on the U.S. Government by subjecting wrongdoers to civil liability, was a popular tool in response to scheming in the wake of the 2008 financial crisis. The law is expected to make a resurgence in the aftermath of the PPP.
Indeed, a PPP borrower may end up on the wrong side of an FCA action if it: (1) knowingly presented a false claim for payment to the U.S. Government; (2) knowingly made or used a false record or statement material to such a false claim; (3) knowingly concealed, avoided, or decreased, or made a false statement material to, an “obligation” to the U.S.; or (4) conspired to commit a violation of the FCA. Of note, no specific intent to defraud is required to trigger an FCA action, though negligence is not enough, and the person or entity under scrutiny must have actual knowledge, be deliberately ignorant, or recklessly disregard the truth or falsity of information provided in furtherance of the PPP loan in question.
Running afoul of the FCA can be very costly. Remedies under the statute include (1) treble actual damages (yet damages are not required to prove liability), (2) attorneys’ fees and costs, and (3) civil penalties of between $11,665 and $23,331 per claim—this in addition to the chance that participation in the PPP may be terminated, applicable licenses could be revoked, and the individual or entity involved might be liable for the costs of responding to the FCA action.
It gets even riskier for would-be PPP fraudsters: private citizens (coined “Realtors”) may file whistleblower or qui tam actions on behalf of the U.S. and pursue FCA claims without direct Department of Justice involvement. As incentive, Realtors are protected from retaliation under the FCA and entitled to between 15 and 30 percent of amounts recovered. Likewise, the shadow of an FCA action can linger—the statute of limitations is up to 10 years from the violation.
PPP Loan Certifications That Could Prompt an FCA Action
When applying for PPP loans, borrowers had to certify in good faith that (1) “current economic uncertainty” made their loans “necessary to support ongoing operations”; (2) the funds were only to be “used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments”; and (3) they had not taken out any other PPP loans. The certifications do not stop there—additional ones must be made when seeking loan forgiveness.
To complicate matters, the Small Business Administration, in tandem with the U.S. Department of Treasury, issued subsequent guidance (in the form of FAQs and Interim Final Rules) that served to modify the borrower certifications, narrow the scope of eligibility for PPP loans and loan forgiveness, and restrict what the PPP proceeds could be used for. More specifically, the SBA and Treasury (1) imposed certain restrictions on small businesses having liquidity elsewhere (a provision that was specifically waived in the CARES Act); (2) made clear that borrowers must be able to show that their loans were necessary; and (3) implied that a thorough assessment as to economic need would be required.
What is clear is that the PPP certification mandate is comprehensive, and any borrower that has falsified them, knowingly or otherwise, could face an FCA action.
FCA Enforcement
When it comes to COVID-19 related enforcement of the FCA, the U.S. Government has its proverbial ducks in a row. Attorney General William Barr has authorized a Special Investigator General for Pandemic Recovery, the Comptroller General Gene Dodaro has been given authority to monitor and audit the use of funds disbursed under the CARES Act, and the FBI may be mobilized to oversee related investigations. Further, Congress has created an Oversight Commission along with a Pandemic Response Accountability Committee.
That being said, FCA enforcement actions may be brought by the DOJ or Realtors against small businesses that (1) make fraudulent statements in PPP loan and/or loan forgiveness applications (including falsifying supporting documents or, more importantly, certifications); (2) misrepresent the number of individuals they employ and/or payroll expenses; or (3) use PPP funds for non-approved purposes.
Avoiding FCA Liability
While not an exhaustive list, some best practices to avoid liability under the FCA include:
- Documenting all communications with the SBA or other federal agencies as they relate to PPP eligibility and, if applicable, FCA compliance
- Maintaining separate documentation relative to PPP proceeds and the purpose for which these funds are spent, keeping funds from other business accounts segregated, if possible
- Staying up-to-date on COVID-19 legislation and related guidance and updates
- Observing corporate formalities and accounting protocols, especially regarding the use of federal funds and implementation of compliance programs
- Regularly communicating with your bank/lender and legal counsel regarding FCA compliance
As always, M&R is prepared to provide advice and counsel concerning any of your COVID-19-related legal needs, including the FCA and PPP. Do not hesitate to contact us to learn more about our COVID-19 Practice Group.
We are working diligently to keep our clients up to date on coronavirus-related developments. Nevertheless, these developments are changing daily and, in some cases even hourly, so it is important that you make sure you are dealing with the most current information. That being said, this alert is not offered, and should not be relied on, as legal advice. You should consult an attorney for guidance and counsel regarding any specific concern or situation.