There is little doubt that the PPP Program has seen its share of fraud. Most of the fraud, however, seems to be intentional and criminal. Buying a new Ferrari and a vacation home in Las Vegas likely does not fall within the PPP guidelines. Nor does misrepresenting the size or even the existence of a corporate entity and making up information certified on an application for PPP funds and then submitting it for consideration.
While there have been numerous reports of this type of plainly illegal conduct, there is no doubt there will be more and more as the SBA’s audit process continues. And as, in some cases, whistleblowers come forward. Many of whom may have participated in the PPP fraud they are reporting and others blowing the whistle on a former or current employer. These cases, when proven to be factually true, are easy ones for the United States Attorney’s office on the criminal side. But there will also be the cases where a whistleblower contacts a lawyer with an eye towards commencing an FCA case and profiting from the as-of-yet undetected fraud.
What should an FCA lawyer do when one of those cases walks in the door? The initial reaction is “take it” because it might be easy. That may not be the right answer. Here are some reasons why.
First, take a hard look at the defendant and whether there is anything there to collect even in the case where the relator can prove egregious fraud (see above). Professional fraudsters don’t often keep the money. They buy things. And most of the time, are unable to pay a civil judgment, especially after criminal forfeitures and restitution.[1] So, consider whether there is a recoverable defendant at the end of the case. Simply put 15% of nothing is nothing. So unless counsel is doing these cases for a hobby, collectability is something to really think about where the fraud is obvious and likely criminal.
Second, the PPP program was an enormous undertaking, cobbled together in a very short period of time, and as a result, was constantly changing, sometimes in the middle of the night when new regulations or advice was issued by the SBA. So what may appear to be fraud, may well need to be tempered by what the rules say, what changes were made, and what a particular defendant thought was correct at the time. In short, you are not going to win any PPP False Claims Act cases for technical oversights, random misapplication of funds, or even sloppy accounting. The US Attorney’s offices will be busy enough with outright criminal fraud cases and will likely not want to be bothered with marginal cases where there are possible intent defenses and where the SBA’s constant modification of the program will be in play.
Remember, too, US Attorney will also look to collectability. If the fraud is egregious, and the defendant has no real financial substance, good luck. The US Attorney’s office will not be interested in that case, either. It will be a criminal case, perhaps some jail time, a large restitution judgment, and done.
PPP loans are typically in the neighborhood of $5-$6 million dollars. Some less and some more. Assume all of it is fraud and the defendant is collectable, and assume, hypothetically, a settlement with a relator is made for double damages.[2] So let’s say the recovery is $12 million dollars. A relator’s share of 15% of $12 million is $1.8 million dollars. If relator’s counsel has a 1/3 contingency (I pick 1/3 to make the math easy), the case generates a $600,000 premium and the possibility of recovering some attorney’s fees. That is in a perfect world in a large PPP case. When everything goes right, when the US Attorney is interested, when the proof is solid, and when the defendant is totally collectable at the level of double damages as seen in settled cases.
The question is simple. Is the chance of a $600,000 premium in a perfect world the type of case that a wise FCA firm will want to take in lieu of other more-profitable opportunities that may come into the office in the meantime?
In short, look not only at collectability, but also at what a likely settlement might be in an absolute perfect world. Then discount that number substantially for what usually happens.
Bottom line, there is a lot of work to be done before taking a PPP case which, on its face and at initial intake, might look easy. The US Attorney’s office will examine the same factors as FCA counsel should, including collectability and whether there is fraud or not in light of the ever-changing program requirements. Relying on the alternative remedy section of the statute in cases where the disclosed matter is prosecuted criminally is not good a bet, either. The law is uncertain, and the criminal defendant may well have the same collectability issues. And both might result is in a meager recovery, if any.
[1] While the alternative remedy provision of the FCA may be helpful, it generally is a long way around the mountain, and the cases addressing that section are sparse.
[2] Note this is a hypothetical. It will likely not be that easy.