In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act. The largest fiscal stimulus program in the U.S. to date, the CARES Act was designed to provide emergency financial assistance to millions of Americans suffering the economic effects caused by the COVID-19 pandemic.
One source of relief provided by the CARES Act was the authorization of up to $349 billion in forgivable loans to small businesses for job retention and other expenses through the Paycheck Protection Program (PPP). In April 2020, Congress authorized over $300 billion in additional PPP funding.
Overall, the PPP program has helped provide much-needed funds to America’s small businesses. However, analysis of PPP data by the Congressional Select Subcommittee on the Coronavirus Crisis has revealed potentially billions of dollars in fraud due to poor oversight. The main areas of fraud include companies receiving multiple loans, companies obtaining loans that were excluded from doing business with the government, and incorrect information in the database used by the federal government in the financial assistance process.
Whether businesses unwittingly made misrepresentations in their applications or knowingly cut corners or cheated in order to access funds, officials expect to see a rise in whistleblower claims alleging financial misconduct under the CARES Act. These whistleblowers may know if someone applied for multiple loans, misrepresented the state of a business, used fraudulent business records, or paid for personal expenses with PPP funds.
Whistleblowers typically alert the government about wrongdoing by an organization or individual, and they also are empowered to report claims of financial misconduct by private companies involving fraud and abuse. While they are often employees or former employees, they also can be individuals from outside a business or organization that gain insight to potential fraud and abuse, such as suppliers, vendors, and auditors.
A number of statutes allow whistleblowers to bring claims for financial misconduct, including the Sarbanes-Oxley Act, the Dodd-Frank Act, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the False Claims Act (FCA). In addition, 31 states have their own version of a False Claims Act, governing false claims submitted to state and local governments.
Enacted in 1863, the FCA empowers and incentivizes private citizens to report and deter fraud against the federal government. Under the FCA, a whistleblower can bring a claim against anyone who makes a false claim for payment to the government. The FCA allows the government to recover treble damages and statutory penalties for each violation, and gives whistleblowers the right to receive an award of between 10 and 30% of the total recovered.
The FCA and other similar statutes also protect whistleblowers from employment retaliation. The FCA defines retaliation as discharge, demotion, suspension, threats, harassment and any other manner of discrimination in the terms and conditions of employment. It gives whistleblowers the right to back pay, litigation costs and reinstatement, adding to existing protections against adverse employment actions under employment law.
Each year, whistleblowers help the government recover billions of dollars through FCA litigation. In 2019 alone, the U.S. Department of Justice (DOJ) recovered over $3 billion from FCA judgements and settlements, and 81% of those cases were initiated by whistleblowers.
These numbers are expected to increase substantially this year as the DOJ prioritizes fighting COVID-related fraud. A PPP fraud team began investigating potential cases almost as soon as the program started operating, and borrowers, banks and others involved should be aware that the government is encouraging whistleblowers with knowledge of wrongdoing to come forward. Anyone with information about allegations of attempted fraud involving COVID-19 can report it via the DOJ’s National Center for Disaster Fraud hotline (1-866-720-5721) or online at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form. Whistleblower claims could be extremely detrimental for businesses already struggling to recover from the economic impact of COVID-19. If you have questions or concerns about the CARES Act loan programs or whistleblower protections, please contact us at 973.707.3322 or LFarber@LFarberLaw.com.
The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.
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