Whistleblowers have played a role in helping uncover billions of dollars in COVID-19 recovery fraud, and it appears the government thinks there’s a lot more to claw back.

The statute of limitations for civil and criminal fraud enforcement on the Paycheck Protection Program and the Small Business Administration’s COVID-19 Economic Injury Disaster Loan programs were recently extended to 10 years after President Biden signed two bills into law in August. 

“Anyone who defrauded these critical relief programs must be held accountable,” said U.S. Rep. Nydia M. Velázquez (D-N.Y.), chairwoman of the Committee on Small Business. “These bipartisan bills will ensure law enforcement agencies have the time they need to bring fraudsters to justice.”

The PPP, an $813.7 billion program, provided fully guaranteed SBA loans for eligible small businesses, individuals, and nonprofits adversely impacted by the pandemic. PPP loans can be forgiven if used as required by the law – eligible expenses included payroll, rent, utility payments, and other limited uses.

Borrowers completed applications including good faith certifications, submitted them to lenders for approval, and once approved, the SBA issued a loan number and the lender disbursed the approved funds. Because borrowers submitted information to banks on applications, they can face bank fraud charges for using false documents or securing loans on false pretenses.

That’s what happened to a 53-year-old California man convicted in a $27 million PPP fraud scheme in March. According to federal prosecutors, he submitted 27 PPP loan applications to four banks, claiming he had eight companies, each with 100 employees and an average monthly payroll of $400,000. That, the jury found, was not true. And instead of using the PPP money for payroll expenses, evidence showed the defendant used it for personal expenses, payments on his personal credit cards, transfers to other personal and business accounts he controlled, and renting an oceanfront apartment in Santa Monica.

“The Small Business Administration, in sending that money out, basically said to people, ‘Apply and sign and tell us that you’re really entitled to the money,’” Department of Justice inspector general Michael Horowitz, chair of the Pandemic Response Accountability Committee, told NBC News in March. “And, of course, for fraudsters, that’s an invitation. … What didn’t happen was even minimal checks to make sure that the money was getting to the right people at the right time.”

A SBA inspector general report found the SBA did not have an organizational structure with clearly defined roles, responsibilities, and processes to manage and handle potentially fraudulent PPP loans. In addition, the report said, the agency did not establish a centralized entity to design, lead, and manage fraud risk because it did not establish a sufficient fraud risk framework. 

As of December 2021, PPP fraud hotline complaints exceeded 54,000 and more than 70,000 potentially fraudulent PPP loans totaling at least $4.6 billion were identified. A House subcommittee report said over $10 billion in PPP and EIDL funds had been returned to the government as of June 2.

Frauds on the PPP may also result in liability for making a false claim to the government for payment. Whistleblowers play an important role in helping the government combat this kind of fraud. One of the government’s most important tools for recovering those taxpayer dollars is the False Claims Act, or FCA, which provides a way for whistleblowers to report wrongdoing. 

The FCA incentivizes whistleblowers to report a fraud on the government by rewarding them with a percentage of the amount the government successfully recovers because of the whistleblower’s FCA case. By law, that amount is 15 to 30 percent of the government’s recovery, depending on a few factors. The law also protects against retaliation. 

False Claims Act whistleblowers may be employees with first-hand knowledge of fraud in their companies, and for that reason, their cases often combine whistleblower and employment law issues. With more than 30 years of combined experience litigating fraud and employment cases, the attorneys of Keller Grover stand ready to represent whistleblowers in a holistic way.  

We provide confidential, free consultations to advise those who have observed suspected wrongdoing and can help you determine the best path forward from the very beginning, helping you minimize the impact of reporting, protect your rights and achieve the best possible outcome for your situation.