Understanding False Claims Act Risks

Understanding False Claims Act Risks

In a Bloomberg Law article, Windels Marx attorneys Jeffrey Hoffman and Gabriel Altman analyze False Claims Act risks linked to improper Paycheck Protection Program (PPP) loans, a major focus of the Justice Department (DOJ). They explain that borrowers who received or forgave PPP loans improperly might face False Claims Act (FCA) investigations with civil penalties up to three times the loan amount and potential criminal charges.

A key point from the authors is that actual knowledge isn’t necessary for FCA liability—merely signing documents without thorough review could suffice. Specific issues that might attract DOJ scrutiny include:

• ‘No-Show’ Employees: Borrowers claiming family members on the payroll who weren’t working can face FCA liability.
• FTE Calculations: Incorrect full-time equivalent (FTE) calculations, vital for demonstrating appropriate payroll expenses, can lead to FCA investigations. For instance, an individual’s FTE cannot exceed 1.0 across all borrowers.
• Affiliation Rules: The Treasury Department examines common ownership and control. Multiple affiliated businesses might exceed PPP eligibility thresholds, leading to FCA liability. Exemptions apply to specific businesses like restaurants, franchises, and faith-based organizations.
• Employee Compensation Caps: Employee compensation for payroll calculations is capped at $46,154 for the covered period. Borrowers exceeding this cap risk FCA liability.
• Employee-Owner Caps: Compensation for owner-employees (owning over 5%) is capped at $20,833 across all borrowers. Family-owned businesses with overlapping ownership must be cautious.

Legal advisors should perform thorough audits and guide clients through federal investigations, as even well-meaning borrowers might inadvertently violate complex PPP rules. This scrutiny reflects the DOJ’s intensified efforts to recover funds from pandemic-related fraud.