Topic: False Claims Related to PPP Loans

The following Q&A with CAMICO Claims experts reflects recent claims experience involving potential false claims related to Paycheck Protection Program (PPP) loans issued (and forgiven) during the COVID-19 pandemic.

Q: What concerns have CAMICO policyholders recently reported regarding some PPP loans?
A: They have reported matters involving clients who have been served with a Civil Investigative Demand (CID) from the U.S. Department of Justice (DOJ) in relation to the False Claims Act.

Q: What are the concerns with the DOJ’s investigation in relation to the False Claims Act?
A: It appears that the DOJ has ramped up its investigation into potential false claims related to the PPP loans issued (and forgiven) from the COVID-19 pandemic. The DOJ is investigating clients specific to the Small Business Administration (SBA) affiliation rules involving PPP loans, as the DOJ believes clients impermissibly applied for and received multiple loans under the program. The DOJ indicates that the clients’ entities were ineligible due to their size.

Q: What actions are the DOJ taking during this investigation?
A: As part of its investigation, the DOJ has been looking for information that supports how the subject company assessed the PPP affiliation rules when completing its application(s) for the loan and for loan forgiveness, which include annual cost reports, copies of PPP applications for loans and loan forgiveness, as well as any correspondence between the SBA and companies involved in the affiliation issue. During this period, some of CAMICO’s policyholders assisted their clients with completing the application and submitting the application to an SBA-approved bank. In the matters that have been reported to CAMICO, policyholders had corresponded with the client as to whether to submit the PPP application(s), and now the policyholder correspondence is being submitted to the DOJ (by the client or their legal representative) and has become a part of the investigation.

Q: What should CAMICO policyholders do if they are investigated?
A: To the extent that any of our policyholders have clients whose PPP loans have been called into question, CAMICO policyholders should address these investigations with caution, as under some circumstances, taxpayers who are found to not have qualified for the loan or loan forgiveness have placed blame on the bank who issued the loan, and any other third party that may have been involved in the loan application, submission, and/or loan forgiveness process. While this is not to say that these investigations will result in claims against our policyholders, they will certainly attract unwanted attention and be an unnecessary distraction for policyholders. Thus far, none of these matters have led to a claim but we encourage our policyholders to advise us and to keep us apprised if they are served with a DOJ subpoena, so that we can assist with a response or provide counsel to assistance (to the extent necessary).

“Claim Chronicles” are drawn from CAMICO claims files and illustrate some of the pitfalls and best practices in the accounting profession. All names have been changed.