DOJ Announces First-Ever False Claims Act Settlement with PPP Lender and Creation of COVID-19 Fraud Teams

Photo by Brian Tully McLaughlinPhoto by Amy Laderberg O'SullivanPhoto by Olivia LynchPhoto by Zachary Schroeder

On September 12, 2022, the Department of Justice (DOJ) announced the first-ever settlement with a Paycheck Protection Program (PPP) lender. The lender, Prosperity Bank, has agreed to pay $18,673.50 to resolve allegations that it mishandled a PPP loan on behalf of an ineligible applicant. The announcement coincides with the DOJ’s creation of three COVID-19 fraud “Strike Force” teams designed to bolster the DOJ’s efforts to combat and prevent fraud related to COVID-19.

In accordance with the CARES (Coronavirus Aid, Relief and Economic Security Act), lenders originating PPP loans were entitled to receive a flat fee from the Small Business Administration (SBA) ranging from 1% to 5% of the amount of the loan. Prosperity Bank, a regional bank with branches throughout Texas and Oklahoma, was one such lender.

In May 2020, Prosperity Bank processed and approved a $213,400 PPP loan for Woodlands Pain Institute PLLC. According to the DOJ press release, at the time Prosperity Bank processed Woodlands Pain’s application, it was aware that Woodlands Pain’s sole owner, Dr. Emad Bishai, was facing criminal charges stemming from his practice of prescribing opioid medications.

In order to be eligible for a PPP loan, applicants had to answer “No” to the question whether the applicant (or anyone with more than 20% equity) was subject to any indictment, criminal investigation, indictment or other means by which formal criminal charges are brought in any jurisdiction. When completing the PPP application, Dr. Bishai checked the box marked “No” and initialed his name below the question.

Despite alleged knowledge of Dr Bishai’s criminal charges (and therefore ineligibility for a PPP loan), Prosperity Bank approved Woodlands Pain’s application for a $213,400 PPP loan and received a $5 loan processing fee. % of an amount of $10,670 from the SBA. According to the DOJ, the settlement amount of $18,673.50, nearly double the processing fee, “reflects Prosperity Bank’s efforts to cooperate with the government’s investigation and provide relevant facts and implementation.” additional compliance measures”.

Although of small monetary value, the DOJ settlement with Prosperity Bank is likely the tip of the iceberg for False Claim Act enforcement actions against PPP lenders. From the start of the program, the SBA said it “will allow lenders to rely on borrower certifications to determine borrower eligibility and use of loan proceeds and to rely on specified documents provided by the borrower to determine the eligible loan amount and eligibility for loan cancellation. See, for example, First Interim Rule, Temporary Changes to Business Loan Program; Paycheck Protection Program, 85 FR 20811, 15 April 2020; Paycheck Protection Program (PPP) Information Sheet Lenders, March 31, 2020. But given the very chaotic environment in which PPP loans have been processed, it is likely that many lenders have made similar mistakes to Prosperity Bank and could find themselves accused of relying on certifications. that they knew or should have known they were wrong, which could potentially cross the line from negligence to reckless recklessness, the FCA’s most fundamental scientific standard. And the September 14, 2022 announcement of three DOJ “Strike Force” teams is a reminder that the DOJ’s enforcement actions in this space are just beginning.


Comments are closed.