government announces first FCA settlement with PPP lender | Bass, Berry & Sims APIs

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The Department of Justice (DOJ) announced on September 12 the first-ever settlement under the False Claims Act (FCA) with a Paycheck Protection Program (PPP) lender. Prosperity Bank, a Texas-based regional bank, has agreed to pay $18,673.50 to resolve allegations that it mishandled a PPP loan on behalf of an ineligible applicant.

In May 2021, Prosperity Bank approved and processed a $213,400 PPP loan for a pain management practice in Houston. The PPP application included a question asking whether the applicant (or anyone with more than 20% equity) was the subject of an indictment, criminal investigation, indictment or other criminal charges in a jurisdiction. The doctor who wholly owns the pain management practice was facing criminal charges at the time of the request, but checked the “No” box in response to this question.

The government alleged that Prosperity Bank employees knew the doctor was facing criminal charges and was therefore ineligible to apply for the PPP loan. However, the bank processed the request and falsely awarded the money. Prosperity Bank received a 5% processing fee of $10,670, which the government claimed it was not entitled to receive.

The doctor-owner has agreed to pay $523,331 to resolve his liability arising from the fraudulent medical billing and submission of the bogus PPP loan application. The DOJ noted that the settlement amount paid by Prosperity Bank reflects the bank’s cooperation with the investigation and the implementation of additional compliance measures.

As highlighted last month, the DOJ has stepped up enforcement actions involving the PPP and other CARES Act stimulus programs. The DOJ’s September 14 announcement of three additional DOJ Strike Force teams focusing on COVID-19 fraud is further evidence that the DOJ intends to bring more cases related to PPP and other pandemic relief programs. Prosperity Bank’s FCA rulebook warns that other lenders who have approved loans for ineligible applicants could be subject to such DOJ actions. Other lenders who approved ineligible applicants could be accused of relying on certifications that they knew or should have known were false.

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