Love, Hip Hop, and Whistleblowers: Businesses defraud CARES Act under the False Claims Act.
The Department of Justice announced federal bank fraud charges this month against Maurice Fayne, who goes by Arkansas Mo on the VH1 show “Love & Hip Hop: Atlanta.” The charges arise from a Paycheck Protection Program (PPP) loan that he obtained in the name of his business, Flame Trucking.
According to the Department of Justice press release, Fayne signed and submitted a PPP loan application in the name of Flame Trucking, stating that the business had 107 employees and an average monthly payroll of $1,490,200. In seeking a loan of $3,725,500, Fayne certified that the loan proceeds would be used to “retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule.”
Within days of receiving a loan for $2,045,800, Fayne allegedly used more than $1.5 million of the PPP loan proceeds to purchase $85,000 in jewelry, including a Rolex Presidential watch, a diamond bracelet, a 5.73 carat diamond ring for himself, and to pay $40,000 for child support. Not surprisingly, those categories of payments are not authorized uses of PPP loan proceeds.
The Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) made a total of $2.51 trillion available to businesses on a first come, first serve basis in March and April of 2020. In response to the economic crisis arising from the pandemic, the federal government initiated various loan programs, including the PPP loan program. PPP loans are meant for small businesses to cover up to $10 million in payroll, health care benefits, mortgage, lease, and utility costs.
Due to the immediacy of the economic threat to businesses, there were limited checks in place to ensure relief funds were appropriately dispersed and utilized.
Presently, the Small Business Administration (“SBA”) is performing audits for all companies that have received PPP loans worth more than $2 million. Large businesses have been warned that taking the funds intended for small businesses may constitute criminal liability and regulatory scrutiny under the federal False Claims Act (“FCA”), which prohibits knowledgeable fraudulent claims.
Common FCA violations include:
Misrepresenting of the number of employees or the immediacy of need on a PPP application
Loan-stacking (applying for multiple loans simultaneously or within a short period)
Misappropriating more than 25% of funds to non-payroll costs
Initiating loan-forgiveness and layoffs/furloughs simultaneously.
The majority of FCA claims are initiated by private citizens. Under the FCA, individuals can receive 15-30% of the ultimate settlement or judgment against the wrongdoer. The FCA specifically prohibits any form of retaliation against a whistleblower.
If you have knowledge of an FCA violation or retaliation you may be eligible to file a whistleblower lawsuit. We zealously pursue whistleblower bounties and other recoveries across the country.
For a confidential case evaluation, please contact us. We will not charge you for an initial consultation. And if selected to go forward with your case, our arrangement generally provides that our legal fees are paid by you only if you recover settlement funds.