The federal government has been handing out billions of dollars in stimulus money to individuals and companies. These funds have helped businesses survive the COVID-19 pandemic by providing them with low or no-cost liquidity when they are not permitted to operate as they would normally. But stimulus money, like all government money, is a double-edged sword. By applying for and accepting these funds, businesses are subjecting themselves to the specter of liability under the False Claims Act (“FCA”). Companies who never before have done business with the federal government or who never received government funds should be particularly cautious as the FCA carries significant criminal and civil exposure, including up to five years imprisonment, that might not be readily apparent to those companies that previously operated in the non-governmental environment.
The current FCA has a long, complicated history dating back to the Civil War, and it has been amended several times, including following the last financial crisis and resulting recession. The United States Supreme Court also has refined various provisions of the FCA over time. But for our purposes, there are a few aspects of the FCA that are particularly important for recipients of federal stimulus funds.
First, the FCA prohibits both false or fraudulent “claims” or “statements” (submitting an invoice to the federal government for payment that is factually false) and false “certifications” (submitting an invoice for which the amount of payment may correctly match the amount of work the company did for the government, but falsely certifying that the company followed applicable laws and regulations in performing the work).
The FCA, like most fraud-based statutes or crimes, requires proof of fraudulent intent. Specifically, the government must prove that the individual or company acted “knowingly,” or with “deliberate indifference” or “reckless disregard” to the truth. Any false statement must be material to the government.
The FCA encourages whistleblowers–known as “relators”–to present cases to the government. If the government declines to pursue the case after investigating, the relator can still pursue the case “on behalf of” the federal government, with substantial financial incentive to do so in the form of heightened damages.
Any business that applied for and received federal funds from the Paycheck Protection Program (“PPP”) is subject to the FCA. A business that applied for a PPP loan made “statements” and “certifications” to the federal government, and it does not matter that the statements may have been made to a private lender. Furthermore, when that business applies for forgiveness of the PPP loan, it is making a “claim” and offering additional “statements” and “certifications.” Each of these is actions is a potential for an FCA violation.
For these reasons, any recipients of federal stimulus funds, including PPP loan borrowers, should do their absolute best to ensure they are following the rules and regulations governing these funds. For those businesses that are for the first time transacting with the federal government, extra care should be taken to learn and understand the contours of the FCA. The DOJ and FBI have made investigating stimulus fraud a priority. They’ll be watching.