USA: Health Services Provider and Individual Owners Enter into FCA Settlement and Deferred Prosecution Agreement over Alleged PPP Loan Fraud

Weiner Brodsky Kider PC

On March 15, 2022, the U.S. Attorney’s Office for the Eastern District of Washington, together with the Department of Energy and Small Business Administration, entered into a criminal deferred prosecution agreement and civil settlement agreement with a Washington-based occupational health services provider, along with two of its individual owners and executives, in connection with a Paycheck Protection Program (PPP) loan the provider obtained, but did not use for payroll costs and other eligible expenses, as required under the PPP program.  The government alleged that the defendants knowingly submitted false statements and certifications to the SBA when seeking forgiveness of the PPP loan, in violation of the False Claims Act and the federal criminal prohibition on making false, fictitious, or fraudulent claims.

In April 2020, the health services provider applied for and obtained a $1,344,700 PPP loan, which the provider then transferred to its business money market account, where it sat unused.  A year later, in April 2021, the provider, through one of its individual owners, applied for complete forgiveness of the PPP loan, and certified, among other things, that the “the dollar amount for which forgiveness is requested… was used to pay business costs that are eligible for forgiveness (payroll costs to retain employees; business mortgage interest payments; business rent or lease payments; business utility payments; covered operations expenditures; covered property damage costs; covered supplier costs; or covered worker protection expenditures).”  In reality, the PPP funds had not been used for those reasons, and instead had been transferred out of the money market account and were used to make personal donations to charities on behalf of the individual owners.  The government contended, therefore, that the certifications made in the provider’s application for forgiveness of the PPP loan were materially false statements, and that these false statements caused the SBA to entirely forgive the PPP loan.

As part of the civil settlement, the health services provider and individual owners agreed to pay $2,939,400 in restitution and penalties, which includes a $250,000 penalty that must be paid by the individual owners with their own funds. The case was investigated as part of the U.S. Attorney’s Office COVID-19 Fraud Strike Force, which included the U.S. Attorney’s Office for the Eastern District of Washington, the Department of Energy’s Office of Inspector General’s Richland, Washington Field Office, and the SBA’s Office Inspector General’s Seattle, Washington Field Office.