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  • Writer's pictureJoshua Duvall

#GovConThoughts: $9M False Claims Settlement Shows SBA's Affiliation Rules In Play for PPP Loans

As a government contracts attorney, we regularly deal with the Small Business Administration's ("SBA") affiliation regulations in the context of size protests. But a recent Department of Justice ("DOJ") press release regarding a False Claims Act ("FCA") settlement shows that SBA's affiliation rules don't end there.

As the press release shows, the SBA affiliation rules also are in play for small businesses that received a Paycheck Protection Program ("PPP") loan under the Coronavirus Aid, Relief and Economic Security ("CARES") Act. Specifically, where a company obtains a PPP loan but is not a small business by virtue of its affiliation with other companies, the false certification(s) relating to its PPP loan may very well result in qui tam litigation under the FCA.

Here, according to the press release, the company certified it was a small business (fewer than 500 employees) for purposes of obtaining a PPP loan. But because the company shared common operational control with dozens of other car dealerships across the country, the company – and its affiliates – had more than 3,000 employees. With an aggregate number of employees exceeding 500, the company was not small and therefore was ineligible for the PPP loan it received.

To resolve this false claims litigation, the company "agreed to pay $9 million to resolve allegations that it violated the [FCA] by knowingly providing false information in support of a [PPP] loan forgiveness application it submitted." Notably, because the litigation was filed under the FCA's qui tam provisions, the whistleblower received approximately $1.62 million in connection with the FCA settlement.


Ultimately, because the FCA is the primary means by which the Government combats fraud, the DOJ (and qui tam whistleblowers) will continue to use that enforcement tool in the context of PPP loans for years to come. Notably, as the press release also indicated, DOJ is well-positioned to take action because in 2021, the "Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Justice Department in partnership with agencies across government to enhance efforts to combat and prevent pandemic-related fraud."

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Contact Maynard Nexsen
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