Tax Law Insights

The US Department of Justice announced the first civil settlement involving allegations of fraud against a PPP borrower.

SlideBelts Inc. received a PPP loan under the CARES Act.  SlideBelts is an internet retail company and debtor in bankruptcy.  SlideBelts and its president/CEO agreed to resolve the allegations in connection with the PPP loan by paying the government damages and penalties of $100,000.  SlideBelts had already repaid the $350,000 PPP loan it had received.

The announced civil settlement resolves claims that the conduct of SlideBelts and its president/CEO violated the False Claims Act and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).   The False Claims Act allows the government to recover damages and penalties for the presentation of false claims for payment to the United States. FIRREA allows the government to impose civil penalties for violations of federal criminal statutes, including those that affect federally-insured financial institutions such as the PPP loan lender involved here.

This civil settlement serves as an important notice to PPP loan borrowers.  If a PPP loan was received through fraud and misrepresentations by the borrower, giving the loan back may not be sufficient to avoid liability, and the borrower may be subject to government claims for civil damages and penalties.  Depending on the nature and extent of the fraud involved, the borrower – and its officers – may also be subject to criminal prosecution by the government.

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) and Paycheck Protection Program (PPP) have provided support to individuals and businesses to help them through the pandemic. Congress recently passed the Economic Aid Act authorizing funding for new and additional PPP loans, as well as other support for individuals and businesses during this uncertain time. Burr & Forman has a dedicated team to counsel individuals, businesses, and financial institutions in government audits, investigations and defense-related to the PPP, CARES Act, Economic Aid Act, and other government support. The Burr & Forman PPP and CARES Act Audit, Investigations, and Defense Team represents and advises clients in audits and investigations involving PPP loans and tax benefits that may have been claimed under the CARES Act and Economic Aid Act. This multidisciplinary team combines more than 230 years of legal experience and attorneys with previous government positions, including attorneys with IRS Chief Counsel, the United States Department of Justice, and United States Attorneys' offices.