Eastern District of CA Announces First Civil Settlement Related to CARES Act Fraud
The Eastern District of California announced the very first civil settlement to resolve allegations of fraud against the CARES Act Paycheck Protection Program. The agreement was entered into with SlideBelts, Inc., and its President, CFO and CEO, Brigham Taylor, for falsely certifying on its PPP applications to three financial institutions that they were not in bankruptcy when, in fact, they had been in the bankruptcy process since August 2019.
Over a two-week span in April 2020, with a bankruptcy proceeding pending, Taylor applied to three financial institutions for PPP loans. The first question on the application asks if the borrower-applicant is “presently involved in any bankruptcy.” This is a threshold question, as the government explains that “debtors in bankruptcy would present an unacceptably high risk of an unauthorized use of funds of non-repayment of unforgiven loans,” and would therefore be automatically ineligible to receive PPP funds. Taylor, aware of this restriction, nevertheless answered that question in the negative on all three applications.
Taylor’s first attempt to obtain PPP funds was stymied when the bank alerted him to the incorrect statement on his application, as the bank he was making the statement to was a creditor in SlideBelts’ ongoing bankruptcy. Taylor chalked it up to an “[o]versight,” but argued the application’s bankruptcy question was “an overreach” by the SBA. The bank denied the loan request based on the ongoing bankruptcy proceedings and, when informed of the bank’s decision, Taylor responded, “that does make sense. All good!” Taylor, undeterred by reality, continued with the two other applications. Taylor and SlideBelts received $350,000 in PPP loans via the second application. After receipt of the funds, Taylor emailed the bank a heads up and stated they “just realized that we may not have answered [Question 1] correctly since we filled out the application quickly and wanted to bring it to your attention[.]” Taylor, acknowledging his obvious fraud, did not immediately return the funds.
The government’s allegations, if proven, would have made Taylor and SlideBelts liable for damages and penalties totaling $4,196,992 under FIRREA and the False Claims Act. FIRREA—the Financial Institutions Reform, Recovery and Enforcement Act—allows the government to impose civil penalties for violations of enumerated federal criminal statutes, including those that affect federally-insured financial institutions. By entering into the settlement agreement, Taylor was able to reduce the combined penalties to $100,000, which includes $17,500 in restitution from Taylor, in addition to repaying the fraudulently obtained $350,000 in PPP funds.
The CARES Act was enacted on March 29, 2020, to provide emergency financial assistance to the millions of Americans who are suffering the economic effects caused by the COVID-19 pandemic. While other applicants may not be so brazen in their attempts to defraud the program, it doesn’t mean the truth won’t eventually come out. And with the application of FIRREA in addition to the FCA to these misdeeds, the government has even more ways to ensure compliance with the law. As stated by U.S. Attorney McGregor W. Scott, “The Department of Justice and our partners at the SBA will use all tools at our disposal, including civil fraud statutes, to aggressively pursue those who exploit federal programs intended to help those in need during this national emergency.”
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