On January 12, 2021, the U.S. Attorney’s Office for the Eastern District of California announced the first civil settlement related to the PPP program, in an action brought against SlideBelts Inc., an internet retailer, and SlideBelts’ president, Brigham Taylor. The settlement requires that SlideBelts and Taylor pay the United States $100,000 in damages and penalties for committing fraud, and also that SlideBelts repay the proceeds of its PPP loan. SlideBelts had filed for bankruptcy prior to filing applications with multiple banks to obtain PPP loans. SlideBelts made representations on the loan application that it was not in bankruptcy, despite the pending action. Three hours after one bank, which was a creditor in the bankruptcy proceedings, declined to provide the loan and explicitly told Taylor that SlideBelts was not eligible for a loan due to the bankruptcy proceedings, SlideBelts filed a PPP loan application with another bank.
As a result of the fraudulent misrepresentations, SlideBelts received a $350,000 PPP loan. Upon learning of the fraud, the U.S. Department of Justice swiftly brought action under the False Claims Act (“FCA”) and the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”). The FCA and FIRREA allow significant civil monetary penalties for violations. Under FCA, the U.S. government may obtain a monetary penalty of approximately $23,000 per violation, plus triple damages. Under FIRREA, the U.S. government may obtain a monetary penalty of approximately $2 million per claim. SlideBelts’ total potential liability under the two statutes was approximately $4.2 million in damages and penalties. In the settlement agreement, the Department of Justice made it clear that it was willing to compromise and accept the $100,000 settlement rather than the full penalty due to SlideBelts’ deteriorated financial condition (and in the event additional assets are discovered, the door remains open for the U.S. Government to collect additional damages). Note that settlement under FCA and FIRREA does not preclude criminal actions being brought.
With this settlement, which will likely be the first of many, the Department of Justice has shown that it is ready and willing to aggressively pursue substantial recoveries against companies (and their officers) for fraudulent misrepresentations regarding PPP loans. It is thus imperative that any busines applying for a PPP loan must be sure that its certifications and representations in the PPP application are accurate – or the consequences could be dire.