On April 3, 2023, the U.S. Attorney's Office for the District of New Jersey announced a settlement with a public relations firm to resolve allegations that the New Jersey company violated the False Claims Act (FCA) by receiving a $2 million second-draw loan from the Paycheck Protection Program (PPP) to which the company was not entitled. The public relations firm had also sought and received forgiveness for the full amount of the loan.
Congress created the PPP as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide emergency financial support to qualifying small businesses affected by the disruption of the COVID-19 pandemic. The CARES Act was subsequently amended to provide for a second round of disaster funding, but applicants were ineligible for this second-draw funding if the applicant was a required registrant under the Foreign Agent Registration Act (FARA).
Here, the FCA action was initiated in New Jersey when a relator filed a qui tam suit alleging that the public relations firm was the agency of record (AOR) for foreign tourism offices such as the Cayman Islands Department of Tourism. As alleged in the complaint, these foreign tourism offices are "foreign principals" within the meaning of FARA, which meant that the public relations firm was an "agent of a foreign principal" and was therefore required under FARA to submit a registration statement. As a result, the public relations firm was allegedly ineligible for the second $2 million PPP loan that it received and which was subsequently forgiven.
The relator in this action—a corporate entity named GNGH2, Inc.—is one of several serial relators that have sprung up since the government made more than $800 billion available through loan guarantees and subsidies in response to the pandemic. Incentivized by the FCA's bounty provisions—which reward qui tam relators with a share of the government's recovery—repeat relators such as GNGH2 and "Relator, LLC" have scoured publicly available data to identify ineligible PPP loan recipients. Here, GNGH2 will be rewarded with a relator's share of $203,183 for its efforts in bringing to light the New Jersey company's alleged loan ineligibility. Last year, GNGH2 received a relator's share of an undisclosed amount when a Wisconsin advertising agency paid $2.25M to settle similar allegations that it was ineligible for a second-draw PPP loan because of its required registrant status.
The fact that GNGH2's two successful lawsuits were based on publicly available information demonstrates the relatively low barrier to entry for filing suits alleging PPP fraud and suggests that this recently unsealed action may be a harbinger of more to come. This settlement also reinforces the fact that PPP borrowers may still face further inquiry about PPP loan eligibility even after the Small Business Administration has approved forgiveness of a PPP loan.
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