Two Recent Whistleblower-Initiated Cases Targeting Pandemic Scams Underscore the Government’s Commitment to Combat Fraud
In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and offered forgivable Paycheck Protection Program (PPP) loans to small businesses. This emergency relief was intended to help businesses with applicable expenses during the pandemic.
How Businesses Attempted to Defraud the Government During COVID-19
Many businesses used this time as an opportunity to defraud the government and failed to comply with the loan requirements. This included falsely certifying eligibility in terms of employee numbers, misrepresenting their income, and business size, among other requirements.
As per the two recent enforcement actions detailed below related to pandemic-era fraud, the government continues its commitment to enforcing laws that protect against COVID-19 fraud. Both were initiated by whistleblowers, underscoring the importance of reporting any knowledge of misconduct.
Convicted Felon and His Demolition Company to Pay $2.01M to Resolve Allegations Regarding False Applications for Pandemic Relief Loans
On August 9, the government announced that Charles Smith, Jr. and SMI Demolition, Inc., of Massachusetts agreed to pay $2.01 million to settle False Claims Act allegations that the company falsely certified its eligibility for two PPP loans and an Economic Injury Disaster Loan (EIDL) to the United States Small Business Administration (SBA) during the pandemic.[1]
Smith Falsely Certified His Company’s Eligibility
In April 2020, Smith owned 51% of SMI Demolition. On April 7, 2020, SMI Demolition applied for a PPP loan and certified that no owner had previously pleaded guilty to a felony involving fraud. However, Smith previously pleaded guilty to two counts of mail fraud in January 2018.[2]
Around the time the application was in progress, Smith and his associates prepared an agreement that claimed part of his ownership would be transferred to another person. The agreement was never finalized.[3]
SMI Demolition Received SBA Loans, An EIDL, and PPP Loans
SMI Demolition applied for and received two additional loans from SBA, an EIDL and a second PPP loan. The total amount of loans equaled $1,448,402. All but $150,000 was forgiven by the SBA.
Since the company was ineligible for PPP loans and the EIDL due to Smith’s felony convictions and ownership status, Smith and SMI Demolition caused false claims for payment to SBA, according to the government. Smith and SMI Demolition admitted to the aforementioned allegations.[4]
Case Initiated by a Whistleblower
As with many recent pandemic fraud cases, this complaint was originated by a whistleblower under the qui tam (or whistleblower provision) of the False Claims Act, which allow private parties to file an action on behalf of the United States and receive a portion of any recovery.
Whistleblower Will Receive $200,000
The qui tam case is captioned United States ex rel. Forsyth v. SMI Demolition, Inc. and Charles Smith, Jr., No. 23-cv-10091-NMG (D. Mass.). The relator (or whistleblower) will receive approximately $200,000 from the resolution.[5]
More PPP Fraud – Three Chinese-Owned Companies, BWI Entities, Falsely Submitted for PPP Loans
In other PPP fraud news, on August 12, the government announced that three Chinese-owned companies agreed to pay $21,660,983 to resolve False Claims Act allegations relating to PPP loans for which they were not eligible.
BWI Entities were allegedly not eligible for the PPP loans since they were affiliated with other companies in China, Europe, and other countries around the globe. Collectively, BWI Entities employed more individuals than permitted by SBA’s size requirement. BWI Entities were also purportedly ineligible because they were owned by a government entity.[6]
Claims Originated by A Whistleblower
This settlement includes the resolution of claims brought under the qui tam provisions of the False Claims Act. The whistleblower lawsuit was filed by GNGH2 Inc., a corporate entity likely created to maintain the anonymity of the whistleblower. They will receive $2,166,098.30 as part of this settlement.[7]
The Role of Whistleblowers and COVID-19 Related Fraud
Whistleblowers are critical in exposing misconduct and sharing information concerning various types of fraud. This fraud can include COVID-19 era information related to falsely certifying eligibility when applying for PPP loans, unauthorized use of funds, payment of kickbacks to obtain government contracts related to COVID-19, and more.
91pornpartner Dan Vitelli commented: “The government is committed to safeguarding emergency relief funds and holding accountable those who sought to exploit pandemic relief for personal gain. The government continues to bring enforcement actions against COVID-19 and pandemic-relief fraud, and it counts on whistleblowers to bring forward information they have concerning misconduct.”
Our Firm Helps COVID-19 Fraud Whistleblowers
Our firm handles cases related to COVID-19 fraud. If you have a potential case, please contact us to see how we can help.
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Sources:
[1] See
[2] Id at 1
[3] Id at 1
[4] Id at 1
[5] See
[6] See
[7] Id at 6
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