Small businesses may not have a clear definition of what is “necessary” or “not necessary”. The federal government has not provided any guidance in FAQs 31-37, and has indicated in FAQ 43 that they intend to provide additional guidance before May 14, 2020. The SBA Guidelines Concerning Necessity explores the issue of necessity more in detail.
- Every business that received PPP funding, as well as the directors, officers and employees involved in preparing and submitting an Application, could be subject to liability under The False Claims Act (31 U.S.C. SSSS 3729 – 3733 is a long-standing federal law that imposes liability on any “person”, which includes corporations, partnerships, limited liability companies, and employees who were involved in preparing and submitting the Application.
- This means that any director/officer that “knowingly” contributed to the preparation and submission of an Application that contained materially incorrect or fraudulent information could be subject to liability under The False Claims Act.
- Practically, the director/officer must prove that they acted in good faith and reasonable in aiding with the Application and that they were not aware of any materially incorrect or fraudulent information.
- Directors/officers may be held responsible if they fail to provide access to the documents or the analysis of the expert.
- Individual directors/officers, as well as businesses, should note that the False Claims Act also applies to “implied certificates”, which are statements that are misleading or deceptive due to omission of material information.
- Each individual director/officer’s liability will be determined by the facts and the circumstances. However, each person involved in the Application process should examine the extent and nature, and remember that “pointing fingers” is not an acceptable defense under the False Claims Act.
False Claims Act is enforced by Lawsuits
The U.S. Department of Justice (“DOJ”) has the power to file a lawsuit against any person who violates The False Claims Act. Commonly, in False Claims Act enforcement lawsuits can be filed by a “relator”. This is any person, even an ordinary citizen, who files a lawsuit and has original evidence that the alleged violating director/officer or business violated The False Claims Act.
Damages under the False Claims Act
A court may decide that a defendant company, director, officer or other person has violated The False Claims Act. This is pursuant to 31 U.S.C. SSSS 3729-3730. Each defendant is responsible for the 2 to 3 times amount of damages sustained by the federal government.
Summarized from an article by Stubbs, Alderton & Markiles, LLP.
