August 15, 2022

Volume XII, Number 227

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August 12, 2022

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DOJ Investigating FinTech Over PPP Loans

On June 3, a federal court filing in the Southern District of Florida by an Atlanta-based FinTech company revealed that the small business lender is under DOJ investigation for alleged PPP loan approval practices. According to the FinTech, by August 2020, it processed over $7 billion in PPP loans to at least 300,000 small businesses.

In a motion to quash the government’s subpoena in an unrelated PPP loan fraud scheme, the FinTech stated that “the Boston U.S. Attorney’s Office has been investigating [the FinTech] under the False Claims Act, on the theory that [the Fintech] improperly approved PPP loans that were either obviously fraudulent or not within Small Business Administration (“SBA”) parameters.” Because of this ongoing investigation, the FinTech argued that “the subpoena presents an “undue – and, as importantly, unnecessary – burden” and jeopardizes the FinTech’s ability to defend itself. The court denied the FinTech’s motion.

Putting it into Practice: This rare disclosure of a pre-indictment DOJ investigation warns that the government is continuing to focus its enforcement efforts on FinTechs that administered PPP loans. This disclosed investigation adds to the continued fallout for FinTechs that administered PPP loans. Government and news reports often have accused FinTechs of being gateways for PPP fraud due to their less robust anti-fraud controls as compared to traditional financial institutions. As detailed in a previous blog, in June 2021 the House Select Subcommittee on the Coronavirus Crisis opened investigations into the role of four FinTechs (including the FinTech subpoenaed here) in issuing allegedly fraudulent PPP loans.

Most of the DOJ’s enforcement efforts have focused on applicants who fraudulently obtained CARES Act funds, but this investigation shows that the government also is directing enforcement efforts to FinTechs that administered CARES Act funds. These enforcement efforts could have extreme consequences for lenders under the FCA, including treble damages and civil penalties for all fraudulent claims caused to be submitted to the government. Here, the government is likely to bring FCA claims on the theory that Fintechs caused false claims to be submitted to the SBA by failing to adequately screen for fraudulent PPP applications. The FCA also allows private whistleblowers to bring suit on behalf of the government, meaning that any employee of a FinTech or financial institution (or even an unaffiliated individual) could initiate a suit under similar theory of liability.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 209
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
 Matthew T. Lin Associate Los Angeles Government Contracts, Investigations & International Trade
Associate

Matthew Lin is an associate in the Government Contracts, Investigations and International Trade Practice Group in the firm's Los Angeles office.

During law school, Matthew served as an extern with the Criminal Division of the United States Attorney's Office for the Central District of California. Prior to law school, Matthew worked with the Los Angeles City Controller’s Office performing data analytics on the City’s financial, economic, and employment data.

213-617-4281
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