As discussed in a recent Polsinelli white paper, the False Claims Act (“FCA”) is expected to be an essential tool in the Department of Justice’s arsenal to combat fraud, waste, and abuse under the Paycheck Protection Program (“PPP”). The PPP is a primary part of the Coronavirus Aid Relief and Economic Security Act (“CARES Act”). Managed through the Small Business Association, the federal government has allocated $659 billion in loans to help ailing businesses cover, among other things, payroll, mortgage interest payments, rent, and utility payments.
The U.S. Department of Justice (“DOJ”) is also likely to employ the civil money penalty provision of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) to investigate and prosecute persons suspected of defrauding the PPP. Enacted following the savings and loans crisis of the 1980s, FIRREA imposes civil penalties for a series of predicate offenses including bank fraud, false statements, and mail or wire fraud affecting a financial institution. The DOJ turned to FIRREA to combat the subprime mortgage crisis.
Importantly, FIRREA has a number of features making it a strong prosecution tool. Below is a brief outline of five reasons PPP participants should be aware of FIRREA:
FIRREA makes it easier to bring an enforcement action based upon conduct that is already actionable under the criminal code. Unlike in a criminal prosecution where the government must prove defendant’s guilt “beyond a reasonable doubt," civil liability attaches under FIRREA as long as the government can show that a defendant committed any predicate offenses by a “preponderance of the evidence.”
The statute of limitations for FIRREA civil enforcement is 10 years. This lengthy limitations period means that participants in PPP may be subject to investigations long after the pandemic ends.
FIRREA’s large statutory penalties (over $1 million per violation, or over $5 million for continuing violations) enables enforcement actions to result in massive settlements. FIRREA also allows the court to increase the penalty up to the amount of the pecuniary gain that any person derives from the violation, or the amount of pecuniary loss suffered by any person as a result of the violation. In 2018 and 2019 alone, the DOJ recovered over $9.5 billion under FIRREA.
Like the FCA, FIRREA (through the Financial Institutions Anti-Fraud Enforcement Act) allows for whistleblower suits.
The DOJ has regularly pursued FCA and FIRREA liability in the same action.
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