On December 8, the U.S. Small Business Administration (SBA) issued a statement regarding its intent to investigate certain participants in the Paycheck Protection Program (PPP) created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.[1] This announcement, just a few months after the U.S. Department of Justice (DOJ) announced its first-ever False Claims Act (FCA) settlement with a PPP lender, raises concerning questions about how far the SBA will go in investigating and enforcing potential fraud in the pandemic relief program and whether it will abide by its own guidance issued at the inception of the PPP in April 2020.
SBA Guidance Under the Interim Final Rule
As explained in our article here, the CARES Act created the PPP under which the SBA guaranteed 100% of the amounts loaned by participating lenders to certain U.S. small businesses, nonprofit organizations, veterans organizations, and tribal businesses. An application for such loan required borrowers to make specific good faith certifications, including, for example, that the uncertainty of the current economic conditions made the loan request necessary to support the applicant’s ongoing operations and that the funds would be used to retain workers and maintain payroll to make mortgage payments, lease payments, and utility payments.
In response to this legislation, the SBA issued what it called an “interim final rule,” guidance issued under emergency procedures related to the PPP.[2] Section III.3.c...
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