An update to Massachusetts’ False Claims Act that took effect in April has significant repercussions for private equity GPs with portfolio companies doing business with the Bay State and its local governments.
The measure requires sponsors to inform the commonwealth – as the state government is formally known – or localities within 60 days after “identifying” violations from its portfolio companies.
It is illegal under the law for companies to knowingly file fraudulent or false claims with public entities that they do business with.
Offenders can be held civilly liable with penalties of as much as $11,000 per claim, along with triple damages. And they’re on the hook for costs that the commonwealth or localities incur as they seek to recover illegal payments.
The update comes from legislation called Bill H5159. It was signed into law in January by Governor Maura Healey after passing the commonwealth’s legislature late last year.
Liability for failure to report applies to private equity sponsors, their funds and any investor with at least a 10 percent ownership stake in the offending company, according to a primer on the statute from law firm Gibson Dunn.
Indeed, the primer notes that the clause covering GPs states that liability extends to any “interest held by an investor or group of investors who engages in the raising or returning of capital and who invests, develops or disposes of specified assets.”
This law comes as sponsors have already faced...
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