Whistleblowers represent a significant threat to recipients of government stimulus funds, including from programs like the Paycheck Protection Program.
In late August, the Department of Justice announced the first False Claims Act settlement to arise out of a qui tam, or whistleblower-initiated action. Over the coming months, whistleblower lawsuits will continue to emerge from under seal, likely spawning a flood of FCA investigations and litigation.
On Aug. 26, the DOJ announced that Seth Bernstein, owner of jet charter company JetReady, agreed to pay $287,055 to settle allegations that he misappropriated PPP loan proceeds. The settlement-resolved allegations brought by former JetReady employee Victoria Hablitzel in a qui tam action.
According to Hablitzel’s complaint and the government’s press release, Bernstein applied for PPP funds in April 2020 and, within days of receiving a $1,173,382 PPP loan, diverted $98,929 to cover, among other items, charitable contributions to support the construction of a drive-in theater in Nantucket, Mass., and sports fields in Winter Park, Fla. JetReady failed to use any of the PPP funds for payroll or to bring back furloughed employees, as contemplated by the program.
Consistent with the FCA’s treble damages provision, the $287,055 settlement appears to represent just shy of three times the amount that Bernstein allegedly misappropriated.
Importantly, the whistleblower was the company’s assistant controller, and thus was in a unique...
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