The end of the year usually means cold weather, holiday decorations, and a rush to finalize False Claims Act settlements.

This year is proving to be no different, as we are pleased to announce that our client Sidesolve LLC has successfully brought a case based on Paycheck Protection Program (PPP) fraud. The result is a $9 million settlement, of which Sidesolve will receive $1 million.

The defendants were too large to be eligible for PPP funding

This settlement amount ties for the largest PPP settlement so far with another $9 million settlement against Victory Automotive Group.

Before these settlements, the largest we were able to find was about $2.25 million. So, we can see that settlements are getting larger as theories become more complex.

The theory in both of the $9 million cases was the same: multiple companies were “affiliated” but each separately applied for and received PPP loans. Under the PPP rules, companies with common ownership or management should have been added together when considering funding eligibility.

For example, imagine I own a chain of successful tire shops. I have 20 locations, each with 30 employees. Companies were eligible for PPP loans if they employed less than 500 people, and so separately, each tire shop would be eligible for PPP funds.

But if all 20 tire shops were under a single corporate entity, I’d have 600 employees. I would have to qualify under a different measurement based on revenue, net income, or tangible net worth.

Logically, it doesn’t make sense that just because my tire shops are each separately incorporated they should qualify as “small businesses” and that I should get federal assistance.

The government included affiliation rules to close this loophole, preventing a single owner/operator from qualifying for millions of dollars in federal loan forgiveness for what is collectively a relatively large operation.

That is what happened here. What was essentially a single business, owned and operated by the same people but with different corporate entities in different parts of the company, applied for loans for each of those entities. They received loans totaling more than $6.7 million, all of which was forgiven, plus interest and processing fees.

Our client alleged that if you add up the employees and revenues of the affiliated corporations as the SBA rules require, the collective entity is no longer eligible, and so none of the individual entities are eligible.

Sidesolve is a data miner, not an insider

An unusual twist to this case is that our relator, Sidesolve LLC, has no preexisting relationship with the defendant.

Unlike in the Victory Automotive Group case, where the relator had worked for the defendant, Sidesolve is a “data miner.” This means that it is an outside organization that analyzes PPP loan data for prospective cases where, for example, multiple affiliates applied for and received PPP loans.

False Claims Act cases often settle for at least double the government’s damages. This way, the government can both get its money back and penalize the defendant for committing fraud in the first place. In these cases, the government settled for approximately 1.3 or 1.4 times its damages.

While we were not part of the negotiations, this reduced multiplier is likely because there was uncertainty as to whether the defendants knowingly defrauded the government with their PPP loan applications.

These were not cases where, for example, somebody applied for a loan with false employment information or for a company that did not exist. In those cases, the fraudulent intent is clear.

Rather, these cases get into the nuance of the PPP loan regulations, whether companies were “affiliated.” As the PPP program was chaotic in its origination and application, it was not uncommon for parties to inadvertently apply for loans to which they were not entitled.

This uncertainty is reflected in the “slap on the wrist” that is returning the “free money” from the PPP program with a smaller than usual penalty.

The government did a fantastic job

This case was investigated and settled by the U.S. Attorney’s Office for the Northern District of Texas. We are grateful for the hard work put in by Assistant U.S. Attorneys Andrew Robbins and William Admussen.

Cases brought by data miners are especially difficult because of the lack of insider information, but the two government attorneys resolved the case in about 14 months, practically light speed for a False Claims Act case.

This marks Bracker & Marcus’s 12th intervened False Claims Act settlement since the start of 2022, totaling more than $36 million in recoveries for the government. And we expect to have one or two more announcements before the year’s end, including another PPP settlement!

For more information, see the press release announcing the settlement, and book an evaluation with a government fraud attorney if you suspect PPP fraud.