DOJ Moves PPP Fraud Enforcement Toward Civil False Claims Act Cases
The DOJ is shifting PPP fraud enforcement from criminal to civil False Claims Act cases focused on affiliations.
Why it matters: Why it matters: Legal risk management for PPP loans must adapt as the DOJ targets civil violations involving employee counts and affiliate networks, increasing exposure for businesses and their counsel.
- The DOJ now prioritizes civil lawsuits under the False Claims Act (FCA) targeting PPP fraud, especially related to employee counts and affiliate relationships.
- Recent settlements include Akris Inc. ($1.8M), Alice + Olivia, LLC ($3.2M), and LS Cable & System USA, Inc. ($4M) for inflated headcount claims.
- In May 2023, South Carolina companies settled for over $7.9 million in PPP fraud-related civil cases.
- Between June and September 2023, DOJ’s national enforcement operation involved 160+ criminal defendants linked to $245 million in intended PPP loan fraud losses.
The Department of Justice (DOJ) is shifting its enforcement approach on Paycheck Protection Program (PPP) fraud from primarily criminal prosecutions to civil False Claims Act (FCA) suits. The FCA is a federal law that allows the government to pursue entities that submit false claims for government funds.
This change focuses on alleged misrepresentations regarding employee headcounts, affiliation rules, and foreign corporate relationships in PPP loan applications. The DOJ’s Fraud Oversight through Careful Use of Statistics (FOCUS) initiative employs data mining and analytics to identify suspicious PPP claims by cross-referencing public data.
Recent civil settlements underscore this trend. For example, Akris Inc. agreed to pay $1,823,100, Alice + Olivia, LLC settled for $3.2 million, and LS Cable & System USA, Inc. paid $4 million for allegations of inflated employee headcounts on their PPP applications.
Separately, in May 2023, the U.S. Attorney’s Office for the District of South Carolina announced settlements exceeding $7.9 million with five companies that collectively received more than $5 million in PPP loans; these were resolved through civil FCA processes.
Additionally, the DOJ’s National Fraud Enforcement Division coordinated a large enforcement action from June 12 to September 1, 2023, resulting in charges against over 160 criminal defendants tied to approximately $245 million in attempted PPP loan fraud. As U.S. Attorney Russ Ferguson of the Western District of North Carolina stated, “We will stop at nothing to protect taxpayer dollars.”
This shift means corporate legal counsel must carefully evaluate PPP loan applications and affiliate structures. Increased civil FCA risks require thorough documentation and early compliance reviews to mitigate potential lawsuits.
By the numbers:
- $1.8M — settlement paid by Akris Inc. for inflated PPP employee counts
- $245M — intended PPP fraud losses targeted in 2023 DOJ criminal enforcement operation
- 160+ — criminal defendants charged nationwide in 2023 PPP fraud enforcement
Yes, but: While the DOJ emphasizes civil FCA cases for many PPP fraud matters, criminal prosecutions continue against severe and egregious offenders, maintaining a dual enforcement focus.
What's next: Legal teams should monitor ongoing DOJ updates and settlement announcements expected throughout 2024 as PPP-related FCA enforcement extends.