United States Attorney Freedman Announces First-Ever Settlement of False Claims Act Whistleblower Case Involving Grants for Restaurants and Similar Businesses Struggling During the COVID-19 Pandemic
ALBANY, NEW YORK – The Rensselaerville Institute (TRI), a not-for-profit corporation located in Albany, New York, has agreed to pay the United States $86,676 in damages and civil penalties to resolve allegations that it violated the False Claims Act by obtaining an inflated Paycheck Protection Program (PPP) loan. TRI also agreed to repay its lender $86,676, thereby relieving the U.S. Small Business Administration (SBA) of liability to the lender for the federal guaranty of the overstated portion of its loan, announced United States Attorney Carla B. Freedman.
United States Attorney Freedman stated: “Paycheck Protection Program loans were intended to provide critical relief to small businesses so that they could retain employees and continue operations during the COVID-19 pandemic. We will continue to use all available tools, including the False Claims Act, against companies that overstated eligibility for these taxpayer-funded loans.”
The PPP was established pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, in March 2020, to provide emergency financial assistance to small businesses suffering economic effects caused by the COVID-19 pandemic. PPP loan applications were processed by participating lenders, which received a processing fee from the SBA. If a loan application was approved, the participating lender funded the loan, which was fully guaranteed by the SBA.
TRI acknowledged in the settlement agreement that, in early April 2020, its now-former Chief Financial Officer (CFO) provided another now-former TRI official with data and calculations showing that TRI’s “average monthly payroll,” when multiplied in accordance with the PPP loan eligibility formula, totaled less than $500,000. That individual nevertheless applied on TRI’s behalf to an SBA participating lender for a $500,000 PPP loan. Shortly thereafter, the CFO wrote various TRI board members: “I have not received a copy of the PPP application. I am hopeful it was not actually submitted” because “it would be better if we don’t have a federal loan application floating out there for more money than we were entitled to.”
Later in 2020, as part of an audit of TRI’s annual financial statements, an audit and consulting firm represented that it notified TRI that TRI had applied for and received a larger loan than it was entitled to, and that it advised the former TRI official to return the excess funds. Rather than return the excess funds, in January 2021, yet another TRI official submitted an application for forgiveness of the entirety of the $500,000 loan. The SBA subsequently determined that TRI had overstated its average monthly payroll and, accordingly, declined to forgive $86,676 of TRI’s loan.
Special Agent in Charge Janeen DiGuiseppi of the Albany Field Office of the Federal Bureau of Investigation (FBI) stated: “The FBI will continue to work with our partners from the United States Attorney’s Office to investigate and hold accountable all those who take advantage of these critically important loan programs designed to provide assistance to American businesses.”
The case began in August 2021, when a whistleblower filed a qui tam complaint under seal in the United States District Court for the Northern District of New York. When a whistleblower, or “relator,” files a qui tam complaint, the False Claims Act requires the United States to investigate the allegations and elect whether to intervene and take over the action or to decline to intervene and allow the relator to go forward with the litigation on behalf of the United States. The relator is generally able to then share in any recovery. Pursuant to the settlement agreement, the relator will receive $17,000 of the settlement.
The investigation and settlement were the result of a coordinated effort between the United States Attorney’s Office for the Northern District of New York and the FBI. The United States was represented by Assistant United States Attorney Adam J. Katz.
On May 17, 2021, the Attorney General established the COVID-19 Fraud Enforcement Task Force to marshal the resources of the Department of Justice in partnership with agencies across the federal government to enhance efforts to combat and prevent pandemic-related fraud. The Task Force bolsters efforts to investigate and prosecute the most culpable domestic and international criminal actors and assists agencies tasked with administering relief programs to prevent fraud by, among other methods, augmenting and incorporating existing coordination mechanisms, identifying resources and techniques to uncover fraudulent actors and their schemes, and sharing and harnessing information and insights gained from prior enforcement efforts. For more information on the Department’s response to the pandemic, please visit https://www.justice.gov/coronavirus.
Anyone with information about allegations of attempted fraud involving COVID-19 can report it by calling the Department of Justice’s National Center for Disaster Fraud (NCDF) Hotline at 866-720-5721 or via the NCDF Web Complaint Form at: https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.