Truckers and babysitters targeted by the feds in pandemic loan cases


The U.S. Attorney’s Office for the Northern District of Mississippi is leading the way regarding the government’s use of the False Claims Act to target alleged Paycheck Protection Program fraud.

Oxford, Mississippi-based federal prosecutor Clay Joyner has filed more than 80% of the government’s known civil lawsuits seeking to recover money his office says some borrowers weren’t entitled to, suing an auto mechanic , a babysitting service and a landscaper and obtained consent judgments from a trucking company and a jeweler.

“While we can’t speak to what other U.S. Attorney’s offices will do, our filings are a direct response to trends and issues we’ve observed during investigations in our district,” the law firm told Bloomberg Law. Assistant U.S. Attorney Stuart Davis, one of Joyner’s deputies. Joyner has led the office on an interim basis since March 2021.

Congress enacted the PPP in March 2020 to provide emergency financial support to those suffering the economic effects caused by the Covid-19 pandemic. The program, under which the loans were backed by the Small Business Administration, ended in May 2021 after providing small businesses with around $800 billion.

The United States has since filed more than a dozen complaints alleging that some of these applicants violated the FCA by misrepresenting their company’s payroll and other requirements in order to receive funds.

As of July 8, federal prosecutors have filed at least 17 civil lawsuits alleging PPP fraud under the FCA, according to research by Bloomberg Law. The government has also reached settlements in cases initiated by whistleblowers. Other whistleblower lawsuits raising similar allegations could still be sealed, allowing the government to investigate the allegations and decide whether or not to intervene.

Fourteen of the prosecutor’s civil suits were filed by Joyner’s office. The Eastern District of Virginia, just outside the nation’s capital, filed three cases.

SBA press director Carol Wilkerson said the agency is not commenting on any ongoing investigations. But he “regularly assists the DOJ in prosecuting False Claims Act cases, including in PPPs,” she said.

Mechanics and Landscapers

The Mississippi prosecutor has already won the case, obtaining a consent judgment on June 28 for nearly $47,000 against a jewelry and clothing store operator; and a consent judgment of nearly $47,000 against the owner of a freight trucking company.

He also obtained a consent judgment for $21,000 on June 14 against a woman who claimed to be a daycare operator. According to the complaint, the woman told an investigator that she received a payroll loan for her independent business even though she did not operate such a business.

Other pending cases in the Northern District of Mississippi have raised PPP fraud allegations against a child care operator; a trucking company operator; an operator of an automotive mechanical and electrical repair and maintenance business; a bakery products business operator; and a landscaping business operator.

Most of the defendants in the Mississippi lawsuits do not have legal representation, records show. Attorney for defendants Xavier Bailey and Bailey’s Trucking LLC did not immediately respond to a request for comment.

The increased application of the FCA could “attract PPP beneficiaries, especially small businesses, who may have submitted PPP documents containing errors that were simply made due to the intense confusion and uncertainty surrounding the both PPP rules and the future of the economy at the start of the program at the height of the pandemic,” said former federal prosecutor Ronald G. DeWaard of Varnum LLP in Grand Rapids, Michigan.

“Whether the government takes this confusion into account when retrospectively reviewing claims is unclear at this stage,” he said.

It’s likely the U.S. Attorney ordered an assistant U.S. attorney to “run the numbers” on that district’s information and PPP loan applications and then initiate enforcement action, Alex P. Hontos said, who represents FCA defendants with Dorsey & Whitney LLP, Minneapolis. “This model can be replicated in all other districts, provided the district prioritizes PPP FCA investigations,” he said.

‘Ripe fruit’

The DOJ appears to focus on simple cases, as larger or more complex FCA cases can take years to investigate and prosecute, Hontos said.

“I think the DOJ is starting with the low hanging fruits, and I suspect we’ll soon hear actions against larger entities,” he said.

The current trend is “to prosecute ‘double divers’, those who illegally obtained two loans in the first draw. These cases are pretty easy to identify,” said another Dorsey & Whitney attorney, Kirk W. Schuler in Des Moines.

“In the near future, I suspect cases will focus on more complex PPP frauds, such as those involving the alleged failure to disclose borrower affiliates that would render borrowers ineligible for their loans,” he said.

“Furthermore, it is clear that the administration believes that there remains an enormous amount of PPP fraud to investigate, as Congress introduces legislation to create a ten-year statute of limitations for all criminal and civil enforcement of the PPP fraud, and The DOJ is building new task forces to investigate the fraud,” Schuler said.

The next wave

The government prosecuted “the most egregious” PPP cases under criminal laws, which typically move faster than civil cases, said Adam R. Tarosky of Nixon Peabody LLP in Washington.

“Criminal cases generally move faster, but I think the next wave of crackdowns on Covid-19 fraud will be civil. There are likely many outstanding qui tam cases that are still under seal, as FCA investigations often take several years before a decision to intervene is made,” he said.

Typically, about 75% of False Claims Act investigations are initiated by whistleblowers, and that trend is expected to continue for PPP cases, he added.


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