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How PPP Cases Could Impact False Claims Act Bar

Oct. 6, 2022, 8:00 AM

The Northern District of Mississippi—a jurisdiction not known for aggressive false claims actions—brought 48 civil False Claims Act cases as of Sept. 26, 2022. All but two involve allegations of Paycheck Protection Program fraud.

This explosion of FCA cases sharply contrasts with last year, when the same district saw not even one case—and reflects more than a five-fold increase compared to the nine FCA cases brought by the district over the last five years.

And the district is not just bringing these cases. It is also successfully resolving them at an incredibly quick pace. Indeed, the district has announced that it has already recovered in excess of $1 million through civil settlements.

If other jurisdictions follow the lead of the Northern District of Mississippi, this could have a profound impact on the FCA bar. With the success of the district as a polestar, we may see other jurisdictions looking to recoup some of lost PPP funding—or similar low-level fraud—without straining their criminal case dockets.

A Bellwether

The 46 PPP-related FCA cases brought thus far this year by the district exclusively involve individuals who submitted fraudulent PPP loan application(s) for relatively small dollar amounts and made significant admissions to the government regarding their fraudulent activity. Twenty-two of these cases already have been resolved through judgments entered against the defendants.

In other words, these cases are minor and uncomplicated, and the district has effectively streamlined its process for prosecuting them, allowing it to obtain default judgments against defendants incredibly quickly.

The Northern District of Mississippi is probably not the only district to experience rampant PPP fraud. No other district, however, appears to be using the FCA to recover low-level fraudulent PPP funds in the same manner.

We anticipate several short- and long-term ramifications for the FCA bar if other jurisdictions follow suit.

Government-Initiated Cases

First, the US Justice Department’s FCA enforcement statistics will be skewed towards government-initiated PPP cases. On an annual basis, DOJ releases information regarding the number and type of FCA cases filed in that year as well as the amounts collected.

FCA practitioners use these statistics to understand and predict DOJ priorities and enforcement trends. Among other things, these statistics reveal the number of cases initiated by DOJ versus the number of qui tam cases initiated by whistleblowers, with qui tam suits historically making up a significant portion of total cases.

However, with the district’s spate of PPP cases, this breakdown will look quite different for FY 2022, as the number of government-initiated FCA cases will skyrocket.

At the same time, there is unlikely to be a corresponding increase in qui tam suits in part because the overwhelming majority of PPP loans were for under $50,000—an amount that is too low to draw the interest of relators’ counsel, or private parties filing suit with the government in whistleblower cases.

Thus, statistics will show DOJ initiating a much higher percentage of FCA cases. This imbalance will be exacerbated if other districts start copying the Northern District of Mississippi’s practices as well. If this happens, FCA practitioners will need to look behind the numbers when interpreting trends likely to implicate companies.

Impact on Resources from Complex Cases

Second, the aggressive use of the civil FCA to recover relatively low amounts in damages could draw resources away from more complex DOJ-initiated and qui tam FCA investigations.

While this may not be an issue for the district, which previously had few FCA cases, the diversion of resources may be felt more keenly in districts that typically have more numerous and complex FCA cases.

In those jurisdictions, investigations could take even longer than they already do—or not be initiated at all—as prosecutors focus on numerous small-dollar FCA cases that are easily prosecuted.

New Districts May Attract Relators

Third, districts not traditionally known for FCA litigation may become a more inviting venue for relators.
If a district starts managing numerous FCA cases, even if they involve relatively small dollar amounts, the district is likely to become more familiar with the FCA and more comfortable handling complex FCA cases.

This familiarity and expertise could make the district more receptive to relators pitching qui tam cases, which in turn, could lead to more qui tam cases being filed in the district.

FCA actions can be incredibly expensive for defendants to resolve, with litigation often taking years to conclude and the statute authorizing treble damages. The district’s use of the FCA to address low-level fraud represents a change in how the FCA has been used historically.

Refocus on Compliance

If other jurisdictions start copying the Northern District of Mississippi’s tactics, there could be ripple effects across the FCA bar. Regardless of whether other districts follow suit, companies should take the opportunity to refocus on compliance.

Compliance programs should be updated, and companies should ensure they are responding appropriately to all complaints regarding potential fraud, waste, and abuse, including consulting counsel at the first sign of an FCA action.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Nick Peterson is of counsel and Amanda Blain is an associate in Wiley Rein’s White-Collar Defense & Government Investigations group.