Lawyer sniffs out Covid loan fraud as DOJ detective chases from afar

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Bryan Quesenberry has filed lawsuits against hundreds of small businesses he’s never heard of, joined settlements in courtrooms he’ll never visit, and launched investigations for federal prosecutors he will never meet.

Thirty-one times, by his count, the Provo, Utah attorney has pursued cases as a whistleblower under the federal False Claims Act, alleging fraud by small businesses that got loans of the Paycheck Protection Program, the relief plan put in place in 2020 for employers facing huge losses from the Covid-19 pandemic.

According to a study released in August by professors at the University of Texas, up to 15% of more than 11 million PPP loans, totaling nearly $70 billion, contained signs of fraud. Often, however, the individual fraud is far too small to warrant the time and energy of a full federal investigation.

So the Justice Department’s Civil Division has welcomed the help of small business employees and attorneys like Quesenberry who file so-called qui tam complaints, acting as placeholders in hopes that the DOJ will step in and that ‘they’ll pocket a portion of any settlement.

“Yes, it is fraud, and the government wants to put a stop to it, but does it want to tackle these cases, or tackle multi-million dollar medical fraud cases?” said attorney Jason Marcus, who specializes in qui tam law for Bracker & Marcus, LLC in Atlanta and has not filed any PPP cases.

“The government has limited resources and has to choose, so if they want to slap their fingers, get the loan back and a small fine for the breaches, then that’s one way to do it.”

The fund has reached $800 billion

The Small Business Administration launched the PPP in 2020, overseeing a fund that has reached more than $800 billion in loan guarantees and grants. Designed to help employers keep workers on their payroll, it was quickly plagued by fraud, according to lawmakers and federal prosecutors.

Acting Assistant Attorney General Brian Boynton addressed the role individuals can play in the fight against PPP fraud in a speech at the Federal Bar Association’s Qui Tam conference last year and highlighted sets up a hotline for employees and others to report fraud.

It’s unclear how many PPP-related cases have been filed because False Claims Act claims are filed under seal, but attorneys and trade groups monitoring the filings say they expect the scope of claims becomes clear in the coming months.

Most of the 31 cases Quesenberry says he has filed are not yet public, and even one of his cases touted by the Justice Department in an October press release remains under seal. Under the law, filers can receive between 15% and 20% of settlements, plus attorney’s fees.

“Whistleblowers may view this as a call to action, resulting in a marked increase in the filing of claims under the FCA’s qui tam provisions, fueled not only by their desire to expose potential fraud, but also by their hopes to share in government recovery and recovery of legal costs,” said attorney Suzanne Jaffe Bloom, a partner at Winston & Strawn in New York.

A Department of Justice spokeswoman said she could not speak in detail about its use of the False Claims Act to root out PPP fraud.

“Right now, most of our PPPs are still open in one form or another. So it’s hard to talk about them because they’re still new and unfinished,” spokeswoman Danielle Blevins said in a statement.

Fraud hunting

Quesenberry, whose day job is in the Utah attorney general’s office, says he started chasing fraud almost as soon as the SBA implemented the PPP program.

He searched SBA databases for borrowers who had received two loans in violation of program rules and cross-checked the millions of employers in the database with state business records, looking for businesses that didn’t exist before the PPP program started handing out money.

When he had enough information, he filed complaints alleging bank and loan fraud in federal courthouses from Massachusetts to Florida to California.

The named defendants range from an electricians union outside of Boston to dentists, landscapers, a health food restaurant and even the Archdiocese of Seattle.

Because False Claim Act cases remain sealed until they are founded or dismissed, the 10 Quesenberry cases that are publicly available through federal records — involving approximately 100 defendants — are all the ones he has. dropped after the government found no wrongdoing.

There are a number of reasons why businesses may have come forward twice, including that employers only accepted one loan even though multiple loan applications were approved. Quesenberry said when prosecutors alerted him they weren’t moving forward, he quickly dismissed them even though he didn’t have all the details.

“If they didn’t do anything wrong, I didn’t want to drag them into a court case,” Quesenberry said. He wouldn’t talk about any of the other 21 active cases that remain under seal, or any settlements they might bring.

Payment of $4,500

A settlement released by the DOJ gave Quesenberry a $4,500 payout, after a Florida duct cleaning company agreed to pay a small fine and repay one of two $170,000 loans that she received. The government has kept the case sealed, citing investigations against other defendants, so its cut could increase if more settlements are reached.

The government released a few other settlements, including one brought by an employee of an aircraft charter company in Fort Lauderdale, Florida, who said his boss misappropriated about $100,000 from a PPP loan to himself. The company, All in Jets, reached a $258,000 settlement, agreeing to pay the employee about $57,000 and her lawyers an additional $79,000.

Lawyers handling qui tam cases said plaintiffs shouldn’t expect the windfalls often seen in whistleblower cases, where government contracts or medical fraud can run into millions of dollars. Indeed, many of the duplicate loans will be paid off before the companies either default or request the loan forgiveness allowed under the PPP scheme, meaning the government loses nothing.

“I think a lot of them are going to have a rude awakening; I understand there is no case of qui tam until the loan has been cancelled. said Marcus, the Atlanta attorney. “If you default or ask for forgiveness, that’s when it comes out of the government’s pocket.

“But if the loan is paid back, there’s no loss, and I think the relationship will have a hard time recovering,” Marcus said. “Legally, it’s a bit of a gray area.”

More cases to come

Isaias “Cy” Alba of the Washington law firm PilieroMazza works with employers and advises them to expect more SBA audits or investigations in the near future. The agency will seek to recover smaller sums of money, he said.

“With a qui tam defense, you might not even know you’re under investigation for 12 months or more until it’s unsealed or you get a subpoena,” Alba said.

“I’m pretty sure it will get worse over time. We advise customers to keep all records and be prepared because the SBA has six years to do audits, and I think you’re going to see more and more cases coming out.

Quesenberry is no longer filing qui tam cases, but said he remains in contact with federal prosecutors handling open investigations. His work started and ended with the initial filings anyway, he said, and Justice Department lawyers no longer needed help.

“I ran out of time, I ran out of energy. I’m sure there are a lot more people out there doing that,” Quesenberry said.

With the help of data reporter Andrew Wallender.

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