On June 3, a federal court filing in the Southern District of Florida by an Atlanta-based FinTech company revealed that the small business lender is under DOJ investigation for alleged PPP loan approval practices. According to the FinTech, by August 2020, it processed over $7 billion in PPP loans to at least 300,000 small businesses.
In a motion to quash the government’s subpoena in an unrelated PPP loan fraud scheme, the FinTech stated that “the Boston U.S. Attorney’s Office has been investigating [the FinTech] under the False Claims Act, on the theory that [the Fintech] improperly approved PPP loans that were either obviously fraudulent or not within Small Business Administration (“SBA”) parameters.” Because of this ongoing investigation, the FinTech argued that “the subpoena presents an “undue – and, as importantly, unnecessary – burden” and jeopardizes the FinTech’s ability to defend itself. The court denied the FinTech’s motion.
Putting it into Practice: This rare disclosure of a pre-indictment DOJ investigation warns that the government is continuing to focus its enforcement efforts on FinTechs that administered PPP loans. This disclosed investigation adds to the continued fallout for FinTechs that administered PPP loans. Government and news reports often have accused FinTechs of being gateways for PPP fraud due to their less robust anti-fraud controls as compared to traditional financial institutions. As detailed in a previous blog, in June 2021 the House Select Subcommittee on the Coronavirus Crisis opened investigations into the role of four FinTechs (including the FinTech subpoenaed here) in issuing allegedly fraudulent PPP loans.
Most of the DOJ’s enforcement efforts have focused on applicants who fraudulently obtained CARES Act funds, but this investigation shows that the government also is directing enforcement efforts to FinTechs that administered CARES Act funds. These enforcement efforts could have extreme consequences for lenders under the FCA, including treble damages and civil penalties for all fraudulent claims caused to be submitted to the government. Here, the government is likely to bring FCA claims on the theory that Fintechs caused false claims to be submitted to the SBA by failing to adequately screen for fraudulent PPP applications. The FCA also allows private whistleblowers to bring suit on behalf of the government, meaning that any employee of a FinTech or financial institution (or even an unaffiliated individual) could initiate a suit under similar theory of liability.