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Court Filing Reveals DOJ Investigating Administration of PPP Loans by Fintech | Sheppard Mullin Richter & Hampton LLP


A filing in federal court by a fintech company revealed that it was under investigation by the Department of Justice (“DOJ”) regarding its Check Protection Program loan approval practices. payroll (“PPP”) for over a year. This rare disclosure of a pre-charge DOJ investigation warns that the government is refocusing its enforcement efforts on the fintechs and financial institutions that administered the PPP loans.

The fintech under investigation is an online lending services company that lends to small businesses and has processed more than $7 billion in PPP loans to at least 300,000 businesses. The fintech has revealed it is under investigation by the DOJ as it responds to a subpoena in an unrelated Southern District of Florida case where a person was accused of submitting fintech fraudulent PPP loan applications. Seemingly unaware of the ongoing fintech investigation, the government in the criminal case sought testimony about how the fintech administered PPP loans and loan applications.

The fintech filed a motion to quash the subpoena in June, saying the DOJ was already investigating its conduct under the False Claims Act (“FCA”) in a separate case over the theory that it improperly approved claims. PPP loans that were obviously fraudulent or not. in the Small Business Association (“SBA”) settings. According to the same filing, the DOJ is also investigating the adequacy of fintech fraud and anti-money laundering controls. The fintech argued that it should not be forced to testify as a non-party when it was under investigation for the same conduct for which it was subpoenaed to testify, but the court rejected the motion shortly after it is filed.

This leaked investigation adds to the ongoing fallout for the fintechs that administered the PPP loans. The government and media have often accused fintechs of being gateways for PPP fraud due to their less robust anti-fraud controls compared to traditional financial institutions. As previously detailed here, in June 2021, the House Select Subcommittee on the Coronavirus Crisis opened investigations into the role of four fintechs (including the fintech cited 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 the government is also directing enforcement efforts at fintechs who have administered CARES Act funds. CARES law. These enforcement efforts could have extreme consequences for lenders under the FCA, including treble damages and civil penalties for any fraudulent claims submitted to the government. Here, the government could bring claims to the FCA on the theory that financial institutions caused misrepresentations to the SBA by failing to adequately screen fraudulent PPP applications. The FCA also allows private whistleblowers to sue on behalf of the government, meaning any employee of a fintech or financial institution (or even an unaffiliated person) could sue under of a similar theory of liability.

put into practice: Lenders who have administered PPP loans would be advised to review their loan administration protocols to ensure they have complied with their anti-fraud and anti-money laundering responsibilities.