On June 3, a filing in federal court in the Southern District of Florida by an Atlanta-based FinTech company revealed that the small business lender was under investigation by the DOJ for alleged practices of approval of PPP loans. According to the FinTech, as of August 2020, it had processed more than $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 said “the US Attorney’s Office in Boston has investigated [the FinTech] under the False Claims Act, on the theory that [the Fintech] improperly approved PPP loans that were blatantly fraudulent or did not comply with Small Business Administration (“SBA”) parameters”. Because of this ongoing investigation, the FinTech argued that “the subpoena presents an undue — and, equally importantly, unnecessary — burden and undermines the FinTech’s ability to defend itself. The court dismissed the FinTech’s request.
put into practice: This rare disclosure of a pre-charge DOJ investigation warns that the government continues to focus its enforcement efforts on the FinTechs that administered the PPP loans. 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 detailed in a previous blog post, 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 is likely to file a complaint with the FCA over the theory that fintechs 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 a similar liability theory.