Did My Employer Actually Qualify for a PPP Loan?
It’s an important question. If a company or nonprofit received a Paycheck Protection Program (PPP) loan despite being ineligible under federal law, a whistleblower can file a qui tam lawsuit under the False Claims Act (FCA). In many cases, these lawsuits trigger investigations by the Department of Justice (DOJ), Small Business Administration (SBA), and even the FBI, leading to settlements or trials.
Did My Employer Actually Qualify for a PPP Loan?
Many small businesses and nonprofits were eligible for PPP loans, but only if they met strict criteria under 26 U.S. Code § 501. For example, 501(c)(3) charities could apply for PPP loans only if they had 500 or fewer employees per physical location. Other businesses could apply only if they had 500 or fewer employees total.
Despite these clear rules, some large organizations misrepresented their size or ignored SBA affiliation rules to secure PPP funds they weren’t entitled to.
How Whistleblowers Help Uncover PPP Loan Fraud
Fraud doesn’t always involve fake businesses or forged documents. In some cases, the fraud is as simple as a company falsely claiming it met the 500-employee cap—a violation of both the PPP loan rules and the False Claims Act.
In a recent case, a whistleblower (or relator) alleged that Hawthorne Machinery applied for and received a PPP loan by falsely certifying that it had fewer than 500 employees. The company allegedly failed to disclose affiliated entities, which would have pushed its actual employee count above the threshold. The court found that the whistleblower’s claims were strong enough to proceed under the FCA, meaning the company could be held liable for fraud.
If a business or nonprofit you worked for misrepresented its employee count or otherwise lied about its eligibility to receive a PPP loan, you may have grounds for a qui tam lawsuit.
What Happens When a Whistleblower Files a Qui Tam Case?
When a whistleblower reports PPP loan fraud, the government investigates to determine whether to intervene in the case. The DOJ, SBA, and sometimes the FBI will analyze financial records, interview key witnesses, and examine internal documents to see if fraud occurred.
Companies found guilty of PPP fraud face serious penalties, including:
- Treble damages (three times the amount of the fraudulent loan)
- Civil fines under the False Claims Act
- Criminal charges for egregious fraud cases
Whistleblower Rewards and Legal Protections
Under the False Claims Act, whistleblowers who expose PPP loan fraud may be entitled to 15–30% of any funds the government recovers. In cases where the fraud is significant, this can mean hundreds of thousands of dollars in whistleblower rewards.
Additionally, the FCA protects whistleblowers from retaliation, including termination, demotion, or harassment. If you were fired or faced other adverse actions for reporting PPP fraud, you may have additional legal claims against your employer.
Do You Have Evidence of PPP Loan Fraud? Speak With a Lawyer.
If you believe a former employer lied about its PPP loan eligibility, speak with an attorney experienced in whistleblower cases under the False Claims Act. These cases require strong documentation and an understanding of SBA loan rules, which a lawyer can help navigate.
