PPP Loans: Not Out of the Woods Yet
By Andrew G. Thomas & W. Kirby Bissell
Applying for PPP loans and loan forgiveness under the CARES Act is likely a distant memory for many businesses, but this saga is not quite over. The United States Department of Justice (“DOJ”) has recently intensified civil fraud investigations relating to PPP loans and forgiveness of those loans. Specifically, the DOJ is sending out document requests, called Civil Investigative Demands (“CID”). CID letters are similar to subpoenas, and typically request production of a variety of documents and/or response to written questions (a/k/a interrogatories). However, unlike subpoenas, CID letters can only be sent before litigation—allowing the government to effectively investigate potential claims before filing any lawsuit.
The CID letters we have seen have been sent under the False Claims Act, and generally seek information to determine whether businesses made false statements, or caused false statements to be made, in obtaining PPP loans or forgiveness of those loans. This is notable, because the False Claims Act’s penalties include treble damages (3 times the loan forgiveness amount) for violations, in addition to other potential fines, meaning potential risk is high.
What should you do if your dealership or related business receives a CID letter? The priority should be hiring an attorney that you trust to handle the response and the production of any documents. We strongly caution against handling any response on your own, for a variety of reasons. First and foremost, communication with the DOJ will be necessary to provide responses and ask questions, and as a general rule it is always preferable to have any communications go through an experienced attorney to limit potential risks. Second, the response times for CID letters are very short—typically 20 days from the date the letter is received. As such, most businesses will need an extension from the DOJ in order to conduct a proper internal investigation and to locate any requested documents. Finally, the DOJ has strict guidelines and formats for the production of documents, so in many cases it is critical to have an attorney familiar with the production of electronically stored information (“ESI”).
While it is possible to “fight” a CID letter by challenging it in court, the government’s powers to conduct these types of investigations are very broad, and challenges are rarely successful. Further, even if a challenge is attempted, the entity still needs to be prepared to produce documents and responses in a timely manner if the challenge does not succeed. Related Note: We have also seen an uptick in the Small Business Administration’s (“SBA”) review of loan forgiveness applications, which typically results in requests for additional documentation relating to the PPP loans and forgiveness. These requests are much more informal than the CID letters, and it is unclear whether they may be related to any potential and/or future DOJ investigations.