PPP Loan Lopez

FELDMAN FIRM OBTAINS DECLINATION OF PROSECUTION IN PPP LOAN FRAUD INVESTIGATION

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FELDMAN FIRM OBTAINS RARE DECLINATION OF PROSECUTION IN PPP LOAN FRAUD INVESTIGATION TARGETING FIRM’S CLIENT

After more than 2 years, the government finally declined prosecution in a paycheck protection program (PPP) loan fraud investigation targeting the Firm’s client.

PPP Loan Lopez

The client was a recipient of the very first round of Small Business Administration (SBA) loans under the PPP loan program. The Firm’s client was (and is) a far cry from many of the egregious (and frankly absurd) PPP loan cases we see every day involving multiple loans for non-existent businesses and get-rich-quick schemes pioneered by all too typical South Florida fraudsters.

Instead, and in stark contrast to the criminals who brazenly pilfered federal funds at the expense of taxpayers, the Firm’s client operated a successful logistics business transporting cargo throughout the country. The company’s success had even garnered attention in local papers in the Tampa area. The company had employees, payroll, and dozens of contracted drivers. Fast forward to the pandemic and March of 2020. The economic uncertainties of the pandemic caused the business, like many successful businesses, to wind down operations.

In October of 2021, the government then began investigating the business and its principals in connection with civil litigation wholly unrelated to PPP loans.

The investigation involved many of the usual suspects: interviews of witnesses, grand jury subpoenas to financial institutions for financial records, and grand jury subpoenas to the company. However, there was one wrinkle you do not see that often. The government called witnesses to testify before a grand jury at least twice. Usually when that occurs, the purpose of the testimony is to return an indictment, not to test the validity of the government’s theory or its evidence.

Recognizing the flaws in the investigation and the prosecutions theory, the Firm had a series of meetings with the government which were ultimately non-committal. The Firm then presented a white paper about the SBA PPP loan program, reinforced the good character and strong community ties of the client, and proposed alternatives to prosecution consistent with the directives in the Justice Manual.

In the end, justice prevailed. The government declined prosecution and the client’s life continues uninterrupted without the lingering threat of a federal indictment.

 The Firm represents clients under investigation and accused of paycheck protection program PPP loan fraud. We would be more than happy to confer with you if you or your business has been the subject of a grand jury subpoena, civil investigative demand, or government inquiry involving a loan under the SBA paycheck protection program.

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Prosecuting the Foreign Official for Demand Side Bribery

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PROSECUTING THE FOREIGN OFFICIAL TAKING THE BRIBE

Congress has proposed the passage of a law, the Foreign Extortion Prevention Act (FEPA), that would enable prosecutors to prosecute a foreign official, a foreign political candidate, instrumentalities of foreign governments, etc. who take bribes or “anything of value.”

The proposed law would become part of 18 U.S.C. Section 201 which criminalizes the “bribery of public officials and witnesses.” It would not, however, become part of the Foreign Corrupt Practices Act (FCPA). It is no mystery that the law is intended to fill a gap left open by the text of the FCPA and closed by federal courts of appeal which have consistently held that federal prosecutors cannot prosecute a foreign official for violations of the FCPA. See United States v. Castle, 925 F.2d 831 (5th Cir. 1991) (“In this case, we are called upon to consider the Foreign Corrupt Practices Act of 1977 (hereinafter referred to”FCPA”), 15 U.S.C. §§ 78dd- 1, 78dd-2, and determine whether “foreign officials,” who are excluded from prosecution under the FCPA itself, may nevertheless be prosecuted under the general conspiracy statute, 18 U.S.C. § 371, for conspiring to violate the FCPA. We hold that foreign officials may not be prosecuted under 18 U.S.C. § 371 for conspiring to violate the FCPA.”); United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018) (reaching similar conclusions and barring prosecution of FCPA offenses under conspiracy and aiding and abetting theories where defendant is not in one of the three cognizable categories under 15 U.S.C. Section 78dd-1, 78dd-2, or 78dd-3).

The truth is, however, that this law – whether passed or not – is just another hammer for federal prosecutors for the same conduct they already prosecute using money laundering statutes. The government may prosecute a foreign official under the promotional prong of the money laundering statute. Indeed, the government has prosecuted multiple foreign officials under that prong by asserting that money which is sent from the U.S. to a foreign country (or vice-versa) was used to promote the carrying on of violations of the FCPA or, better yet, violations of foreign bribery laws pursuant to 18 U.S.C. Section 1956(c)(7)(b)(iv).

The critical portions of the revised law would create a new Section 201 (a)(4)-(5) that would greatly expand the definition of what constitutes a public official under 201 by including a “foreign official.” It would also include “a public international organization” within the definition of a “foreign official.”

‘‘(4) the term ‘foreign official’ means—

(A)

(i) any official or employee of a foreign government or any department, agency, or instrumentality thereof; or

(ii) any senior foreign political figure, as defined in section 1010.605 of title 31, Code of Federal Regulations, or any successor regulation;

(B) any official or employee of a public international organization;

(C) any person acting in an official capacity for or on behalf of—

‘(i) a government, department, agency, or instrumentality described in sub20

paragraph (A)(i); or

(ii) a public international organization; or

(D) any person acting in an unofficial capacity for or on behalf of—

(i) a government, department, agency, or instrumentality described in sub3

paragraph (A)(i); or

(ii) a public international organization; and

‘‘(5) the term ‘public international organization’ means—‘‘(A) an organization that is designated by Executive order pursuant to section 1 of the International Organizations Immunities Act (11 U.S.C. 288); or (B) any other international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order  in the Federal Register.

The offense portion of the FEPA would be found at Section (f) which is set forth below. The language in the new prohibition would apply to foreign officials regardless of whether the conduct occurred “while in the territory of the U.S.” which is a departure from the plain text of the FCPA and language in 15 U.S.C. Section 78dd-3.

(f) PROHIBITION OF DEMAND FOR A BRIBE.—

(1) OFFENSE.—It shall be unlawful for any foreign official or person selected to be a foreign official to corruptly demand, seek, receive, accept, or agree to receive or accept, directly or indirectly, anything of value personally or for any other person or nongovernmental entity, by making use of the mails or any means or instrumentality of interstate commerce, from any person (as defined in section 104A of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. 78dd–3), except that that definition shall be applied without regard to whether the person is an offender) while in the territory of the United States, from an issuer (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a))), or from a domestic concern (as defined in section 104 of the Foreign Corrupt Practices Act of 1977 (15 U.S.C. 78dd–2)), in return for—

(A) being influenced in the performance of any official act;

(B) being induced to do or omit to do any act in violation of the official duty of such foreign official or person; or

(C) conferring any improper advantage, in connection with obtaining or retaining business for or with, or directing business to, any person.

The Firm defends foreign nationals and foreign officials in public corruption and FCPA investigations. The Firm also has experience representing foreign nationals from South America including Argentina, Brazil, Ecuador, Peru, and Venezuela in FCPA and money laundering investigations. The Firm is also one of the few law firms in the U.S. to have tried an FCPA case before a jury.

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False Claims Act “Knowingly” Means What It Says

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Putting the Subjectivity Back in False Claims

The False Claims Act is a powerful tool used by the government and private citizens to ferret out and prosecute false claims. It is also an extraordinarily attractive device for whistleblowers who may claim they are the “original source” of information because it may lead to multi-million-dollar settlements and triple damages. The two major categories of false claims the government investigates are: (1) false claims in the healthcare space and (2) false claims in the government contractor space, especially defense contractors. Within that second category of false claims, the government, and its whistleblowers are targeting PPP fraud cases in various sectors.

Supreme Court Case- Returning to Subjectivity

Salivating whistleblowers aside, in a very recent False Claims Act Supreme Court Decision, the Supreme Court reversed a Seventh Circuit opinion that was favorable to the defense bar, but (and it’s a big “but”) the Supreme Court also made it very clear that the plain text of the Act and the word “knowingly” must be viewed through a subjective lens when district courts consider what amounts to false claims. It is not what an objective person should or would know, it is what the defendant subjectively understood or knew at the time of the supposed false claims to a government program. The reason that the government prevailed on appeal, (and why the government is now celebrating) is because the Seventh Circuit opinion turned traditional concepts of knowledge upside down when you consider false claims. And, as Justice Thomas reinforced:

What matters for an FCA case is whether the defendant knew the claim was false. Thus, if respondents correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false.

Simple. If you know what you are doing is wrong or understand (or have been told) that what you are doing is wrong then you cannot, in hindsight, try to then create an objectively reasonable interpretation of the defense after-the-fact. That makes no sense to me.

Greatest Hits from The Opinion

The opinion starts with a simple, straightforward concept:

The False Claims Act (FCA) imposes liability on anyone who “knowingly” submits a “false” claim to the Government. 31 U. S. C. §3729(a). In some cases, that rule is straightforward: If a law authorized payment of $100 for “each” medical test, and a doctor knows that he did five tests but submits a claim for ten, then he has knowingly submitted a false claim. But sometimes the rule is less clear. If a law authorized payment for only “customary” medical tests, some doctors might be confused when it came time for billing. And, while some doctors might honestly mistake what that term means, others might correctly understand whatever “customary” meant in this context—and submit claims that were inaccurate anyway.

  • Page 8: “The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”
  • Page 10: “On their face and at common law, the FCA’s standards focus primarily on what respondents thought and believed. First, the term “actual knowledge” refers to whether a person is “aware of” information. Second, the term “deliberate ignorance” encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statement’s truth or falsity. And, third, the term “reckless disregard” similarly captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway. Again, that tracks traditional common-law fraud, which ordinarily “depends on a subjective test” and the defendant’s “culpable state of mind.” What typically matters at common law is whether the defendant made the false statement “without belief in its truth or recklessly, careless of whether it is true or false.” (all citations omitted/cleaned up)
  • Pages 11-12: We assume (as the District Court ruled in SuperValu’s case) that respondents’ “usual and customary” prices were their discounted ones; if so, it might have been a forgivable mistake if respondents had honestly read the phrase as referring to retail prices, not discounted prices. But the Seventh Circuit did not hold that respondents made an honest mistake; it held that, because other people might make an honest mistake, defendants’ subjective beliefs became irrelevant to their scienter.”
  • Pages 12-13: To illustrate why consider a hypothetical driver who sees a road sign that says “Drive Only Reasonable Speeds.” That driver, without any more information, might have no way of knowing what speeds are reasonable and what speeds are too fast. But then assume that the same driver was informed earlier in the day by a police officer that speeds over 50 mph are unreasonable and then noticed that all the other cars around him are going only 48 mph. In that case, the driver might know that “Reasonable Speeds” are anything under 50 mph; or, at the least, he might be aware of an unjustifiably high risk that anything over 50 mph is unreasonable. Indeed, if the same police officer later pulled the driver over, we imagine that he would be hard pressed to argue that some other person might have understood the sign to allow driving at 80 mph.

Final Takeaways

Each of these significant passages from the opinion more than amply demonstrate that proving scienter under the False Claims Act is not automatic. The opinion may not have any practical impact on motions to dismiss and the application of the stringent 9(b) pleading standard, but it should make a difference at the summary judgment phase. And, it should make an even bigger difference during a trial. Defense lawyers would be well-advised to incorporate the critical portions of the opinion into jury instructions and even theory of the defense jury instructions and then use those same instructions in closing arguments to convey their message to the jury.

Mr. Feldman and the Firm defend health care providers and organizations and government contractors against false claims allegations in False Claims Act investigations and civil investigations.

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Andrew Feldman and Marissel Descalzo Obtain A Judgment of Acquittal in Fraud Trial

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Andrew S. Feldman from the Firm and Marissel Descalzo, a partner at Tache Bronis & Descalzo, P.A. obtained a rare Rule 29 judgment of acquittal on the one major count at trial alleging that the client participated in a wire fraud conspiracy. The wire fraud conspiracy related entirely to the client’s supposed involvement in a fraudulent clinical trial for Asthma drugs sponsored by GlaxoSmith Kline (GSK). From 2014 until August of 2015, the client was a research coordinator for a company in Miami which performed clinical trials sponsored by multi-national companies. In 2017, GSK and the FDA’s Office of Criminal Investigation spearheaded an investigation into an alleged fraudulent clinical trial at the Miami research company. The investigation also focused intensely on the clinical investigator (a licensed physician) and her medical practice from which many of the study participants had originated. During the investigation, the FDA unearthed irregularities with respect to that clinical trial. The FDA and DOJ were then able to approach and obtain cooperating witnesses, and, ultimately, filed charges against five defendants. The Department of Justice inked plea agreements with four co-defendants. The client was the lone defendant who exercised her Sixth Amendment right to a jury trial.  

The jury trial lasted approximately two weeks and the government called 12 witnesses, including FDA agents and expert witnesses from around the United States. The government also called two cooperating defendants to testify against the client.  

The Firm is very happy with the victory for the client. The Firm also thanks Mrs. Descalzo for her incredible performance during trial. The Firm represents clients in complex fraud trials including clinical trial fraud cases investigated by the Food Drug Administration (FDA). The Firm looks forward to representing clients in FDA criminal cases or cases involving allegations of fraud related to the performance of a clinical trial.  

 

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