DOJ investigates FinTech over OPS loans | Sheppard Mullin Richter & Hampton LLP
On June 3, a federal lawsuit filed in the Southern District of Florida by an Atlanta-based FinTech company revealed that the small business lender is under DOJ investigation for alleged PPP loan approval practices. According to FinTech, by August 2020 it processed over $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, FinTech stated that “the Boston US Attorney’s Office has investigated [the FinTech] under the False Claims Act, on the theory that [the Fintech] erroneously approved OPS loans that were either patently fraudulent or not within Small Business Administration (“SBA”) parameters.” Because of this ongoing investigation, FinTech argued that “the subpoena poses an ‘undue—and, more importantly, unnecessary—burden'” and jeopardizes FinTech’s ability to defend itself. The court denied FinTech’s motion.
Putting it into practice: This rare disclosure of a pre-indictment DOJ investigation signals that the government is continuing to focus its enforcement efforts on FinTechs that managed PPP loans. This revealed investigation adds to the continuing fallout for FinTechs that managed PPP loans. Government and news reports have often accused FinTechs of being gateways for PPP fraud due to their less robust anti-fraud controls compared to traditional financial institutions. As described in a previous blog, in June 2021 the House Select Subcommittee on the Coronavirus Crisis opened investigations into the role of four FinTechs (including the FinTech subpoenaed 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 that the government is also directing enforcement efforts against FinTechs that administered CARES Act funds. These enforcement efforts can have extreme consequences for lenders under the FCA, including treble damages and civil penalties for all fraudulent claims submitted to the authorities. Here, the authorities are likely to bring FCA claims on the theory that the Fintechs caused false claims to be submitted to the SBA by failing to adequately screen for false PPP applications. The FCA also allows private whistleblowers to sue on behalf of the government, meaning that any employee of a FinTech or financial institution (or even an unrelated person) can bring a case under a similar theory of liability.
