PPP Loan Fraud Provides Proof of Concept for Data-Driven Whistleblowers
A few years ago, I wrote a blog called “Mining for Gold” about data miners using publicly available data to root out fraud and file False Claims Act cases based on their findings. At the time, there had been some rudimentary efforts to use Paycheck Protection Program loan data released by the Small Business Administration to find potential fraud. For example, I referenced a relator who reviewed the loan data for multiple loan applications by a single entity. It was then up to the federal government to investigate whether the entities had actually violated the regulations by receiving multiple loans.
It wasn’t clear how these efforts were going to evolve, or how the Department of Justice’s view of these efforts would similarly evolve. But since then, the data miners have stepped up their games with more sophisticated methods and theories. There are still data miners performing manual reviews of the PPP loan data and finding good cases, but others are developing algorithms to scan the data and look for outliers or using artificial intelligence to uncover well-hidden fraudsters. The data miners follow these findings up with manual investigations and evidence gathering to bolster their case and weed out the false positives. The end result is a robust package brought to the Department of Justice with more certainty of fraud than the original, more speculative cases.
And the federal government has responded in kind, intervening and settling many of these cases. In fact, many of the high-profile PPP-based False Claims Act recoveries have resulted from data mined cases. Data mined cases resulting in settlements have included:
– A $9 million settlement with a roofing company that filed for loans for each location when it was collectively too large to qualify for PPP funds.
– $5.8 million in settlements, and counting, resulting from a single relator who filed cases against hundreds of country clubs and homeowners associations.
– Cases based on eligibility certifications, including Chinese-owned companies, political think tanks, marijuana related businesses, and owners with pending criminal charges or fraud convictions.
And with more than any other government program, data miners have been a necessity to bring PPP fraud cases. By the end of the program, more than 11.5 million loans were issued and more than 10.5 million of those loans were forgiven. The federal government estimates that approximately 17% of CARES Act funds were disbursed to potentially fraudulent actors. If the U.S. Government were left to rely on classic “insider” whistleblowers, reporting just the one or two loans their employer received, very little of those funds would be recovered.
Instead, over the last two years, a small number of data miners have done the work of hundreds, if not thousands, of whistleblowers. And so, as it turns out, my original blog was aptly named. Not only have these industrious individuals received relator shares and incentives for their whistleblowing, but when news broke of the substantial settlements and rewards to data-miners, more and more PPP prospectors have come out of the woodwork seeking to use modern techniques to catch fraudsters in what has become a modern-day gold rush.
Unfortunately, much like in the original gold rushes, many of these data miners are likely to unearth fool’s gold and return home empty-handed. Under the False Claims Act, only the first person to file a claim is entitled to a reward, and so a data miner could waste a lot of time and resources pursuing a theory that others have already picked clean. But with an estimated $34 billion in PPP fraud, clever and creative data miners are sure to come up with new methods or legal theories that have not yet been pursued.
The application of AI and new computing and data analytics power to whistleblowing has proven effective in the PPP loan fraud space. It is likely that these same techniques will now be used by data-driven whistleblowers to unearth fraud on the public fisc in new areas. The future is bright for fraud-finders and bleak for fraudsters – which we all benefit from.
Jason Marcus is a Partner at Bracker & Marcus
