Small Business Administration
The Small Business Administration (“SBA”) is a federal agency which assists small business through several programs to help entrepreneurs create and maintain a small and/or minority-owned business. Under Section 8(a) of its Business Development Program, applicants who believe they meet the eligibility criteria can submit their business plans. If approved, they will receive financial assistance from the SBA. The criterion includes factors such as evidence of economic or social disadvantage, diminished credit opportunities, or identification as one a minority group. Proof of this disadvantage must be submitted in the form of written statements and tax returns.
The SBA provides financial assistance to small businesses primarily by guaranteeing up to 85% of the value of loans made by private lenders. However, large and otherwise ineligible businesses have illegally obtained billions of dollars by falsely certifying compliance with SBA requirements. Examples of false certification may involve misrepresentations regarding a company’s minority status or affiliation with a larger contractor. Either the business obtaining the loan or the private company lending the money may be liable under the FCA for falsifying information in the process of obtaining a loan through the SBA.
Many of the prosecutions for SBA loan fraud are conducted as part of the interagency Financial Fraud Enforcement Task Force (“FFETF”) set up in 2009 by the Obama Administration. As the largest coalition ever assembled to investigate and prosecute financial fraud, the task force was designed to beef up investigatory and prosecutorial powers to combat significant financial fraud, recover the proceeds, and ensure to punish those involved.
Ciena Capital LLC, an SBA loan provider, allegedly engaged in the falsification of loan documents, inflation of property appraisals, and the use of straw purchasers to engage in sham transactions. In this case it was the loan provider, not the individual business, that supplied the government with false information which resulted in improper payment. This conduct resulted in a $26.3 million settlement in May 2010.
In March 2014, Oakland Construction Co. Inc. agreed to pay $928,000 to settle FCA violations related to the SBA’s disadvantaged business program. Oakland allegedly fraudulently entered into a joint venture with a disadvantaged business to obtain government construction contracts that were set aside for small and minority-owned businesses. Specifically, Oakland submitted false information to the SBA to give the appearance that it qualified to form the joint venture. It used the disadvantaged business to obtain the contract and then collected the government’s payments for labor and construction. The disadvantaged business was barely involved in the work.
In April 2014, five masonry subcontractors and two individual based in California paid the government nearly $1.9 million to resolve allegations that they violated the FCA by making false representations to the SBA of their disadvantaged status in order to obtain military construction contracts. The relevant contracts were to construct facilities at Marine Corps bases at Camp Lejeune, N.C., and Camp Pendleton, California. SBA rules requires a certain percentage of the work to be done by disadvantaged small businesses, including those run by women and minorities.