Joseph Nocella, Jr., United States Attorney for the Eastern District of New York, announced on May 7 that Lafayette 148, Inc., a Brooklyn-based clothing company, has agreed to pay $3 million to resolve allegations that it violated the federal False Claims Act by falsely certifying its eligibility for a second-draw Paycheck Protection Program loan and obtaining forgiveness of that loan.
The case highlights ongoing efforts by federal authorities to hold companies accountable for misuse of COVID-19 relief funds intended for small businesses. The settlement follows an investigation into whether Lafayette misrepresented its number of employees and its business operations related to China in order to secure government assistance during the pandemic.
“Congress created the Paycheck Protection Program to help eligible small businesses survive the severe disruptions of the COVID-19 pandemic by offering loans that could be forgiven if program rules were followed,” said Nocella. “Unfortunately, Lafayette applied for and took government money to which they were not entitled. Our Office will continue to investigate and hold companies accountable who took advantage of pandemic relief programs.”
SBA General Counsel Wendell Davis said, “SBA is committed to identifying and pursuing those alleged to have perpetrated fraud on COVID Relief Programs to the detriment of small businesses. By working closely with the US Attorney’s Office in the Eastern District of New York and our other law enforcement partners, SBA continues its enhanced efforts to uncover fraud and pursue recoveries on behalf of taxpayers.”
According to information released as part of this announcement, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020. The CARES Act authorized forgivable PPP loans administered by SBA for eligible small businesses impacted by COVID-19. Second-draw PPP loans required applicants not employ more than 300 employees.
The settlement resolves a case brought under qui tam provisions allowing private parties—known as relators—to sue on behalf of the United States; here, such a party will receive a ten percent share from this recovery. There has been no determination or admission of liability in this matter.
