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Case Law Commentary: False Claims Act to recover monies due to SBA loan default paid through the SBA Loan Guaranty Program

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Case Law Commentary: False Claims Act to recover monies due to SBA loan default paid through the SBA Loan Guaranty Program

We provide individuals who are facing either SBA Personal Guarantees, SBA loan default or DOT collection action with solutions. For instance, we help you understand different SBA loan problems or Treasury Department collection actions and teach you about either the SBA offer in compromise or DOT compromise package.

United States of America v. Repass, 688 F. 2d 154 (1982) involved an appeal by the defendant(s) with respect to a lower court’s decision granting the Government’s summary judgment motion against him and his co-defendants to recover, under the False Claims Act, 31 U.S.C. § 231 et seq., monies paid out by the Small Business Administration (SBA) on a falsely obtained loan guaranty, together with statutory penalties for making such a false claim.

The original complaint alleged that the defendants conspired together and submitted loan application and documents to the originating bank, which approved the loan, subject to a 90% guarantee by the SBA which was thereafter obtained. The borrowing company subsequently defaulted on the SBA loan and the SBA paid the originating bank the guaranteed amount, plus interest, less payments made before the SBA loan default.

The complaint claimed that the defendants knowingly made the following false statements in the loan application submitted to the bank and the SBA:

1/ The borrower company was portrayed as a distribution company, whereas in fact it was a publishing companyThe documents represented that no compensation was to be paid in connection with the loan application, whereas in fact the defendants had arranged that several individual would receive $75,000 and other considerations as fees for helping with the loan application, and that a 2% commission would be paid to one of the co-defendants for helping to persuade the originating bank to approve the application

2/ The figures listed for use of proceeds, collateral, assets, gross sales, sales returns, profit and projections were grossly overstated

The False Claims Act, 31 U.S.C. § 231 (1976) provides in relevant part:

"Any person ... who shall make or cause to be made, or present or cause to be presented, for payment or approval, to or by any person or officer in the civil, military, or naval service of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious, or fraudulent, or who, for the purpose of obtaining or aiding to obtain the payment or approval of such claim, makes, uses, or causes to be made or used, any false bill, receipt, voucher, roll, account, claim, certificate, affidavit, or deposition, knowing the same to contain any fraudulent or fictitious statement or entry, or who enters into any agreement, combination, or conspiracy to defraud the Government of the United States, or any department or officer thereof, by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim ... shall forfeit and pay to the United States the sum of $2,000, and, in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such act, together with the costs of suit; and such forfeiture and damages shall be sued for in the same suit."

The defendant in this case tried to discharge the Government’s debt amount, FCA claims and damages vis-à-vis a Chapter 7 bankruptcy petition that he filed.  The court ruled against this attempt.

In the case at bar, the Government was allowed to pursue the defendants for making false claims and representations in the submission of their loan application materials and documents to the originating bank.

However, the originating bank was a "person" that received 90% of the SBA Guaranty monies upon default by the borrowing company and the personal guarantors.  The originating bank submitted the “demand kit” to the Government to “honor” and pay it the taxpayer monies upon default by the borrowing company.  So, if the bank received the monies from the Government and the bank “knew or should have known” that there were “falsities” and “misrepresentations” contained in the loan application materials and documents – which the bank ultimately approved per applicable underwriting guidelines – but then passed on to the Government through the SBA loan guaranty program, the important question - which was never addressed or answered - should have been – why didn’t the Government recover the SBA Guaranty monies paid out to the originating bank in connection with its role with respect to the fraudulent transactions? Why did the Government just pursue the claimed debt and FCA damages solely from the defendants - the borrowing company and personal guarantors?

Dealing with the idea that you might be facing SBA debt can be terrifying. The SBA attorneys in our office are skilled at helping clients understand all of the facets of their situations.

The attorneys in our office want to help you figure out your SBA debt or DOT debt. No matter how difficult your circumstances may seem, the right lawyer can assist you. We understand that you probably have questions regarding a wide range of issues, including how to respond to an SBA or DOT demand letter, what SBA loan foreclosure actually entails, and what a tax offset program is. One of our specialists can tell you about all of these topics and more. We urge you to read our blog to learn more about subjects that are confusing to you and to contact us right away if you have specific questions. We look forward to working with you during this period of your life.

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Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

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Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.

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