Small Business Lending Industry Briefing

Transcription

1 Small Business Lending Industry Briefing Featuring Bob Coleman & Charles H. Green 1:50-2:00 PM E.T. Log on 10 minutes early before every Coleman webinar for a briefing on issues vital to the small business lending industry with your hosts: Bob Coleman, Editor of the Coleman Report & Charles H. Green, Small business financing expert and author of bestselling The SBA Loan Book, 3 rd Edition. 1

2 FEDERAL FALSE CLAIMS ACT AND THE SMALL BUSINESS ADMINISTRATION Coleman Webinar April 4, 2013

3 How to Ask Questions Use Go to Meeting's chat function, you can choose to ask question in writing or verbally. If comfortable, give us your first name, name of bank, and city. Send an to

4 FEDERAL FALSE CLAIMS ACT AND THE SMALL BUSINESS ADMINISTRATION WHAT EVERY SBA LENDER SHOULD KNOW ABOUT THE FEDERAL FALSE CLAIMS ACT NORMAN E. GREENSPAN, ESQ. STARFIELD & SMITH P.C.

5 DOJ FALSE CLAIMS ACT RECOVERIES 2012 Department of Justice Office of Public Affairs FOR IMMEDIATE RELEASE Tuesday, December 4, 2012 Justice Department Recovers Nearly $5 Billion in False Claims Act Cases in Fiscal Year 2012 Largest Annual Recovery in Department History Department Also Sets Records for Health Care and Mortgage Fraud Recoveries And Recoveries in Whistleblower Suits The Justice Department secured $4.9 billion in settlements and judgments in civil cases involving fraud against the government in the fiscal year ending Sept. 30, This figure constitutes a record recovery for a single year, eclipsing the previous record by more than $1.7 billion, and brings total recoveries under the False Claims Act since January 2009 to $13.3 billion which is the largest four-year total in the Justice Department s history and more than a third of total recoveries since the act was amended 26 years ago in 1986.

6 COMPANY TOTAL SETTLEMENT CLAIM CASE INITIATED BY Bank of America $1,000,000,000 Mortgage and bank fraud Deutsche Bank $202,300,000 False certification for HUD/FHA loans Citigroup $158,000,000 FHA home loan approval fraud Whistleblowers and Federal Government Federal Government Whistleblowers Bank of America, JPMorgan, Wells Fargo, and Citigroup $95,000,000 Mortgage and bank fraud Whistleblowers JPMorgan Chase $45,000,000 Mortgage and bank fraud Whistleblowers

7 PNC BANK SETTLEMENT WITH SBA 64 loans issued to Borrowers to purchase Uni-Mart franchises, 36 failed Put SBA on notice that something may be wrong Investigation by SBA s Inspector General No criminal charges SBA was prepared to file and prosecute a lawsuit alleging violations of the False Claims Act PNC relied on unaudited financials provided by the Borrowers Failed to engage in prudent underwriting practices $7,100,000 paid by PNC to settle possible claims under the FCA Corrective action SBA not satisfied with denying the request to honor the guaranty PNC penalized by losing the guaranty and paying the settlement Clear message to participants in SBA lending programs that fraud and misleading statements will not be tolerated

8 . THE INFORMERS LAW AKA THE LINCOLN LAW

9 AN ACT TO PUNISH FRAUDS ON THE UNITED STATES

10 AMENDMENTS 1943: Bars qui tam suits based on information the government had when the suit was brought 1986: Original source can make claim; fine increased to $5000 to $10,000 for each false claim; increased financial incentives by treble damages; protection for whistleblowers; expanded liability 2009: To enhance the ability to investigate and prosecute financial fraud. Applies to all entities that receive assistance from the government, directly or indirectly. Applies to claims presented to the government.

11 31 USC FALSE CLAIMS (a)(1) any person who (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; (C) conspires to commit a violation of [the Act] or (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government is in violation of this statute. 31 U.S.C. 3729(a)(1)

12 KNOWING AND KNOWINGLY (A) means that a person, with respect to information--(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information; and (B) require no proof of specific intent to defraud. 31 U.S.C. 3729(b)(1). the knowledge standard does not require actual knowledge of falsity for fraud; mere reckless disregard is sufficient to meet the knowledge requirements of the FCA.

13 CLAIM any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that--(i) is presented to an officer, employee, or agent of the United States. 31 U.S.C. 3729(b)(2).

14 PENALTIES is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C note; Public Law [1] ), plus 3 times the amount of damages which the Government sustains because of the act of that person. 31 U.S.C. 3729(a)(1) A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages. 31 U.S.C. 3729(a)(3)

15 CLAIMS BY PRIVATE PERSONS ON BEHALF OF THE UNITED STATES QUI TAM (b) Actions by Private Persons. (1) A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting. 31 U.S.C. 3730(b)(1)

16 QUI TAM PROCEDURE A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure. The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information. the Government shall (A) proceed with the action, in which case the action shall be conducted by the Government; or (B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action. 31 U.S.C. 3730(b)

17 AWARD TO QUI TAM PLAINTIFF (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys fees and costs. All such expenses, fees, and costs shall be awarded against the defendant. 31 U.S.C. 3730(d)(1) (2) If the Government does not proceed with an action under this section, the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds. Such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys fees and costs. All such expenses, fees, and costs shall be awarded against the defendant. 31 U.S.C. 3730(d)(2)

18 PROTECTION FOR THE WHISTLEBLOWER (1) In general. Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter. (2) Relief. Relief under paragraph (1) shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys fees. 31 U.S.C. 3730(h)

19 SAFE HARBORS No suit allowed: based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party, known as the First to File Rule.. 31 U.S.C. (b)(3) When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action 31 U.S.C. (b)(5) based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information U.S.C. (b)(3)

20 PROGRAM CIVIL FRAUD REMEDIES ACT OF 1986, 31 U.S.C et. seq (b) (1) Except as provided in paragraphs (2) and (3) of this subsection (A) a determination under section 3803 (a)(2) of this title that there is adequate evidence to believe that a person is liable under subsection (a) of this section; or (B) a determination under section 3803 of this title that a person is liable under subsection (a) of this section, may provide the authority with grounds for commencing any administrative or contractual action against such person which is authorized by law

21 (a) PROGRAM CIVIL FRAUD REMEDIES ACT OF 1986, 31 U.S.C et. seq (1) Any person who makes, presents, or submits, or causes to be made, presented, or submitted, a claim that the person knows or has reason to know (A) is false, fictitious, or fraudulent; (B) includes or is supported by any written statement which asserts a material fact which is false, fictitious, or fraudulent; (C) includes or is supported by any written statement that (i) omits a material fact; (ii) is false, fictitious, or fraudulent as a result of such omission; and (iii) is a statement in which the person making, presenting, or submitting such statement has a duty to include such material fact; or (D) is for payment for the provision of property or services which the person has not provided as claimed.

22 13 CFR PART PROGRAM FRAUD CIVIL REMEDIES ACT OF 1986 REGULATIONS What kind of conduct will result in program fraud enforcement? (a) Any person who makes, or causes to be made, a false, fictitious, or fraudulent claim or written statement to SBA is subject to program fraud enforcement. A person means any individual, partnership, corporation, association, or other legal entity. (b) If more than one person makes a false claim or statement, each person is liable for a civil penalty. If more than one person makes a false claim which has induced SBA to make payment, an assessment is imposed against each person. The liability of each such person to pay the assessment is joint and several, that is, each is responsible for the entire amount. (c) No proof of specific intent to defraud is required to establish liability under this part.

23 13 CFR PART PROGRAM FRAUD CIVIL REMEDIES ACT OF 1986 REGULATIONS (b) A statement submitted to SBA is a false statement if the person making the statement, or causing the statement to be made, knows or has reason to know that the statement: (1) Asserts a material fact which is false, fictitious, or fraudulent; or (2) Is false, fictitious, or fraudulent because it omits a material fact that the person making the statement has a duty to include in the statement. In addition, the statement must contain or be accompanied by an express certification or affirmation of the truthfulness and accuracy of the contents of the statement.

24 13 CFR PART PROGRAM FRAUD CIVIL REMEDIES ACT OF 1986 REGULATIONS What is a statement? A statement means any written representation, certification, affirmation, document, record, or accounting or bookkeeping entry made with respect to a claim or with respect to a contract, bid or proposal for a contract, grant, loan or other benefit from SBA. From SBA means that SBA provides some portion of the money or property in connection with the contract, bid, grant, loan, or benefit, or is potentially liable to another party for some portion of the money or property under such contract, bid, grant, loan, or benefit. A statement is made, presented, or submitted to SBA when it is received by SBA or an agent, fiscal intermediary, or other entity acting for SBA.

25 13 CFR PART PROGRAM FRAUD CIVIL REMEDIES ACT OF 1986 REGULATIONS What does the phrase know or have reason to know mean? A person knows or has reason to know (that a claim or statement is false) if the person: (a) Has actual knowledge that the claim or statement is false, fictitious, or fraudulent; or (b) Acts in deliberate ignorance of the truth or falsity of the claim or statement; or (c) Acts in reckless disregard of the truth or falsity of the claim or statement.

26 GROUNDS FOR ENFORCEMENT ACTIONS AGAINST SBA LENDERS Grounds for enforcement actions SBA Lenders. (c) Grounds in general. Except as provided in paragraphs (d) and (e) of this section, the grounds that may trigger an enforcement action against any SBA Lender (regardless of its Risk Rating) include:(3) Making a material false statement or failure to disclose a material fact to SBA. (A material fact is any fact which is necessary to make a statement not misleading in light of the circumstances under which the statement was made.); For immediate suspension of all SBA Lenders from delegated authorities upon a determination by SBA that one or more of the grounds in paragraph (c) or paragraph (f) of this section, as applicable, exist and that immediate action is needed to prevent significant impairment of the integrity of the 7(a) or 504 loan program. 13 CFR

27 18 USC 1001 FALSE STATEMENTS OR ENTRIES GENERALLY (A) except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the government of the united states, knowingly and willfully fact; (1) falsifies, conceals, or covers up by any trick, scheme, or device a material (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; Shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both. If the matter relates to an offense under chapter 109a, 109b, 110, or 117, or section 1591, then the term of imprisonment imposed under this section shall be not more than 8 years.

28 15 U.S.C FALSE STATEMENTS TO THE SBA Whoever makes any statement knowing it to be false for the purpose of obtaining for himself or for any applicant any loan, or extension thereof by renewal, deferment of action, or otherwise, or the acceptance, release, or substitution of security there for, or for the purpose of influencing in any way the action of the Administration, or for the purpose of obtaining money, property, or anything of value, under this chapter, shall be punished by a fine of not more than$5,000 or by imprisonment for not more than two years, or both.

29 18 U.S.C False Statements Generally (A) whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the government of the United States, knowingly and willfully (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry. 15 U.S.C. 645 False Statement to SBA Whoever makes any statement knowing it to be false for the purpose of obtaining for himself or for any applicant any loan, or extension thereof, or the acceptance, release, or substitution of security therefor, or for the purpose of obtaining money, property, or anything of value. 31 U.S.C False Claims Act Whoever (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.

30 THE INSPECTOR GENERAL ACT OF 1978, 5A U.S.C. 1, ET SEQ. Each Inspector General, in carrying out the provisions of this Act, is authorized (1) to have access to all records, reports, audits, reviews, documents, papers, recommendations, or other material available to the applicable establishment which relate to programs and operations with respect to which that Inspector General has responsibilities under this Act; (4) to require by subpoena the production of all information, documents, reports, answers, records, accounts, papers, and other data in any medium (including electronically stored information which subpoena, in the case of contumacy or refusal to obey, shall be enforceable by order of any appropriate United States district court. 4. DUTIES AND RESPONSIBILITIES; REPORT OF CRIMINAL VIOLATIONS TO ATTORNEY GENERAL

31 CIVIL INVESTIGATIVE DEMANDS Whenever the Attorney General, or a designee (for purposes of this section), has reason to believe that any person may be in possession, custody, or control of any documentary material or information relevant to a false claims law investigation, the Attorney General, or a designee, may, issue in writing and cause to be served upon such person, a civil investigative demand requiring such person (A) to produce such documentary material for inspection and copying, (B) to answer in writing written interrogatories with respect to such documentary material or information, (C) to give oral testimony concerning such documentary material or information, or (D) to furnish any combination of such material, answers, or testimony. 31 USC 3733

32 SBA DEMAND LETTER (FOR GUARANTY PURCHASE) I, [Officer of the Bank, Title], hereby certify, represent and warrant on behalf of [Lender] that all information and documentation submitted to the U.S. Small Business Administration in connection with this purchase request and/or post purchase review package is accurate, genuine and complete and contains true copies of [Lender s] records for this loan. I further certify that I have personally reviewed and confirmed, based upon [Lender's] records, the copy of [Lender's] Transcript of Account with respect to this loan provided herewith and that to the best of my knowledge and belief the information contained therein is true and accurate. I also certify to the best of my knowledge and belief that [Lender] has materially complied with the SBA Loan Program Requirements (as defined in 13 CFR ) applicable to this loan. By signing below, I represent and warrant that I have the proper authority to execute this document on behalf of [Lender]

33 SBA FORM 750 PARAGRAPH 7 By making written demand that SBA purchase the guaranteed portion of a loan, Lender shall be deemed thereby to certify that the loan has been disbursed and serviced in compliance with this agreement and that this agreement remains in full force and effect with respect to the loan.

34 SUPPLEMENTAL LOAN GUARANTY AGREEMENT, 6 By making written demand that SBA purchase the guaranteed portion of a loan, Lender shall be deemed thereby to certify that the DFP line of credit has been made, closed, serviced and liquidated in compliance with this Agreement and all DFP Pilot Program Requirements, and that this Agreement remains in full force and effect with respect to the loan.

35 SBA FORM 4-I On PLP [Preferred Lender Participant] submissions only: I approve and certify that the applicant is a small business according to the standards in 13 CFR 121, the loans [sic] proceeds will be used for an eligible purpose, and the owners and managers of the applicant business are of good character.

36 SBA FORM 159 Lender's Certifications: The undersigned 7(a) participating lender certifies that the representations of services rendered and amounts charged as identified in this Agreement are reasonable and satisfactory to it. The undersigned also certifies that he or she has no knowledge that any other Agent, as defined above, was engaged by, represented or worked on behalf of the Applicant other than as disclosed above or in another executed compensation agreement (Form 159). The undersigned further certifies that any referral fees described below are the only referral fees paid by the lender to a referral agent in connection with this loan, and were not charged directly or indirectly to the Applicant. WARNING: False certifications can result in criminal prosecution under 18 U.S.C and other penalties provided under law.

37 IMPLIED CERTIFICATION This theory provides that, if the government pays funds to a party, and would not have paid those funds had it known of a violation of a law or regulation, the claim submitted for those funds contained an implied certification of compliance with the law or regulation and was fraudulent. U.S. ex rel. Pogue v. Diabetes Treatment Centers of America, Inc., 238 F. Supp. 2d 258 (D.D.C. 2002). The theory incorporates a materiality standard: certification of compliance with the statute or regulation alleged to be violated must be so important to the contract that the government would not have honored the claim presented to it if it were aware of the violation. Id. At 264.