They investigated pandemic fraud, then earned thousands

When J. Bryan Quesenberry first learned that the federal government was sending out hundreds of billions of dollars to help businesses survive during the COVID-19 pandemic, he thought: “There’s going to be fraud here. There just has to be.”

A few months later, Quesenberry began sifting through a list of businesses that received Paycheck Protection Program loans, which were intended to help small businesses ravaged by the pandemic continue paying their employees. The Oregon lawyer said he knew businesses were not allowed to receive more than one loan during a single round, so he searched for “double dippers.”

He soon found dozens of businesses across the country that appeared to obtain PPP loans improperly. During the summer of 2020, Quesenberry started suing those firms to try to help the government recover funds.

“It just blows my mind,” Quesenberry said. “That’s tax money that comes out of your pocket and that comes out of my pocket.”

As federal officials try to retrieve billions in stolen pandemic relief funds, private citizens are scouring public data, company websites and social media pages to help identify potential cases. Those who have filed suits say they are motivated by the desire to root out wrongdoers and expose corporate fraud.

But there is also a strong financial incentive. Under the False Claims Act originally enacted in 1863, private citizens can file lawsuits on behalf of the federal government against those who may have defrauded the United States. If the government recovers funds, those citizens can typically earn between 15% and 30% of that amount.

That has allowed some private citizens to earn hundreds of thousands of dollars, or in some cases more than $1 million, for chasing pandemic relief fraud.

The practice has stirred up some controversy. Some argue that the provision was meant to encourage whistleblowers with insider knowledge to come forward. But some private citizens who have filed many suits said they had relied heavily on publicly available information, stitching together evidence they sourced from the internet to build their cases.

The armchair sleuthing highlights how widespread pandemic fraud was and how federal investigators have struggled to keep up with it. In its haste to stave off an economic crisis and provide immediate aid to Americans, Washington distributed billions of dollars with few strings and little oversight. The Small Business Administration’s inspector general has estimated that more than $200 billion — or at least 17% of the pandemic loans the agency distributed — was awarded to “potentially fraudulent actors.” The majority of PPP loans have been forgiven by the federal government.

While federal investigators have gone after some of the biggest perpetrators of fraud, limited resources have hindered their ability to go after the estimated thousands of people who took government money improperly.

The effort by some private citizens to uncover pandemic fraud has not been warmly received by former Justice Department officials who worry that a deluge of lawsuits that lack insider knowledge could be straining federal resources. Federal officials have to investigate each whistleblower lawsuit to some extent, though the government ultimately declines to intervene in most suits that are filed.

“I’m concerned about the consequences brought on by this,” said Michael Galdo, the former director of COVID-19 fraud enforcement at the Justice Department. “There’s a finite amount of resources that the Department of Justice has.”

Galdo, now working as counsel at the King & Spalding law firm in New York, said he thinks private citizens without insider information are “clearly” filing suits for financial reasons.

“They’re not saying, ‘Send all the money back to the government,’” he said.

It is unclear how many whistleblower suits have been filed by private citizens who are not insiders, in part because many cases could still be sealed. As of April 1, the Justice Department had opened more than 1,200 civil pandemic fraud matters, including more than 600 “qui tam,” or whistleblower, cases. To date, more than $43 million has been awarded to whistleblowers, according to Justice Department data.

Ethan P. Davis, a former acting assistant attorney general for the Justice Department’s civil division, said he worried that some private citizens were finding red flags in the data that “may be completely innocuous.”

“I fear that they may mislead the government into thinking that there is a real problem, and that can result in a pretty costly and expensive investigation for a company,” said Davis, now a partner at King & Spalding who has represented companies that have been accused of obtaining fraudulent PPP loans and investigated.

Some private citizens said that it often took hours to investigate leads, and that they were unearthing cases that might otherwise slip through the cracks. Although Quesenberry said he relied primarily on information available on the internet to build cases, he said it was a time-intensive process that often required combing through government websites, Yelp pages, news articles and LinkedIn profiles. He said he thought he added value because he was pulling together evidence to “paint the picture of fraud.”

Quesenberry has earned more than $400,000 from 10 cases that have helped the federal government recover more than $3 million, according to a review of documents from U.S. attorney’s offices. Quesenberry said he had been investigating pandemic fraud for about four and a half years and was now working on his cases full time.

The Justice Department declined to comment.

There are several private citizens who are prolific in suing PPP loan borrowers.

In June, the U.S. Attorney’s Office for the Southern District of California announced that two homeowners associations and two country clubs would pay more than $5.8 million to settle allegations that they knowingly submitted false claims to obtain PPP loans. Some of the organizations said in statements that they had applied in good faith and thought they were eligible.

The claims were brought by Wade Riner, a real estate investment business owner in Houston, who was awarded nearly $700,000 as part of the settlement.

Riner learned that his own homeowners associations in Florida, where he owns property, and “numerous others” had obtained pandemic loans they were ineligible for, according to the complaint. He has since sued dozens of homeowners associations, condominium associations and country clubs across the country. Although he has seen some success in other districts, the federal government has not pursued most of the defendants he has sued.

Riner declined to comment through his lawyer.

David Abrams, a lawyer in New York, has also brought cases resulting in multimillion-dollar settlements. Abrams has been awarded more than $1.7 million through pandemic fraud-related lawsuits that have resulted in the government’s recovering more than $17 million, according to a review of documents from U.S. attorney’s offices.

Abrams has filed many lawsuits under GNGH2 Inc., targeting borrowers who had links to China, among other things. He has also filed some suits under his organization, the Zionist Advocacy Center, which he said seeks to do “pro-Israel work in the court system.”

In September, the U.S. Attorney’s Office for the District of Columbia announced that Americans for Peace Now, a progressive Jewish nonprofit, had agreed to pay $261,890 to settle allegations that it improperly obtained a $130,945 PPP loan. In June, the office said the Middle East Institute had also agreed to pay $718,558 to settle allegations that it improperly obtained a PPP loan. Abrams, who sued both groups, accused them of fraudulently certifying that they were not “primarily engaged in political or lobbying activities,” according to the complaints.

Hadar Susskind, president and CEO of Americans for Peace Now, said officials thought they had qualified for the loan because they did not consider the nonprofit to be a political organization. He said they had settled because it could have been costlier to go to court.

Susskind said he had never met Abrams, but he believed the complaint was “very much ideologically motivated” because of the nonprofit’s work to promote Israeli-Palestinian peace.

In an email, Abrams said: “In America these anti-Israel organizations have the right to spin, distort or even outright lie about Israel. However, they do not have the right to subsidize their activities with government monies for which they were not eligible.”

Abrams said he had long done other activist work, including recently representing a Jewish high school student who was the victim of antisemitic bullying. He said he did not charge fees in those matters, and that the “whistleblower cases do generate significant revenue, so things more or less balance out.”

Abrams declined to comment about lawsuits he has filed under GNGH2 because of “confidentiality concerns.”

There are signs that more people are starting to notice cases that have resulted in big settlements.

Jason Marcus, a partner at the Bracker & Marcus law firm in Atlanta, said he had filed about a hundred lawsuits on behalf of four clients who have been investigating pandemic fraud. One of those clients is Sidesolve, a company in San Jose, California, that was awarded $1 million last year after Empire Roofing and its network of affiliated companies agreed to pay $9 million to settle allegations that they falsely certified they were eligible to receive PPP loans. A representative for Empire Roofing said there “was no fraud,” and that the company had settled to resolve the matter quickly.

Marcus said that after the case was announced last December, he started to get “calls all of the time from people who say, ‘How do I do this?’”

“It’s like a gold rush,” he said.

Marcus said he was selective with his clients, though, and that he thoroughly vetted cases before filing suits.

Katy Levinson said she and her two co-founders at Sidesolve use artificial intelligence and other data science tools to analyze a mix of information, including publicly available data and private data they purchase. She said they started to investigate pandemic fraud full time in early 2021.

The future of the whistleblower provision, though, has come into question. Judge Kathryn Kimball Mizelle of U.S. District Court for the Middle District of Florida recently declared the provision unconstitutional because it allowed private citizens to sue on behalf of the United States without proper appointment. The decision has been appealed to the 11th U.S. Circuit Court of Appeals in Atlanta.

Jason M. Crawford, a partner at the Crowell & Moring law firm in New York, said the case seemed likely to eventually reach the Supreme Court.

“I think the qui tam provisions could receive a lot of scrutiny from the high court,” he said.

This article originally appeared in The New York Times.