Four Labor Unions and Employee Benefit Plan Settle Claims That They Were Ineligible to Receive Pandemic-Era Government Loans
United States Attorney for the Southern District of New York, Jay Clayton, announced today that International Union of Journeymen and Allied Trades (“IUJAT”), United Service Workers Union, IUJAT National Union (“USWU”), Home Healthcare Workers of America, IUJAT (“HHWA”), Service Professionals Union Local 726 IUJAT (“LOCAL 726”), and United Welfare Fund – Welfare Division (“UWF”) (collectively, the “Defendants”) agreed to pay $3,850,000 to resolve allegations that they violated the False Claims Act by falsely certifying that they were eligible for Paycheck Protection Program (“PPP”) loans.
The Defendants are organized as tax-exempt non-profit organizations pursuant to Section 501(c)(5) of the Internal Revenue Code. The PPP was established by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act to assist small businesses nationwide adversely impacted by the COVID-19 pandemic. Administered by the SBA, the program provided forgivable loans to eligible borrowers. In April 2020, Section 501(c)(5) non-profit organizations were not eligible to apply for or receive PPP loans. The settlement resolves claims that the Defendants violated the False Claims Act by falsely certifying their eligibility for PPP loans because, as 501(c)(5) non-profit organizations, the Defendants were ineligible for the loans at the time they applied.
“The Paycheck Protection Program was created to help eligible small businesses weather the economic strain of the pandemic through forgivable loans,” said U.S. Attorney Jay Clayton. “The defendants here applied for and received millions of dollars in taxpayer funds for which they were not eligible. This Office is committed to protecting taxpayer dollars and recovering public funds that flow to those who do not qualify.”
As alleged in the Complaint filed in Manhattan federal court:
IUJAT, USWU, HHWA, and LOCAL 726 are labor unions, and UWF is an employee benefit plan that provides welfare benefits to members of these labor unions. Between April 16 and April 20, 2020, each Defendant submitted, through its authorized representative, an application for a PPP loan. In total, the Defendants received $3,316,966 in PPP loans. Each Defendant certified on its loan application that it was eligible to receive the loan under the rules in effect at the time, and each Defendant later applied for and obtained full forgiveness of its loan.
At the time they applied in April 2020, the Defendants were 501(c)(5) non-profit organizations and were therefore ineligible to receive PPP loans. Before applying, the Defendants were aware that an SBA regional employee had advised their contact at a bank that only 501(c)(3) and 501(c)(19) non-profit organizations were eligible for PPP loans. Nevertheless, each Defendant decided to apply for and accept a loan.
The Defendants, at a minimum, acted with reckless disregard or deliberate ignorance of the fact that they were ineligible for the PPP funds at the time they applied. In fact, the Defendants became aware on April 9, 2020, that the AFL-CIO—the nation’s largest federation of unions—had advised that labor unions were ineligible for PPP loans.
As part of the settlement, the Defendants admitted and accepted responsibility for certain conduct alleged by the United States, including the following:
- Each Defendant certified on its PPP borrower loan application that it was eligible to receive the loan under the rules of the SBA in effect at the time the application was submitted.
- Before applying for the PPP loans, the Defendants were aware that an SBA regional employee had advised their contact at a bank that only 501(c)(3) and 501(c)(19) non-profit organizations were eligible for PPP loans. The Defendants are not 501(c)(3) and 501(c)(19) non-profit organizations.
In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had been filed under seal pursuant to the False Claims Act.
Mr. Clayton praised the Small Business Administration’s Office of General Counsel for its assistance with this case.
The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorney Mark Osmond is in charge of the case.
Contact
Nicholas Biase, Shelby Wratchford
(212) 637-2600
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