NEW YORK, June 24, 2024 /PRNewswire/ -- NYC whistleblower
attorney Timothy J. McInnis
announced a $354,085 settlement
against The Raleigh Racquet Club, Inc. (RRC), a non-profit social
and recreational club located in Raleigh,
North Carolina and its former president, Kurt Harrison Ihly concerning COVID-19 pandemic
relief funds. The settlement resolves FaIse Claims Act allegations
in a qui tam whistleblower complaint filed under seal in
April 2023 in the U.S. District Court
for the Eastern District of North
Carolina by former club member Lindsey Flower. On June
21, 2024, the case was unsealed by order of United States
District Judge Terrence W. Boyle.
Today, Flower filed a notice to dismiss the action, as required by
the Settlement Agreement. The United
States Attorney's Office for the Eastern District of
North Carolina, which did not
formally intervened in the action, spearheaded a government
investigation and oversaw the settlement negotiations, according to
Attorney McInnis.
Flower's qui tam complaint alleged that RRC
unlawfully applied for and received a loan under the Payment
Protection Program ("PPP"), and falsely certified in the submitted
application for the PPP loan, that it was eligible to obtain a loan
under the PPP. Specifically, the complaint alleged
that on April 15, 2020, RRC
improperly received a first-draw PPP loan in the amount of
$307,900. It subsequently applied for
and obtained complete forgiveness of the loan sum plus accrued
interest. According to the complaint, RRC was organized as a
tax-exempt private club under Section 501(c)(7) of the Internal
Revenue Code, a category of non-profit organization explicitly
excluded from PPP first draw eligibility. Additionally, the qui tam
complaint alleged that not only was the SBA's rule
barring 501(c)(7) social clubs from participating in the PPP
program "clear and unambiguous" but also "widely disseminated trade
publications and websites covering the 501(c)(7) social club
industry repeatedly advised such clubs that they were not eligible
for such loans." According to the Settlement Agreement, the bank
that processed RRC's PPP application, North State Bank, checked a
box on the application form wrongly stating RRC was a for profit
"S-Corp," suggesting this was why the SBA approved RRC's unlawful
loan application since S-Corps were permitted to obtain PPP
loans.
According to the Settlement Agreement, the PPP program was
established pursuant to the Coronavirus Aid, Relief, and Economic
Security ("CARES") Act. The CARES Act was enacted in March 2020, and was designed to provide emergency
financial assistance to millions of Americans suffering economic
effects caused by the COVID-19 pandemic. This included authorizing
forgivable loans to small businesses for employee payroll and
certain other expenses through the PPP. To obtain a PPP loan, a
qualifying organization was required to submit a PPP loan
application signed by an authorized representative. The loan
application required the authorized representative to acknowledge
the PPP rules and make certain affirmative certifications regarding
the organization's eligibility to obtain a PPP loan. PPP loan
applications were processed by participating lenders, which
received processing fees from the SBA. Following the approvals of
loan applications, the participating lenders funded the loans,
which were 100% guaranteed by the SBA. Non-profit corporations
organized under Section 501(c)(7) of the Internal Revenue Code were
not eligible to receive first-draw PPP loans pursuant to SBA,
Interim Final Rule, Business Loan Program Temporary Changes;
Paycheck Protection Program, 85 Fed. Reg. 20811, 20812 (Apr. 15,
2020).
Attorney McInnis noted that PPP fraud was rampant
because so much PPP money was given out to so many people during
the height of the pandemic without normal lending controls and
oversight. A Government Accounting Office report has acknowledged
that the government sacrificed safeguards for speed in disbursing
funds. PPP loans were granted on a first-come, first served basis
and the initial PPP appropriation was depleted after just 13 days.
In this haste, many small businesses hardest hit by the pandemic
were shut out of the program.
One way PPP fraud is now being addressed, according
to McInnis, is through False Claims Act qui tam lawsuits by private
citizens who can not only redress PPP fraud but also
receive a reward for prompting a government investigation. In this
case, under the Settlement Agreement Flower received $46,185.
On behalf of Flower and her attorneys, McInnis expressed
appreciation for the efforts of the U.S. Attorney's Office for the
Eastern District of North Carolina
and the SBA's Office of Inspector General in recouping the PPP loan
proceeds from RRC.
The case is captioned United
States ex rel. Lindsey M.
Flower, v. The Raleigh Racquet Club, Inc., et ano.,
5:23-cv-0189-BO, United States
District Court for the Eastern District of North Carolina, Western Division.
For additional information, please contact Attorney Timothy J. McInnis, of McInnis Law, 521 Fifth Avenue, l7th FI.,
New York, NY lOl75, at (2l2)
292-4573 or tmcinnis@mcinnis-law.com.
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SOURCE McInnis Law