Court filing

Complaint — U.S. v. Bailey

Filed August 28, 2024 in U.S. v. Ryan Bailey; one of 11 filings from this case.

Record facts

Court	U.S. District Court, Southern District of West Virginia
Filed	2024-08-28

U.S. District Court, Southern District of West Virginia · No. 5:24-cv-00456 · Doc. 1 · 2024-08-28 · Docket on CourtListener

Full text

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
AT BECKLEY
UNITED STATES OF AMERICA,
Plaintiff,
v.
Civil Action No.
RYAN BAILEY and RKB, INC.,
Defendants.
COMPLAINT
This is an action by the United States of America (“United States”) against Defendants
RKB, Inc., (“Defendant RKB”) and Ryan Bailey, individually (“Defendant Bailey”),
(collectively referred to as the “Defendants”), to recover treble damages and civil penalties under
the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-33, civil penalties under the Financial
Institutions Reform, Recovery and Enforcement Act (“FIRREA”), partially codified at 12 U.S.C.
§ 1833a, and to recover money for common law or equitable causes of action for contractual
damages and unjust enrichment based upon Defendants’ receipt of Paycheck Protection Program
(“PPP”) loan funds and COVID-19 Economic Injury and Disaster Loan (“EIDL”) funds which
were used for unauthorized purposes in violation of federal and common law.
JURISDICTION AND VENUE
1.
This action arises under the FCA, FIRREA, and the common law.
2.
The Court has subject matter jurisdiction over this action under 28 U.S.C. § 1345
because the United States is the plaintiff. The Court also has subject matter jurisdiction over this
action under 28 U.S.C. §§ 1331 and 1367(a).
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3.
The Court has personal jurisdiction over Defendants under 31 U.S.C. § 3732(a)
because Defendants can be found, reside, or transact business in this District, or have committed
the alleged acts in this District and the acts that they committed in violation of 31 U.S.C. § 3729
occurred in this District.

4.
Venue is proper in this district under 31 U.S.C. § 3732(a) and 28 U.S.C. § 1391(b)
as Defendants can be found in this District and/or the subject transactions took place in this
District.
PARTIES

5.
Plaintiff, United States of America, guarantees and funds certain loans through the
Small Business Administration (“SBA”).

6.
Defendant Bailey is a resident of Raleigh County, West Virginia, and is the 100%
owner of Defendant RKB.

7.
Defendant RKB is a West Virginia corporation with its principal place of business
listed as being located in Raleigh County, West Virginia.
THE PAYCHECK PROTECTION PROGRAM

8.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was a
federal law enacted in or around March 2020 and designed to provide emergency financial
assistance to the millions of Americans suffering the economic effects caused by the COVID-19
pandemic. One source of relief provided by the CARES Act was the authorization of forgivable
loans to small businesses for job retention and certain other expenses, through a program referred
to as the Paycheck Protection Program (“PPP”). The program was modified and extended
thereafter.
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9.
To obtain a PPP loan, a qualifying business submitted a PPP loan application,
which was signed by an authorized representative of the business. The PPP loan application
required the business (through its authorized representative) to acknowledge the program rules
and make certain affirmative certifications to be eligible to obtain the PPP loan. In the PPP loan
application (SBA Form 2483), the small business (through its authorized representative) was
required to provide, among other things, its: (a) average monthly payroll expenses; and (b)
number of employees. These figures were used to calculate the amount of money the small
business was eligible to receive under the PPP. In addition, businesses applying for a PPP loan
were required to provide documentation confirming their payroll expenses.

10.
A PPP loan application was processed by a participating lender. If a PPP loan
application was approved, the participating lender funded the PPP loan using its own monies.
While it was the participating lender that issued the PPP loan, the loan was 100% guaranteed by
the SBA. Data from the application, including information about the borrower, the total amount
of the loan, and the listed number of employees, was transmitted by the lender to the SBA in the
course of processing the loan and subsequent forgiveness process.

11.
PPP loan proceeds were required to be used by the business on certain permissible
expenses—payroll costs, interest on mortgages, rent, and utilities. The PPP allowed the interest
and principal on the PPP loan to be entirely forgiven if the business spent the loan proceeds on
these expense items within a designated period of time and used a defined portion of the PPP
loan proceeds on payroll expenses.

12.
The application process to obtain a PPP loan required the eligible recipient to
make the following good faith certifications and acknowledgments:
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a.
That the applicant was eligible to receive a PPP loan under the rules in
effect at the time the application was submitted (the “PPP Rules”);

b.
That the uncertainty of current economic conditions made the loan request
necessary to support the ongoing operations of the eligible recipient;

c.
That the applicant was in operation on February 15, 2020, had not
permanently closed, and was either an eligible self-employed individual, independent contractor,
or sole proprietorship with no employees, or had employees for whom it paid salaries and payroll
taxes or paid independent contractors, as reported on Form(s) 1099-MISC;

d.
That the funds would be used to retain workers and maintain payroll; or
make payments for mortgage interest, rent, utilities, or other covered costs under the PPP Rules;

e.
That if the funds were knowingly used for unauthorized purposes, the
federal government may pursue recovery of loan amounts and/or civil or criminal fraud charges;

f.
That not more than 40 percent of the loan proceeds may be used for non-
payroll costs;

g.
That documentation verifying the number of full-time equivalent
employees on payroll as well as the dollar amounts of payroll costs, covered mortgage interest
payments, covered rent payments, and covered utilities would be provided to the lender if
required;

h.
That the eligible recipient had not received and would not receive another
loan under the PPP;

i.
That the information provided in the application and the information
provided in all supporting documents and forms was true and accurate in all material respects;
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j.
That the applicant understood that knowingly making a false statement to
obtain a guaranteed loan from SBA was punishable under the federal criminal and civil laws; and

k.
That the lender would confirm the eligible loan amount using the
documents submitted by the applicant.
ECONOMIC INJURY AND DISASTER LOANS (“EIDL”)

13.
The CARES Act also established the SBA’s COVID-19 Economic Injury and
Disaster Loan (“EIDL”) program.

14.
Under the EIDL program, the SBA offered EIDL loans that were low-interest,
fixed-rate, and long-term loans intended to meet operating expenses, including payroll,
rent/mortgage, utilities, and other ordinary business expenses, and to pay business debt incurred
at any time.

15.
Unlike PPP loans, EIDL loans were submitted directly to, and processed by, the
SBA.

16.
In advance of distributing the EIDL loan, SBA required the borrower to file a
certification, under penalty of perjury, that they were eligible to apply for an EIDL loan.

17.
The borrower understood that knowingly making a false statement to obtain a
guaranteed loan from SBA was punishable under the federal criminal and civil laws.

18.
The borrower was also required to certify that the EIDL loan proceeds would be
used as working capital to alleviate the economic injury caused by COVID.

19.
The borrower was also informed in the loan documents that failure to use the
proceeds from an EIDL loan could result in civil and criminal penalties as well as contractual
and other damages as permitted by law.

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THE FALSE CLAIMS ACT (“FCA”)

20.
The FCA provides, in pertinent part, that any person who:

(a)(1)(A) knowingly presents, or causes to be presented, a false or

fraudulent claim for payment or approval; [or]

(a)(1)(B) knowingly makes, uses, or causes to be made or used, a false

record or statement material to a false or fraudulent claim;
is liable to the United States for three times the amount of damages which the United States
sustains, plus a civil penalty per violation. 31 U.S.C. § 3729(a)(1).

21.
FCA penalties are regularly adjusted for inflation, pursuant to the Federal Civil
Penalties Inflation Adjustment Act Improvements Act of 2015. See 28 U.S.C. § 2461 note. For
violations occurring after November 2, 2015, the civil penalty amounts currently range from a
minimum of $13,946 to a maximum of $27,894. 28 C.F.R. § 85.5.
22.
For purposes of the FCA, the terms “knowing” and “knowingly”
(A)
mean 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).

23.
Under the FCA, the term “claim” includes requests to the United States for
payment, whether made directly or indirectly to the United States. Id. § 3729(b)(2)(A).

24.
The FCA defines “material” to mean “having a natural tendency to influence, or
be capable of influencing, the payment or receipt of money or property. Id. § 3729(b)(4).

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THE FINANCIAL INSTITUTIONS REFORM, RECOVERY AND
ENFORCEMENT ACT OF 1989 (FIRREA)

25.
Section 951 of FIRREA, as amended, codified at 12 U.S.C. §1833a, provides that
the Attorney General may recover civil penalties of up to $1 million per violation against persons
who commit specified violations as established by a preponderance of the evidence. 28 C.F.R. §
85.5 (the maximum civil penalty was increased to $2,449,575 for assessments after January 30,
2023 for which violations occurred after November 2, 2015). The statute further provides that
the Attorney General alternatively may recover the amount of any gain to the person committing
the violation, or the amount of the loss to a person other than the violator stemming from such
conduct, up to the amount of the gain or the loss. Id. The predicate violations identified in
Section 951 that can form the basis for liability under FIRREA include, among others: (a)
knowingly or willfully making a materially false or fraudulent statement on a loan application to
a federally insured financially institution (18 U.S.C. § 1001); (b) making a false statement on a
loan application to a financial institution, “the accounts of which are insured by the Federal
Deposit Insurance Corporation” (18 U.S.C. § 1014); and (c) knowingly making a false statement
for the purpose of influencing a decision by the Administrator of the SBA or to obtain a loan,
money, or anything of value under the SBA’s 7(a) program, including the PPP and EIDL
programs (15 U.S.C. § 645(a)).

26.
Section 1109(i) of the CARES Act provides that PPP loans are SBA loans for the
purposes of 15 U.S.C. § 645.

27.
EIDL loans are SBA loans for the purposes of 15 U.S.C. § 645.
ALLEGATIONS

28.
It is a violation of the FCA to knowingly obtain an SBA-guaranteed PPP loan
which is not supplied in compliance with the PPP Rules, and to subsequently obtain forgiveness
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of such loan. Defendants, through Defendant Bailey was individually and as President of
Defendant RKB, were involved in obtaining a PPP loan and subsequently involved in obtaining
forgiveness of that subject loan, in violation of the FCA.

29.
Defendants applied for and received an SBA-guaranteed PPP loan in the amount
of $166,517.40, which was disbursed on or about June 1, 2020, based upon misrepresentations in
a loan application submitted to a financial institution.1 In the PPP loan application, Defendant
RKB, by and through its sole owner, Defendant Bailey, knowingly misrepresented that the PPP
loan would only be used for authorized purposes. However, a portion of the proceeds from the
PPP loan was not used for authorized purposes, and this misrepresentation caused Defendants to
receive loan proceeds in excess of what they would have been entitled, if any at all.

30.
Defendants also applied for and received an SBA EIDL loan2 which was paid and
funded in separate installments (and eventually totaled a loan principal amount of $2,000,000)
beginning on November 13, 2021, and ending on February 25, 2022. In the EIDL loan
application, the Defendants certified and represented that they would use the proceeds of the
EIDL loan solely as working capital to alleviate the economic disaster caused by COVID
occurring in the month of January 31, 2020, and continuing thereafter. However, a portion of the
proceeds from the EIDL loan was not used for that authorized purpose, and this
misrepresentation caused Defendants to receive loan proceeds in excess of what they would have
been entitled, if any at all.

31.
The United States investigated and determined that $160,000 of the proceeds of
the PPP loan was used for unauthorized purposes.

1 The PPP loan was assigned number 7736717207.
2 The EIDL loan was assigned number 9795818208.
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32.
The United States investigated and determined that $1,974,900, of the proceeds of
the EIDL loan was used for unauthorized purposes.

33.
False statements and documents submitted to the SBA by the Defendants were
material to the receipt of the PPP loan and to the forgiveness of the PPP loan.

34.
False statements and documents submitted to the SBA by the Defendants were
material to the receipt of the EIDL loan.

35.
The Defendants still owe the balance of the EIDL loan.

The United States realleges and incorporates all paragraphs above of this Complaint as
fully set forth herein in all Counts listed below:

FIRST CAUSE OF ACTION
(FCA: Causing Presentment of False Claims)
(31 U.S.C. § 3729(a)(1)(A))

36.
The United States repeats and re-alleges the above paragraphs as if fully set forth
herein.

37.
Defendant Bailey, individually and on behalf of Defendant RKB, knowingly
requested and obtained a PPP loan for an amount they were not entitled to, in violation of the
federal laws and rules regarding PPP loans.

38.
Defendant Bailey, individually and on behalf of Defendant RKB, knowingly
requested and received forgiveness of the PPP loan, despite their failure to comply with the
federal laws and rules regarding PPP loans.

39.
Defendant Bailey, individually and on behalf of Defendant RKB, knowingly
requested and obtained an EIDL loan for an amount they were not entitled to, in violation of the
federal law and the SBA’s rules regarding EIDL loans.
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40.
By virtue of these false claims, the United States was damaged for $160,000 of
the proceeds of the PPP loan and $1,974,900 of the proceeds of the EIDL loan, plus any other
costs or interest, and is entitled to treble damages under the FCA, plus civil penalties for each
violation.
SECOND CAUSE OF ACTION
False Claims Act, 31 U.S.C. § 3729(a)(1)(B)
Making or Using False Records or Statements

41.
The United States repeats and re-alleges the above paragraphs as if fully set forth
herein.

42.
Defendant Bailey, individually and on behalf of Defendant RKB, subsequently
knowingly submitted PPP forgiveness applications that misrepresented their eligibility for loan
forgiveness.

43.
By virtue of these false statements, the United States was damaged for $160,000
of the PPP loan and the processing fees paid to the bank which issued the loan, plus any other
costs or interest, and is entitled to treble damages under the FCA, plus civil penalties for each
violation.

44.
Defendant Bailey, individually and on behalf of Defendant RKB, knowingly
submitted an EIDL loan application that contained misrepresentations regarding their intended
use of the of the EIDL loan proceeds in violation of federal law and the SBA’s rules regarding
EIDL loans.

45.
By virtue of these false claims, the United States was damaged for $1,974,900 of
the proceeds of the EIDL loan, plus any other costs or interest, and is entitled to treble damages
under the FCA, plus civil penalties for each violation.

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THIRD CAUSE OF ACTION
Contractual Damages Under The EIDL Loan Agreement

46.
The United States repeats and re-alleges the above paragraphs as if fully set forth
herein.

47.
Under the terms of the EIDL loan agreement, “Whoever wrongfully misapplies
the proceeds of an SBA disaster loan shall be civilly liable to the Administrator in an amount
equal to one-and-one half times the original principal amount of the loan under 15 U.S.C.
636(b).”

48.
Defendant Bailey, individually and on behalf of Defendant RKB, knowingly
misapplied the proceeds of the EIDL loan and did not use the proceeds of the EIDL loan for the
purposes authorized by federal law, the SBA’s rules regarding EIDL loans, and the terms of the
EIDL loan.

48.
By virtue of the breach of the terms of the EIDL loan agreement and the
violation(s) of federal law, the SBA’s rules regarding EIDL loans, and the terms of the EIDL
loan, the United States is entitled to one-and-one half times the original principal amount of the
loan as contractual damages and all applicable interests and costs associated with the EIDL loan.
FOURTH CAUSE OF ACTION
False Statements to the SBA
12 U.S.C. § 1833a (FIRREA)

49.
The United States repeats and re-alleges the above paragraphs as if fully set forth
herein.

50.
This is a claim for civil penalties under FIRREA, 12 U.S.C. §1833a, as amended.

51.
Defendants, for the purposes of fraudulently obtaining a federally guaranteed PPP
loan and inducing the SBA to forgive the loan and also to fraudulently obtain an EIDL loan, in
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violation of 12 U.S.C. §1833a, unlawfully, willfully and knowingly made false statements or
certifications to SBA Lenders and the SBA in violation of 15 U.S.C. §645(a).

52.
Defendant Bailey, individually and on behalf of Defendant RKB, signed the PPP
loan agreement and the EIDL loan agreement, thereby knowingly falsely representing that they
would “comply with all SBA guidance” as it applied to the PPP and EIDL loans. These false
statements were knowingly false and made for the purpose of influencing the SBA to obtain PPP
and EIDL loan proceeds in violation of 15 U.S.C. § 645(a).

53.
Because of Defendants’ acts, they are liable for civil penalties up to the maximum
mount authorized under 12 U.S.C. § 1833a(b).
FIFTH CAUSE OF ACTION
Payment under Mistake of Fact/Restitution

54.
The United States repeats and re-alleges the above paragraphs as if fully set forth
herein.

55.
This is a claim for the recovery of monies the United States paid directly or
indirectly to Defendant Bailey, individually and on behalf of Defendant RKB, as a result of
mistaken understandings of fact.

56.
The United States’ mistaken understandings of fact were material to its decision to
approve and then forgive the PPP loan provided to Defendant Bailey, individually and on behalf
of Defendant RKB, as well as the EIDL loan. The United States acted in reasonable reliance on
the truthfulness of the statements contained in the PPP loan application, the PPP forgiveness
application, and the application for the EIDL loan.

57.
Thus, the United States is entitled to damages in the amount of the PPP and EIDL
loans, plus any other amounts to be determined at trial.

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SIXTH CAUSE OF ACTION
Unjust Enrichment

58.
The United States repeats and re-alleges the above paragraphs as if fully set forth
herein.

59.
This is a claim for the recovery of monies by which Defendant Bailey,
individually and on behalf of Defendant RKB, have been unjustly enriched.

60.
By obtaining PPP funds to which they were not entitled, Defendant Bailey,
individually and on behalf of Defendant RKB, were unjustly enriched, and the United States is
entitled to damages in the amount of $160,000 in PPP funds plus loan processing fees and
interest, and in the amount of $1,974,900 in EIDL funds plus loan processing fees and interest,
together with any other damages to be determined at trial.
PRAYER FOR RELIEF AND JURY DEMAND

The United States requests that the Court enter judgment against the Defendants and
grant the following relief:

1.
On the First and Second Causes of Action, under the False Claims Act, a
judgment against the Defendants, jointly and severally, for damages trebled as required by law,
and such civil penalties as are required by law, together with all such further relief as may be just
and proper;

2.
On the Third Cause of Action, contractual damages as set forth in the EIDL loan
agreement for one-and-one half times the original principal amount of the EIDL loan;

3.
On the Fourth Cause of Action, civil penalties under FIRREA, 12 U.S.C. §1833a
as permitted by law;

4.
On the Fifth Cause of Action, an award of damages for the United States the
amount mistakenly paid to Defendant Bailey, individually and on behalf of Defendant RKB;
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5.
On the Sixth Cause of Action, an award of damages for the amount that
Defendant Bailey, individually and on behalf of Defendant RKB, were unjustly enriched;

6.
An award of pre- and post-judgment interest, costs, and filing fees; and

7.
Such other damages and relief as the Court may deem just and proper.
DEMAND FOR A JURY TRIAL

The United States demands a jury trial in this case pursuant to Federal Rule of Civil
Procedure 38(b) of all claims and issues so triable.

Respectfully submitted,

WILLIAM S. THOMPSON

United States Attorney

s/Fred B. Westfall, Jr.

WV State Bar No. 3992

Assistant United States Attorney

Attorney for United States

300 Virginia Street East

Room 4000

Charleston, WV 25301

Phone: 304-345-2200

Fax: 304-347-5443

E-mail: fred.westfall@usdoj.gov

Counsel for Plaintiff United States of America
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Complaint — U.S. v. Bailey

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