Complaint — United States ex rel. Karen Bloomfield v. Engineered Structures, Inc. (E.D. Va.)

Summary

Relator Karen Bloomfield's qui tam complaint under the False Claims Act, filed under seal, in United States ex rel. Karen Bloomfield v. Engineered Structures, Inc., Case 1:22-cv-00789-DJN-IDD, in the United States District Court for the Eastern District of Virginia, Alexandria Division, filed July 14, 2022 as Document 1. The complaint alleges that ESI, an Idaho construction company, misrepresented its number of employees (490) on an application for an April 12, 2020 PPP loan of $8,607,900.00 through Idaho First Bank. It alleges that the loan was forgiven in the amount of $8,706,478.00 and that ESI registered a private jet on November 3, 2020. It further alleges that ESI knowingly retained the funds as a reverse false claim; the relator worked in positions at ESI from October 1997 to April 2020. The complaint runs 31 pages and is signed by relator's counsel Rachel V. Rose.

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Case 1:22-cv-00789-DJN-IDD Document 1 Filed 07/14/22 Page 1 of 31 PagelD# 1

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA

ALEXANDRIA DIVISION
UNITED STATES ex rel. )
KAREN BLOOMFIELD, )
) DEMAND FOR JURY TRIAL
Relator/Plaintiff, ) — 9900
) Case No. | LZ 1 vi oy
Vv. )
) FILED UNDER SEAL
ENGINEERED STRUCTURES, INC., _) DO NOT PLACE IN PACER
) Pursuant to 31 U.S.C. § 3730
Defendant. ) (False Claims Act)
)

RELATOR KAREN BLOOMFIELD’S COMPLAINT

“We will continue to hold accountable those who seek to exploit the pandemic for personal
gain, to protect vulnerable populations, and to safeguard the integrity of taxpayer-funded
programs.”! — Attorney General Merrick B. Garland.

The United States of America by and through qui tam Relator Karen Bloomfield, and her
counsel, bring this action under 31 U.S.C. § 3729 ef seq., as amended, to recover all damages,
penalties, attorneys’ fees, and other remedies established by the False Claims Act. Relator seeks
to recover, on behalf of the United States, proceeds obtained and retained by Defendant from
claims submitted for payment to the United States in violation of the False Claims Act, 31 U.S.C.§
3729, et seq. (“FCA”), as amended by the Fraud Enforcement and Recovery Act of 2009

(“FERA”), 123 Stat. 1617, et seg. and the Patient Protection and Affordable Care Act of 2010.

' U.S. Department of Justice, Justice Department Announces Director for COVID-19 Fraud
Enforcement (Mar. 10, 2022), https://www.justice.gov/opa/pr/justice-department-announces-

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I. SUMMARY

1. This matter involves Defendant Engineered Structures, Inc.’s (“ESI” or “Defendant’’)
knowing and intentional submission (or at a minimum reckless disregard) of false and fraudulent
claims in violation of the False Claims Act and the Financial Institutions Reform, Recovery and
Enforcement Act (FIRREA) between late-March 2020 and late-July 2021 by engaging in the
following conduct:

e Notcertifying in good faith on the Paycheck Protection Program Borrower Application
that the number of full-time equivalent employees on the Applicants payroll, as well as
the dollar amounts of payroll costs, was truthful and accurate;

e Notcertifying in good faith on the Paycheck Protection Program Borrower Application
that the information provided in its application documents and in the supporting
documents was true and accurate in all material aspects; and

e Knowingly and intentionally retaining those monies instead of returning the monies in
violation of the False Claims Act as a reverse false claim.

2. Instead of using Washington Federal, the bank that ESI has a long-standing relationship
with and utilizes for its banking needs, ESI utilized a different bank — Idaho First Bank to obtain
its April 12, 2020, PPP loan (Loan No. 4034667109). On its application, ESI misrepresented the
number of employees (490), indicated that the entire $8,607,900.00 was going for payroll
purposes.” The timing of ESI’s purchase of a private jet coincides with its receipt of PPP loan
funds — six months later, on November 3, 2020, a 2012 Cessna 525C with 11 seats (Serial No.

525C0091) is registered with the Federal Aviation Administration to Engineered Structures, Inc.

2 See https://projects.propublica.org/coronavirus/bailouts/loans/engineered-structures-inc-
4034667109 (last visited Jul. 5, 2022).

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(Meridian, ID). ESI was one of only fifteen (15) companies in Idaho to receive between $5
million and $10 million in PPP funds.*

3. The loan was ultimately forgiven in the amount of $8,706,478.00.°

II. JURISDICTION AND VENUE

4. This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 because FCA
claims present a federal question and because the United States of America is a plaintiff under 28
ULS.C. § 1345 and 31 U.S.C. § 3732.

5. This Court has personal jurisdiction over the Defendant because the Defendant or its
officers, agents, and directors reside in and/or regularly conduct business within the Eastern
District of Virginia, including the fraudulent business at issue.

6. Venue is proper in this district and division pursuant to 28 U.S.C. § 1391 and 31 U.S.C.
§ 3732 because the Defendant or its officers, agents, and directors reside in and/or regularly
conduct business within the Eastern District of Virginia, Alexandria Division. There are no known
public disclosures of the allegations and transactions in this Complaint that bar jurisdiction under
the FCA, 31 U.S.C. §3730.

7. A copy of this Complaint is being served upon the Attorney General for the United States
and the United States Attorney’s Office for the Eastern District of Virginia. A written disclosure
statement setting forth all material evidence and information Relator possesses is also being

submitted to these offices as required by 31 U.S.C. § 3730(b)(2). See Fed. R. Civ. P. 4(d)(4).

3 See https://flightaware.com/resources/registration/N271ES (last visited Jul. 5, 2022); citing
https://registry faa.gov/AircraftInquiry/Search/NNumberResult?nNumberTxt=271ES.

4 See https://boisedev.com/news/2020/07/06/idaho-ppp-loans-sba/ (Jul. 6, 2020).

> See https://www.federalpay.org/paycheck-protection-program/engineered-structures-inc-
meridian-id (last visited Jul. 5, 2022).

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8. Relator is the original source of the information forming the basis of this action because
she possesses direct and independent knowledge of the non-public information upon which the
allegations herein are based. See 31 U.S.C. §3730(e)(4)(B). Relator acquired non-public
information from her nearly fourteen (14) years of employment at Engineered Structures, Inc. that
is independent from, and materially adds to, any publicly disclosed information relating to
Defendant’s violations of the False Claims Act related laws described herein. Relator’s first-hand
knowledge is derived from, among other things, internal emails, reports, and correspondence, both
verbal and written, with Defendant’s employees and personnel.

9. Relator has complied with all conditions precedent to bringing this action.

Ill. PARTIES

10. Karen Bloomfield (“Ms. Bloomfield” or “Relator’”) is a United States citizen and
resident of Idaho. Ms. Bloomfield holds Bachelor of Arts degree from the University of Arizona
(Tucson, AZ), where she majored in business administration and minored in English and
Psychology, after transferring from the University of Southern California (Los Angeles, CA),
where she focused on business courses and was a member of the varsity swim team.

11. Ms. Bloomfield has extensive experience in a variety of business, accounting, and
project management roles. From October 1997 to April 2020, she held a variety of positions with
ESI, including Senior Assistant Project Manager (most recent) and Accounting Manager/HR
Manager/Benefits Coordinator. As a Senior Assistant Project Manager, she was tasked with
meeting cost objectives with respect to bid negotiation, contracting administration, purchase order
initialization, job cost tracking and analysis, submitting billing and payment applications, as well
as scheduling projects ranging from $5 million to $45 million for major entities, which include but

are not limited to the City of Boise, Walmart, and Home Depot. In April 2020, Ms. Bloomfield

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discovered that ESI was manipulating its workforce numbers and accounting to secure funds from
the SBA’s PPP. She and other longtime employees received notices that they were being
terminated but may be brought back, despite ESI being designated as an essential business because
of its primary business purpose — construction.

Defendant

12. Engineered Structures, Inc. (“ESI”) is an Idaho corporation with approximately 600
employees specializing in construction services throughout 43 states in the United States and in 33
countries, with its corporate headquarters located at 3330 E. Louise Drive, Suite 300, Meridian,
Idaho 83642.° It has two other corporate offices listed on its website: (a) 11871 NE Glenn Widing
Drive, Building F, Portland, OR 97220; and (b) 14740 Flint Lee Road, Suite C, Chantilly, VA
20151.’

13. During the COVID-19 pandemic, relying on Federal Guidance, Idaho considered
construction to be an essential business. Despite its strong financial performance, long history of
employing over 500 employees, and continuing to operate throughout the pandemic, ESI exploited
the SBA’s PPP loan program, falsified its submissions, and did not meet any of the exceptions
which would have made its application for and receipt of $8,607,900.00 in federal funds lawful

under this program.

° See https://esiconstruction.com/who-we-are/ (last visited Jul. 5, 2022).

7 See https://esiconstruction.com/contact-us/ (last visited Jul. 5, 2022).

8 See https://www.ncsl.org/research/labor-and-employment/covid-19-essential-workers-in-the-
states.aspx (last visited Jul. 5, 2022).

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IV. THE PAYCHECK PROTECTION PROGRAM
A. Background on the PPP

14. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”), Pub. L. 116-136, 134 Stat. 281, created the PPP, initially making $349 billion in forgivable
loans available to small businesses impacted by the COVID-19 pandemic. The U.S. Small
Business Administration (“SBA”) administers the PPP, promulgates the rules and regulations
governing the PPP, and guarantees all PPP loans made by lenders.

15. The PPP allows small businesses (less than 500 employees) to obtain forgivable loans of
up to $10 million, at 1% interest, to cover payroll costs, rent, mortgage interest, utilities, and other
overhead expenses for a “covered period.” PPP loans are processed and approved by qualified
lenders that the SBA approves. Lenders may issue PPP loans without the SBA’s prior review or
approval, but lenders must agree to be responsible for determining borrower eligibility under the
SBA’s criteria. To that end, the SBA issued interim final rules governing PPP eligibility on April
2, April 3, April 14, April 24, 2020, as well as January 14, 2021, and March 11, 2021.
Subsequently, the American Rescue Plan Act of 2021, Pub. L. 117-2 (Mar. 11, 2021) expanded
eligibility for first and second draw PPP loans and incorporated the American Rescue Plan Act’s
amendments to the PPP.

16. Because the initial $349 billion originally allocated for the PPP was quickly exhausted,
Congress proposed a bill authorizing a second tranche of emergency funding. Accordingly, on
April 24, 2020, the President signed into law the Paycheck Protection Program and Health Care
Enhancement Act, Pub. L. No. 116-139, 134 Stat. 620, whereby Congress allocated another $310
billion for PPP loans to small businesses. The SBA continued to adopt interim rules governing

eligibility through June 24, 2020.

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17. On June 5, 2020, the PPP was further modified when the President signed the Paycheck

Protection Program Flexibility Act of 2020 (“Flexibility Act”), Pub. L. No. 116-142, 134 Stat. 641.

The Flexibility Act modifies the original PPP loan criteria that was set forth in the CARES Act.

Some of the major modifications set forth in the Flexibility Act are:

a.

Congress changed the loan repayment period from 2 years to 5 years with the
interest rate remaining at 1%.

Congress expanded the original 8-week “covered period” for a business to exhaust
its loan proceeds on payroll, rent, mortgage interest, or utilities, before the borrower
may qualify for loan forgiveness. The new covered period is the earlier of a 24-
week period or December 31, 2020, for any new borrower after June 5, 2020, to
spend the loan funds on approved expenses. Borrowers who borrowed before June
5, 2020, may choose between the 8-week covered period or the extended period.
Congress relaxed the requirement that 75% of the borrower’s loan funds be spent
on payroll expenses and reduced the requirement to 60%. The remaining 40% of
the funds may be used for rent, mortgage payments, or utilities.

Congress extended the deferral period for loan repayments to begin for any
unforgiven loan amount from 6 months to the date on which the borrower’s
forgiveness amount is remitted to the lender.

Congress extended the safe harbor date from June 30, 2020, to December 31, 2020,
for a borrower to rehire laid off full-time equivalent (“FTE”) employees, so as not

to have the borrower’s loan forgiveness amount reduced.

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f. Between February 15 and December 31, 2020, loan forgiveness will be determined
without regard to the reduction of FTE employees, if the borrower in good faith can
prove either: (a) an inability to rehire individuals who were employees on February
15, 2020, and an inability to hire similar qualified employees by December 31,
2020; or (b) the business has been unable to return to the same level of business
activity it was at before February 1, 2020, due to COVID-19 health compliance
requirements.

18. As of June 20, 2020, 5,456 lenders participated in the PPP, issuing 4,666,560 loans
totaling nearly $515 billion.” As of May 31, 2021, 5,467 lenders participated in the

PPP, issuing 11,823,594 loans totaling nearly $800 billion.!°

B. The PPP Borrower Application Form

19. The PPP’s Borrower Application Form (“BAF”) is uniform - lenders must use or
incorporate it into their loan applications. A copy of the BAF (issued by the SBA in April 2020)
is attached as Exhibit A and the revised BAF (revised by SBA on March 18, 2021) is attached as
Exhibit B.

20. The BAF requires a business to provide an average monthly payroll expense, the
business’s number of employees, and the names of all owners who own 20% or more equity in the

business, in addition to requiring the borrower to represent the “purpose of the loan” by checking

° U.S. Small Business Administration, Paycheck Protection Program (PPP) Report (Jun. 30,
2020), https://www.sba.gov/sites/default/files/2020-07/PPP%20Results%20-
%20Sunday%20FINAL.pdf.

'°'U.S. Small Business Administration, Paycheck Protection Program (PPP) Report (May 31,
2021), https://www.sba.gov/sites/default/files/2021-06/PPP Report Public 210531-508.pdf.

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boxes for more than one of the following categories: payroll, lease/mortgage interest, utilities, or
other (with space provided to explain “other”).
21. Additionally, the BAF requires the following certifications:

a. The Applicant is eligible to receive a loan under the rules in effect at the time this
application is submitted that have been issued by the Small Business
Administration (SBA) implementing the Paycheck Protection Program under [the
CARES Act] (the Paycheck Protection Program Rule).

b. All SBA loan proceeds will be used only for business-related purposes as specified
in the loan application and consistent with the Paycheck Protection Program Rule.

22. The BAF further requires, in relevant part, that an authorized representative of the
applicant “certify in good faith” each of the following by initialing next to each item the following:

c. Current economic uncertainty makes this loan request necessary to support the
ongoing operations of the Applicant.

d. The funds will be used to retain workers and maintain payroll or make mortgage
interest payments, lease payments, and utility payments, as specified under the
Paycheck Protection Program Rule; J understand that if the funds are knowingly
used for unauthorized purposes, the federal government may hold me legally liable,
such as for charges of fraud.

e. I further certify that the information provided in this application and the
information provided in all supporting documents and forms is true and accurate
in all material respects. I understand that knowingly making a false statement to
obtain a guaranteed loan from SBA is punishable under the law, including under
18 U.S.C. 1001 and 3571 by imprisonment of not more than five years and/or a fine
of up to $250,000; under 15 USC 645 by imprisonment of not more than two years
and/or a fine or not more than $5,000; and, if submitted to a federal insured
institution, under 18 USC 1014 by imprisonment of not more than thirty years
and/or a fine or not more than $1,000,000.

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23. Per the express language on the BAF, Defendant ESI as the signatory was required to
certify as to the truth and accuracy of these representations, the falsity of which is punishable by
significant liability, fines, and imprisonment.

C. Small Business Administration (“SBA”)

24. The Small Business Administration (“SBA”) is a federal government agency that was
established to assist small businesses in the United States in a variety of ways. During the COVID-
19 pandemic, it was tasked with implementing the PPP loan program. Although PPP ended on
May 31, 2021, existing borrowers may be eligible for PPP loan forgiveness. There were two PPP
loan draws. On its website, the SBA set forth the following parameters, including who may apply

and potentially qualify:!!

o PPP loans have an interest rate of 1%.

o Loans issued prior to June 5, 2020, have a maturity of two years. Loans issued after June 5,
2020, have a maturity of five years.

o Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA
remits the borrower's loan forgiveness amount to the lender. If a borrower does not apply for
loan forgiveness, payments are deferred 10 months after the end of the covered period for
the borrower’s loan forgiveness (between 8 and 24 weeks).

o No collateral or personal guarantees are required.

o Neither the government nor lenders will charge small businesses any fees.

o Sole proprietors, independent contractors, and self-employed persons.
o Any small business concern that meets SBA’s size standards (either the industry size standard
or the alternative size standard).
o Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal
business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
o 500 employees, or
o That meets the SBA industry size standard if more than 500
o Any business with a NAICS code that begins with 72 (Accommodations and Food Services)
that has more than one physical location and employs less than 500 per location.

'! https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-
program (last visited Jul. 5, 2022).

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25. As an initial step, borrowers filled out a Paycheck Protection Program Borrower

Application Form (OMB Control No. 3245-0407), which contained “Certifications and

Authorizations” and required an authorized representative to certify in good faith:

1.

The Applicant was in operation on February 15, 2020, and had employees for whom it paid
salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-
MISC.

Current economic uncertainty makes this loan request necessary to support the ongoing
operations of the Applicant.

The funds will be used to retain workers and maintain payroll or make mortgage interest
payments, lease payments, and utility payments, as specified under the Paycheck
Protection Program Rule; I understand that if the funds are knowingly used for
unauthorized purposes, the federal government may hold me legally liable, such as for
charges of fraud. (emphasis added).

The Applicant will provide to the Lender documentation verifying the number of full-
time equivalent employees on the Applicant’s payroll as well as the dollar amounts of
payroll costs, covered mortgage interest payments, covered rent payments, and covered
utilities for the eight-week period following this loan. (emphasis added).

I understand that loan forgiveness will be provided for the sum of documented payroll
costs, covered mortgage interest payments, covered rent payments, and covered utilities,
and not more than 25% of the forgiven amount may be for non-payroll costs.

During the period beginning on February 15, 2020 and ending on December 31, 2020, the
Applicant has not and will not receive another loan under the Paycheck Protection

Program.

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7. I further certify that the information provided in this application and the information
provided in all supporting documents and forms is true and accurate in all material
respects. I understand that knowingly making a false statement to obtain a guaranteed
loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by
imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC
645 by imprisonment of not more than two years and/or a fine of not more than $5,000;
and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment
of not more than thirty years and/or a fine of not more than $1,000,000. (emphasis
added).

8 I acknowledge that the lender will confirm the eligible loan amount using required
documents submitted. I understand, acknowledge and agree that the Lender can share
any tax information that I have provided with SBA’s authorized representatives,
including authorized representatives of the SBA Office of Inspector General, for the
purpose of compliance with SBA Loan Program Requirements and all SBA reviews.
(emphasis added).

26. The SBA published Paycheck Protection Program Loans Frequently Asked Questions
(FAQs), which provides guidance for borrowers and lenders and explains small business concerns
(15 U.S.C. 632 (3)) and the related exceptions, which are set forth in Table A.!? 15 U.S.C. 632 (3)

specifically states

12 See
https://www.sba.gov/sites/default/files/2021-01/Paycheck-Protection-Program-Frequently-
Asked-Questions.pdf (January 2021) (stating that, “[s]mall business concerns can be eligible
borrowers even if they have more than 500 employees, so long as they satisfy the existing

statutory and regulatory definition of ‘small business concern’ ...[or] if it met both tests in the
SBA’s ‘alternative size standard’ as of March 27, 2020.”).

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(3) VARIATION BY INDUSTRY AND CONSIDERATION OF OTHER FACTORS

When establishing or approving any size standard pursuant to paragraph (2), the Administrator shall

ensure that the size standard varies from industry to industry to the extent necessary to reflect the

differing characteristics of the various industries and consider other factors deemed to be relevant by
the Administrator.

27. The SBA utilizes 13 C.F.R. §121.103 to determine “the largest size a business can be
to participate in government contracting programs and compete for contracts reserved or set aside
for small businesses. Size standards vary by industry and are generally based on the number of
employees or the amount of annual receipts.”!? Table A, which is premised on relevant questions
in the FAQs, identifies the exceptions and indicates why ESI does not meet the requirements to

qualify as a small business concern.

Table A

Relevant SBA Item ESI
Less than 500 employees averaged over the No
past 12 months.
Maximum tangible net worth of the business | No!4
is not more than $15 million.
The average net income after Federal income | No
taxes (excluding any carry-over losses) of the
business for the two full fiscal years before
the date of the application is not more than $5

million.
Responsibility of the borrower to determine ESI did not accurately determine the
which entities (if any) are its affiliates and number of its employees.

'3 Small Business Administration, Size standards, https://www.sba.gov/federal-
contracting/contracting-guide/size-standards (last visited Jul. 5, 2022).

'4 ESI does not qualify as a small business concern as they do not meet the revenue requirements
as its average annual receipts far exceed the $39.5 million threshold, as set forth in the SBA’s
“size standards in millions of dollars” for the Construction Sector. See
https://www.sba.gov/sites/default/files/2022-

05/Table%200f%20Size%20Standards_ Effective%20May%202%202022 Final.pdf (May 2,
2022).

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determine the employee headcount of the
borrower and its affiliates.

A borrower must certify on the Borrower ESI falsified that it was eligible because it
Application Form that the borrower is eligible | did not meet the requisite criteria or the
to receive a PPP loan, and that certification exceptions.

means that the borrower is a small business
concern as defined in section 3 of the Small
Business Act (15 U.S.C. 632), meets the
applicable SBA employee-based or revenue-
based size standard, or meets the tests in
SBA’s alternative size standard after applying
the affiliation rules, if applicable.

Does ESI’s North American Industry No. ESI’s NAICS code begins with 23.'5
Classification System (NAICS) code begin
with 72?

28. As set forth below, Defendant falsified the documents upon which the SBA and lenders
relied. In turn, they received federal funds and knowingly retained the payments instead of

returning them to the government in violation of the False Claims Act.

V. THE OPERATIVE STATUTES FOR THE RELATOR’S CLAIMS

A. The False Claims Act

29. The FCA provides for civil liability for “any person who (A) knowingly present, 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; [or] (C) conspires to commit a violation of subparagraph (A) [or] (B).”

30. Likewise, the reverse false claims provision of the FCA imposes liability on any person

who “knowingly makes, uses, or causes to be made or used, a false record or statement material to

'5 See https://www.sba.gov/sites/default/files/2022-
05/Table%200f%20Size%20Standards Effective%20May%202%202022 Final.pdf (last visited
Jul. 5, 2022).

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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.” /d. at § 3729(a)(1)(G).

31. To show that an entity acted “knowingly” under the FCA, it must be proven that the
entity, with respect to information: (1) has actual knowledge of the information; (2) acts in
deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of
the truth or falsity of the information. It is not necessary to prove that the entity had the specific
intent to defraud the United States. 31 U.S.C. § 3729(b)(1).

32. The term “material” means having a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or property. 31 U.S.C. § 3729(b)(4). Compliance
with a variety of laws and regulations is material to the government’s decision to pay monies under
the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), Pub. L. 116-136,
134 Stat. 281, which created the PPP and the PRF. See United States of America ex rel. Victoria
Hablitzel v. All in Jets, LLC and Seth Bernstein, Case No. 0:20-cv-61410 - Complaint (S.D. Fla.
Jul. 12, 2020) (illustrating a recent False Claims Act settlement where the U.S. Government
determined that the misstatements in the initial application, as well as the subsequent misuse of
certain PPP loan funds for personal or wrongful company use, were material to the government’s
payment).

33. Under the False Claims Act, the United States is entitled to recover three times the
amount of each claim and, for each claim or overpayment, a civil penalty of not less than $5,500
and not more than $11,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of
1990 for violations that occurred prior to November 2, 2015 and not less than $11,181 and not

more than $22,363 for violations that occurred after November 2, 2015.

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34. There are three broad categories of claims relevant to this case: (1) reverse false claims

pursuant to Section (A)(1)(G); (2) factually false claims; and (3) legally false claims.

35. A reverse false claim occurs when any person knowingly and improperly avoids or

decreases an “obligation” to pay the government in violation of 31 U.S.C. § 3729(a)(1)(G).

36. A factually false claim is defined as an “incorrect description of goods or services

provided or a request for reimbursement for goods or services never provided.”

Legally false claims are predicated on an express or implied false certification of compliance with
a regulation, statute, or contract term. See Universal Health Services, Inc. v. U.S. ex rel. Escobar,
136 S.Ct. 1989, 1999 (2016) established that both express and implied legally false claims may

form a valid basis for an FCA case.

37. When evaluating a legally false claim, the Supreme Court, in Universal Health
Services, Inc. v. U.S. ex rel. Escobar, 136 S.Ct. 1989 (2016) required that a plaintiff/relator
substantiate that compliance with the regulations was material to the government’s decision to pay
and that the defendant had knowledge of the falsity of the claim. Defendant’s actions are material

to the Government’s decision to pay.

B. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”)

38. FIRREA was enacted in 1989 to “reform, recapitalize, and consolidate the Federal
deposit insurance system, to enhance the regulatory and enforcement powers of Federal financial

institutions regulatory agencies, and for other purposes.”!© FIRREA enables the government to

'6 https://www.fdic.gov/regulations/laws/rules/8000-3100.html (last visited Jul. 5, 2022).

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Case 1:22-cv-00789-DJN-IDD Document1 Filed 07/14/22 Page 17 of 31 PagelD# 17

impose civil penalties for violations of enumerated federal criminal statutes, including those that
affect federally insured financial institutions. In its settlement agreement with SlideBelts, “[t]he
United States contends that it has certain civil claims against Taylor and SlideBelts for violating
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1833a
(“FIRREA”), predicated on violations of 18 U.S.C. § 1014 [loan and credit applications generally;
renewals and discounts; crop insurance], 15 U.S.C. § 645(a) [fraud in connection with Small
Business Administration transactions], 18 U.S.C. § 1001 [statements or entries generally], 18

U.S.C. § 1343 [wire fraud], and 18 U.S.C. § 1344 [bank fraud].”!”

39. FIRREA provides for civil penalties if the government can establish, by the civil
standard of a preponderance of the evidence, a violation of one of fourteen enumerated criminal
statutes. Both the False Claims Act and FIRREA are complimentary in a government case related

to loan fraud.

VI. ESI?’s SCHEME AND FRAUDULENT CONDUCT

40. Defendant’s false and fraudulent statements, which at a minimum constitute reckless
disregard for truth or falsity of the information, violate both the False Claims Act and FIRREA as
follows:

e Knowing and intentional false certifications on the Paycheck Protection Program
Borrower Application that the number of full-time equivalent employees on the
Applicants payroll, as well as the dollar amounts of payroll costs, was truthful and

accurate;

'7 https://www.justice.gov/usao-edca/press-release/file/135293 1/download (last visited Jul. 5,
2022).

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e Knowing and intentional false certifications on the Paycheck Protection Program
Borrower Application that the information provided in its applications and in the
supporting documents were true and accurate in all material aspects; and
e Knowingly and intentionally retaining those monies instead of returning the monies
in violation of the False Claims Act as a reverse false claim.
41. There is a significant disparity between actual revenues generated and the number of
employees when compared to the information that was relied upon by the lender, Idaho First Bank,
as well as the SBA, which backed the loans.

A. Falsification of the Number of Employees, Available Cash/Earnings, and Layoffs

42. On Wednesday, March 25, 2020, Idaho Governor Brad Little issued a state-wide stay
at home order, with certain exceptions given to workers in industries deemed “essential.” As a
construction company, ESI was deemed an essential business. The next day, March 26, 2020, the
ESI Safety Director issued an email addressing the ability to work and travel and emphasizing that
ESI’s employees were deemed essential.

43. On Friday, March 27, 2020, between the morning and mid-afternoon, ESI notified a
significant number of field and office staff (approx.80-100) that the company must “temporarily
reduce its workforce” as the COVID-19 pandemic impacted ESI’s business. The effective date on
the notification was April 1, 2020. The Relator was included in this group after working for ESI
for nearly 22 years.

44, Simultaneously on March 27, 2020, ESI sends a separate email to remaining staff that,
“our jobsites never closed! Our hope is that conditions will recover within the next 120 days to the
point where we can recall all of our co-workers back to active duty.” Most of these workers were

never rehired, as they were considered “dead weight” by ESI’s executives. A few days pass and

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ESI posts a notice titled “Looking to Join the ESI Team” in its offices by the elevators with
instructions on how to apply online due to COVID-19. During this same timeframe, ESI posts 3
job openings on LinkedIn for immediate openings, including 2 high level positions which were
Just vacated by employees who were just laid off. After April 12, 2020, ESI subsequently brought
back less than 10% of the people that it laid off on March 27, 2020, all the while posting and hiring
new people.

45. There are numerous sources which substantiate that ESI’s statements in its PPP
Borrower Application were knowingly false and fraudulent.

e Idaho Business Review — An Idaho Business Review “Book of Lists” for 2019-2020
named ESI number one (ranked by number of employees) as a General Contractor. At the
time, ESI employed 500 employees and its 2018 revenue was listed as $410,750,530.

e ESI’s website and other various internet archives confirmed that the company has never
had less than 500 employees from at least 2018 to present day. Through its website, ESI
actively publicized the number of employees they had, as well as celebrated when they
reached its 500" employee in 2018.

e On June 8, 2018, ESI posted an image to its Instagram account announcing that the
company had reached 500 employees. The caption of the image read, ““ESI now has 500

employees! Welcome to our team #esiconstruction.” The image was also uploaded to the

ESI website on six separate occasions from September 5, 2018 through October 18, 2018.

A copy of the image is provided below.

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46. Internet archives were used to capture over 200 historical websites for ESI’s website

(www.esiconstruction.com). The archive captured ESI’s webpage on 14 occasions from February

18, 2019, through August 3, 2020. For the entire duration of 2019, ESI publicized that it
maintained between 500-550 employees. The table below details the number of employees

advertised on the ESI website from February 18, 2019, through the present.

2/18/2019 | 550

4/19/2019 | 500

5/4/2019 500

6/19/2019 | 500

7/15/2019 | 500

7/30/2019 | 500

8/19/2019 | 500

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Page 21 of 31 PagelD# 21

10/6/2019 | 500

10/14/2019 | 500

8/3/2020 | 550

11/22/2021 | 600

47. Several examples of the number of employees advertised on ESI’s websites from 2019-

2021:

1,000,000

CUBIC YARDS OF
CONCRETE POURED

150,000

TONS OF
STEEL HUNG

24

COUNTRIES

45

YEARS IN
BUSINESS

SQUARE FEET OF
RETAIL PROJECTS

000

EMPLOYEES

NON-PROFITS
ASSISTED

STATES

0.66

EXPERIENCE
MODIFICATION RATE

64,000,000

(The above was a screen capture of the ESI website dated 2/18/2019.)

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1,000,000

CUBIC YARDS OF
CONCRETE POURED

43

STATES

EXPERIENCE
MODIFICATION RATE

150,000 64,000,000

TONS OF SQUARE FEET OF
STEEL HUNG RETAIL PROJECTS

COUNTRIES EMPLOYEES

45 100

BUSINESS ASSISTED

(The above was a screen capture of the ESI website dated 10/14/2019.)

CUBIC YARDS OF

CONCRETE POURED

43

STATES

0.64

EXPERIENCE
MODIFICATION RATE

0.96

TOTAL RECORDABLE

INCIDENT RATE

150,000 69,077,485

TONS OF SQUARE FEET OF
STEEL HUNG RETAIL PROJECTS

24 900

COUNTRIES EMPLOYEES

4] 100

BUSINESS ASSISTED

0.77 1,037,801

DAYS AWAY, HOURS MANAGED 2019

RESTRICTED OR

TRANSFERRED

(The above was a screen capture of the ESI website dated 8/3/2020.)

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1,000,000 150,000 69,077,485

CUBIC YARDS OF TONS OF SQUARE FEET OF
CONCRETE POURED STEEL HUNG RETAIL PROJECTS

43 33 600

STATES COUNTRIES EMPLOYEES

0.54 Ag 100

MODIFICATION RATE BUSINESS ASSISTED

0.85 0.28 1,042,357

TOTAL RECORDABLE DAYS AWAY, HOURS MANAGED LAST
INCIDENT RATE RESTRICTED OR YEAR

(The above is what is currently shown on the ESI website as of 11/22/2021.)

48. ESI laid off approximately 100 employees just before April 1, 2020, to claim that they

only employed 490 workers, just below the threshold requirement for SBA PPP Loan approval,
unless an exception was met. ESI did not meet the requisite exceptions as illustrated above.
On April 12, 2020, ESI received approximately $8.6 million from Idaho First Bank for PPP loan
number 4034667109. ESI’s filings showed the approximately $8.6 million was to be utilized for
payroll expenses for 490 employees. ESI did not claim expenses for rent, mortgage payments,
healthcare, insurance, etc.

49. As set forth above, the Paycheck Protection Program Borrower Application Form
(OMB Control No. 3245-0407), which contained “Certifications and Authorizations”, was
required to be truthfully attested to by ESI. ESI knowingly did not meet items 3,4,7, and 8; yet, it
submitted its signed application form and received millions of dollars in funds.

B. The Use of the PPP Loan Proceeds

50. Between April 1 and April 9, 2020, ESI applies for and on April 12, 2022, and obtains
its PPP loan in the amount of approximately $8.6 million from Idaho First Bank — a financial

institution with whom, to Relator and other witnesses’ knowledge, ESI had never done business

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with because Washington Federal was and continues to be ESI’s longtime bank because of its

relationship with a C-Level Executive at ESI. ESI’s PPP loan details appear below:

ESI PPP Loan Details

Loan Number: <REDACTED>
Date Approved: 4/12/2020

SBA Office Code: 1087
Processing Method: PPP

Borrower Name:

Engineered Structures, Inc.

Borrower Address:

3330 E. Louise Dr, Suite 300

Borrower City: Meridian
Borrower State: ID
Borrower Zip: 83642-5047

Loan Status Date:

Loan Status:

Exemption 4

Term: 24

SBA Guaranty Percentage: 100%

Initial Approval Amount: $8,607,900.00
Current Approval Amount: $8,607,900.00
Undisbursed Amount: $0.00
Franchise Name:

Servicing Lender Location Id: 436276

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Case 1:22-cv-00789-DJN-IDD

Document 1 Filed 07/14/22 Page 25 of 31 PagelD# 25

ESI PPP Loan Details

Servicing Lender Name: Idaho First Bank
Servicing Lender Address: 475 E Deinhard Ln
Servicing Lender City: McCall

Servicing Lender State: ID

Servicing Lender Zip: 83638-4800

Rural Urban Indicator: U

Hubzone Indicator: Ed

Lmi Indicator: ¥

Business Age Description:

Existing or more than 2 years old

Project City: Meridian
Project County Name: Ada

Project State: ID

Project Zip: 83642-5047
Cd: Id-01

Jobs Reported: 490

Naics Code: 236220

Naics Code: 236220
Utilities Proceed:

Payroll Proceed: $8,607,900.00

Mortgage Interest Proceed:

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Case 1:22-cv-00789-DJN-IDD Document 1 Filed 07/14/22 Page 26 of 31 PagelD# 26

ESI PPP Loan Details

Rent Proceed:

Refinance Eid] Proceed:

Health Care Proceed:

Debt Interest Proceed:

Forgiveness Amount: $8,706,478.14

Forgiveness Date: 6/11/2021

51. In its PPP Borrower Application Form, ESI falsely attests under Item 2 that “[t]he
current economic uncertainty makes this loan necessary to support the ongoing operations of the
applicant.” Relator has first-hand knowledge that ESI’s net earnings being in excess $6 million for
the years prior to the pandemic, which were consistent with ESI’s December 31, 2020, year-end
net earnings.

52. Prior to COVID-19 and the receipt of the PPP funds, ESI did not own a private jet, it
had an arrangement to utilize one with other entities. The timing of its purchase of a private jet a
2012 Cessna525C (11 seats) just happens to coincide with the receipt of the approximately $8.6

million PPP loan in 2020. Pictures of a Cessna525C, from both the inside and outside, appear

below:

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Case 1:22-cv-00789-DJN-IDD Document1 Filed 07/14/22 Page 27 of 31 PagelD# 27

53. On November 3, 2020, ESI registered its plane with the FAA as its sole owner for non-
charter purposes.

54. On June 11, 2021, ESI received a PPP loan forgiveness of $8,706,478.00, despite
allegedly submitting false and fraudulent statements on its initial application and the timing of the
purchase of a private jet (2012 Cessna525C (11 seats)) coincides with the receipt of the PPP funds.

55. In sum, like the other PPP loan FCA/FIRREA settlements, ESI allegedly submitted
false and fraudulent certifications and documentation, as well as utilizing the monies for purposes
outside the scope of those expressly stated on its PPP Borrower Application. Instead of returning
the ill-gotten funds to the United States Government, ESI knowingly retained the funds, which is

also a violation of the False Claims Act.

VII. CAUSES OF ACTION

COUNT I
False Claims Act — 31 U.S.C. § 3729(a)(1)(A)
(Violations of the FCA: Presenting False Claims for Payment Against Defendant)

56. The Relators repeat and reallege the facts and allegations above as if fully set forth
herein.

57. This a claim for treble damages and forfeitures under 31 U.S.C. §§ 3729-32, as
amended.

58. Through the acts described above, Defendant and its agents and employees knowingly

presented and caused to be presented to the Government materially false or fraudulent claims for

PPP loan for the receipt of Government funds.

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Case 1:22-cv-00789-DJN-IDD Documenti1 Filed 07/14/22 Page 28 of 31 PagelD# 28

59. The Government, unaware of the material falsity of the claims made or caused to be
made by the Defendant, approved, paid, and participated in payments made by the Government’s
fiscal intermediaries for PPP loan(s) that otherwise would not have been allowed.

By reason of these payments and approvals, the Government has been damaged and continues to
be damaged, in an amount yet to be determined.
COUNT I
False Claims Act — 31 U.S.C. § 3729(a)(1)(B)
(Violations of the FCA: Use of False Statements Against Defendant)

60. The Relators repeat and reallege the facts and allegations above as if fully set forth
herein.

61. This a claim for treble damages and forfeitures under 31 U.S.C. §§ 3729-32, as
amended.

62. Defendant, knowingly or acting with deliberate ignorance or reckless disregard for the
truth, presented, either directly or indirectly, false, or fraudulent claims for payment to Government
programs in connection with the false certifications and attestations made on the PPP application(s)
and its unauthorized use of Government funds.

63. Defendant knowingly made, used, or caused to be made or used false records and
statements to get false or fraudulent claims approved for payment by the Government, in violation
of 31 U.S.C. § 3729(a)(1)(B).

64. The Government, unaware of the falsity for the records, statements, and claims that
Defendant made or caused to be made, paid and continues to pay the claims that would not be paid

but for Defendant’s illegal conduct.

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Case 1:22-cv-00789-DJN-IDD Document1 Filed 07/14/22 Page 29 of 31 PagelD# 29

COUNT Hl
False Claims Act —31 U.S.C. § 3729(a)(1)(G)
(Violations of the FCA: Failure to Repay Government Funds Against Defendant)

65. The Relators repeat and reallege the facts and allegations above as if fully set forth
herein.

66. This a claim for treble damages and forfeitures under 31 U.S.C. §§ 3729-32, as
amended.

67. Defendant knowingly made, used, or caused to be made or used false records and
statements material to an obligation to pay or transmit money to the Government or knowingly
made, used, or caused to be made or used false records and statements material to improperly avoid
or decrease an obligation to pay or transmit money to the Government in violation of 31 U.S.C. §
3279(a)(1)(G).

68. Defendant knowingly concealed or improperly avoided or decreased an obligation to
pay or transmit money or property to the Government.

69. This is a claim for treble damages and penalties under the False Claims Act, 31 U.S.C.

§ 3729, et seq., as amended.

VII. PRAYER FOR RELIEF

WHEREFORE, Relator prays, on behalf of the United States of America, that judgment be
entered in favor of the United States and the State and against Defendant, as follows:

A. That Defendant be ordered to cease and desist from violating 3 1 U.S.C. § 3729 et
Seq.;

B. That this Court enter judgment against Defendant in an amount equal to treble

(three times) the damages the Government has sustained because of Defendant’s actions, plus a

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civil penalty of not less than $10,781.00 and not more than $23,607.00 for each violation of 31
U.S.C. § 3729 after November 2, 2015, pursuant to 81 Fed. Reg. 42491, 42494 (Jun. 30, 2016), 87

Fed. Reg. 2187 (Jan. 13, 2022);

C. That the Relator be awarded the maximum amount allowed pursuant to § 3730(d)
of the FCA;
D. That the Relator and his attorneys and the Government be awarded all costs of this

action, including attorneys’ fees and expenses; and
E. That the Relator be awarded such other and further relief as this Court may deem
just and proper.

IX. JURY DEMAND

Relator, on behalf of the United States, demands a trial by jury on all issues so triable.

Respectfully submitted this 14th day of July 2022, ar
By: at Veronica Rose Te M- F tig

Rachel V. Rose — Attorney at Law, PLLC
Texas Bar No. 24074982

P.O. Box 22718

Houston, Texas 77227

Email: rvrose@rvrose.com

Telephone: (713) 07-25
Pro Hac Vice Application Forthcoming

Patricia D- Ryan XY
Virginia Bar No. 35945 (BDVA — Admitted)
Attorney at Law

6106 Harvard Ave., PO Box 633

Glen Echo, Maryland 20812

Email: patriciaryan@pdrlaw.com
Telephone: (240) 481-6284

Attorneys for Relator

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CERTIFICATE OF SERVICE
Pursuant to Fed. R. Civ. P. 5(d), as well as the False Claims Act, the United States Attorney
General and the United States Attorney for the Eastern District of Virginia were provided with a
copy of this Complaint, the Motion to Seal, the Proposed Order via Certified Mail, after a file-

stamped copy was received by Rachel V. Rose, Esq.

/s/ Rachel Veronica Rose, Esq.

Page 31


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