Qui Tam Complaint — United States ex rel. Aidan Forsyth v. 3rd Avenue Transit, Inc. (W.D.N.Y.)

Summary

A qui tam complaint filed under seal on September 30, 2024 as Document 1 in United States ex rel. Aidan Forsyth v. 3rd Avenue Transit, Inc. and Y&M Transit Corp., No. 1:24-cv-00935-JLS, in the U.S. District Court for the Western District of New York, under the False Claims Act, 31 U.S.C. §§ 3729 et seq. The relator alleges that the two Brooklyn school transportation companies were affiliated with non-defendant Jofaz Transportation, Inc. through common ownership and control, so that together they exceeded the SBA's 300-employee limit for second-draw PPP loans. According to the complaint, the second-draw applications listed 42 and 288 employees while Jofaz's first-draw application listed 500, and lenders extended second-draw loans totaling approximately $2.4 million that were forgiven in or about April and May 2022. It seeks treble damages and penalties.

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Case 1:24-cv-00935-JLS Documenti Filed 09/30/24 Page 1 of 24

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA,
ex rel. [UNDER SEAL],

Plaintiff,
v.

[UNDER SEAL],

Defendants.

935

Civil Action No. 24 cv .

Hon.

QUI TAM COMPLAINT

FILED UNDER SEAL
UNDER 31 U.S.C. § 3730(b)(2)

JURY TRIAL DEMANDED
Case 1:24-cv-00935-JLS Document1 Filed 09/30/24 Page 2 of 24

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

24 CV 9385

UNITED STATES OF AMERICA, Civil Action No. '
ex rel. AIDAN FORSYTH, Hon.
Plaintiff/Relator, QUI TAM COMPLAINT
V.
FILED UNDER SEAL
3RD AVENUE TRANSIT, INC. and UNDER 31 U.S.C. § 3730(b)(2)
Y&M TRANSIT CORP.,
JURY TRIAL DEMANDED
Defendants.

On behalf of the United States of America (the “United States” or the “Government”),
Plaintiff and Relator Aidan Forsyth (“Relator”) files this gui fam action against Defendants 3rd
Avenue Transit Inc. (“3rd Avenue”) and Y&M Transit Corp. (“Y&M7”), (collectively,
Defendants”), and alleges as follows:

INTRODUCTION

l. This is an action to recover treble damages, civil penalties, and all other remedies
on behalf of the United States of America in connection with the Defendants’ materially false and
fraudulent applications to the Government for loans under the Paycheck Protection Program
(“PPP”) in violation of the False Claims Act, 31 U.S.C. §§ 3729 et seq. (the “FCA”).

2: Pursuant to the FCA, Relator seeks to recover, on behalf of the United States of
America, damages and civil penalties arising from false or fraudulent claims for payment that
Defendants submitted or caused to be submitted to the Federal Government-funded and/or

subsidized PPP loan programs.
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SUMMARY OF ALLEGATIONS

3. Soon after the COVID-19 pandemic started in March 2020, Congress enacted
emergency financial assistance to affected businesses, authorizing the SBA to establish and fund
guaranteed PPP loans. The SBA ultimately authorized two phases of PPP loans: starting in April
2020, businesses could obtain “first-draw” loans, and, starting in January 2021, after Congress
authorized additional funding, they could obtain “second-draw” loans. Eligible businesses could
later request and obtain forgiveness of PPP loans, including interest.

4, As with all SBA programs, only businesses meeting the agency’s definition of a
“small business concern” were eligible, and the SBA imposed limitations which were stricter for
second-draw borrowers.

5. In evaluating a business’s size, the SBA also considered whether it had “affiliates”
subject to mutual equity ownership, overlapping management and/or control.

6. For first-draw loans, among other things, a business could have no more than 500
employees. If it employed a larger number, it had to meet an alternative size standard of not more
than $15 million in tangible net worth and not more than $5 million in average net income over
the preceding two years. However, this exception did not apply to second-draw loans, for which
a business and its affiliates could have no more than 300 employees.

7. Accordingly, PPP loan applications required a borrower’s representative to state
(among other things) the business’s total number of employees (including employees of affiliates)
and to disclose any common ownership or management with other businesses. The application
also required the representative to acknowledge that the information submitted was material to the

Government, to certify that it was true and correct, and to acknowledge that submitting a materially
Case 1:24-cv-00935-JLS Documenti1 Filed 09/30/24 Page 4of 24

false application would violate Federal law. PPP loan forgiveness applications required similar
attestations of eligibility and certifications/acknowledgments.

8. Atall times relevant to this action, Defendants 3 Avenue and Y&M were affiliated
with one another, as well as with non-defendant Jofaz Transportation, Inc. (“Jofaz”) as a result of
their common ownership and control.!

9. Founded in 1993, 3" Avenue was a school bus operator headquartered in Brooklyn,
New York. 3 Avenue has historically contracted with the New York City Department of
Education and provided bus services to public school children in the Bronx.

10. Founded in 2011, Y&M was a school transportation business headquartered in
Brooklyn, New York. Y&M has historically contracted with the New York City Department of
Education. It operated small school buses, vans, and mini-wagons, providing transportation to
public school children in Brooklyn.

11. Founded in 1978, Jofaz was a school transportation business headquartered in
Brooklyn, New York. Jofaz has historically contracted with the New York City Department of
Education and provided transportation to public school children throughout the five boroughs of
New York City.

12. The Jofaz Entities had the same headquarters (1 Coffey Street, Brooklyn, NY
11231) and operate three bus yards in Brooklyn. They shared the same management team, and
also shared mechanics, maintenance workers, dispatchers and administrative staff. Joseph Fazzia
Jr. was the Owner, President, and/or Chief Executive Officer of the Jofaz Entities.

13. According to 3 Avenue and Y&M’s second draw PPP loan applications, they had

42 and 288 employees, respectively, and according to Jofaz’s first draw loan application, it

' Defendants and Jofaz are referred to collectively herein as the “Jofaz Entities.”
Case 1:24-cv-00935-JLS Documenti_ Filed 09/30/24 Page 5 of 24

employed 500 people. Because the Jofaz Entities together exceeded the SBA’s 300-employee limit,
neither Defendant was eligible to receive second-draw PPP loans or forgiveness thereof.

14. Defendants received their second-draw loans through Manufacturers and Traders
Trust Company (based in Buffalo, New York) and Ridgewood Savings Bank (based in Queens,
New York).

15. The loan application required the applicant’s designated representative to certify
that the business was an eligible borrower under SBA rules. The application also required the
representative to acknowledge that the information submitted to the Government, to certify that it
was true and correct, and to acknowledge that submitting a materially false application would
violate Federal Law.

16. | Upon information and belief, in an effort to circumvent the 300-employee cap, each
Defendant’s representative falsely and fraudulently certified that the applicant business was an
eligible borrower under SBA rules, that it had no affiliated business, and that the applicant, in the
aggregate with any affiliated businesses, employed no more 300 persons. They also expressly
acknowledged that this was a material question, and that submitting a materially false application
would violate federal law.

17. _In reliance upon the Defendants’ false statements and certifications, the lenders
extended second-draw PPP loans to them totaling approximately $2.4 million.

18. In or about April and May 2022, Defendants applied for and obtained forgiveness
of their second-draw PPP loans.

19. The PPP Loan Forgiveness Application Form required the applicant’s
representative to certify that the borrower had complied with all requirements in the PPP Rules

provided under the Small Business Act, the PPP interim final rules, and guidance issued by SBA

CUANOG11A7 4
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through the date of the forgiveness application. The application also required the representative to
certify that all information provided was “true and correct in all material aspects” and to
acknowledge that “knowingly making a false statement to obtain forgiveness of an SBA-
guaranteed loan” was punishable under Federal law with imprisonment and/or fines.

20. Upon information and belief, the Defendants’ representatives falsely and
fraudulently certified that the businesses had complied with the SBA’s PPP loan requirements and
were therefore entitled to loan forgiveness.

21. | Had Defendants been truthful in their statements and certifications to the banks, i.e.
that 3 Avenue and Y&M were affiliated and had more than 300 employees in total, the second
draw PPP loan would never have been issued and/or forgiven.

22. Relator files this qui tam lawsuit to enable the Government to recover from
Defendants the approximately $2.4 million in SBA-guaranteed loans (plus associated fees and
interest) that were issued to Defendants, and later forgiven, as the intended result of their
wrongdoing, as well as to recover treble damages and/or penalties.

JURISDICTION, VENUE, AND SPECIAL REQUIREMENTS

23. This Court possesses subject matter jurisdiction over this action pursuant to 28
U.S.C. §1331 because it arises under the laws of the United States, under 31 U.S.C. § 3729 of the
False Claims Act, and under 28 U.S.C. § 1345, which provides the United States District Courts
with original jurisdiction over all civil actions commenced by or on behalf of the United States of
America.

24. —Inaddition, the FCA specifically confers jurisdiction upon the United States District
Case 1:24-cv-00935-JLS Documenti_ Filed 09/30/24 Page 7 of 24

Courts under 31 U.S.C. § 3732. This Court has personal jurisdiction pursuant to 31 U.S.C. §
3732(a) because one or more Defendants submitted false and fraudulent PPP loan applications
and/or requests for loan forgiveness to a lender in this District.

25. Venue is proper in this District under 31 U.S.C. § 3732(a) because certain
wrongdoing alleged herein took place within this and/or affected this District.

26. In accordance with 31 U.S.C. § 3730(b)(2), this Complaint has been filed in camera
and will remain under seal for a period of at least 60 days, and shall not be served on Defendants
until the Court so orders.

27. Pursuant to 31 U.S.C. § 3730(b)(2), the Relator must provide the Government with
a copy of the Complaint and a written disclosure of substantially all material evidence and material
information in its possession contemporaneous with the filing of the Complaint. Relator has
complied with this provision by contemporaneously serving copies of the Complaint and such
disclosure upon the Honorable Trini A. Ross, United States Attorney for the Western District of
New York, and upon the Honorable Merrick B. Garland, Attorney General of the United States.

28. Relator is not aware that the allegations in this Complaint have been publicly
disclosed. In any event, the Court has jurisdiction under 31 U.S.C. § 3730(e)(4) because the Relator
is an “original source” since it has voluntarily provided its material information to the Government
before filing this Complaint, and has knowledge which is both direct and independent of, and
materially adds to, any public disclosures to the extent they may exist.

PARTIES/RELATED ENTITIES
29. _ At all times relevant to this action, Plaintiff/Relator Aidan Forsyth resided at 55

West 8th Street, New York, NY 10011.
Case 1:24-cv-00935-JLS Documenti Filed 09/30/24 Page 8 of 24

30. Atall times relevant to this action, Defendant 3" Avenue Transit, Inc. was a limited
liability company formed in the State of New York on or about February 22, 1003. Its principal
place of business was located at 1 Coffey Street, Brooklyn, NY 11231.

31. | Defendant Y&M Transit Corp. was a corporation incorporated in the State of New
York on or about December 15, 2011. Its principal place of business was located at 1 Coffey Street,
Brooklyn, NY 11231.

32. | Non-Defendant Jofaz Transportation, Inc. was a corporation incorporated in the
State of New York on or about September 15, 1978. Its principal place of business was located at
1 Coffey Street, Brooklyn, NY 11231.

33. According to New York State corporate records, Joseph A. Fazzia, Jr.2 was the Chief
Executive Officer and an owner of 3" Avenue. He was the Chief Executive Officer of Y&M. He
was the Chief Executive Officer and an owner of Jofaz. Angelo C. Fazzia and Toni Ann Fazzia

were each listed as an Officer and owner of 3% Avenue.

GOVERNING LAWS, REGULATIONS, AND CODES OF CONDUCT
The False Claims Act
34. Originally enacted in 1863, the FCA was substantially amended in 1986 by the
False Claims Amendments Act. The 1986 amendments enhanced the Government’s ability to
recover losses sustained as a result of fraud against the United States. Further clarifying

amendments were adopted in May 2009 and March 2010.

? Joseph A. Fazzia founded Jofaz and Joseph A. Fazzia, Jr. was his son. In or about Apri! 2008, Fazzia, Sr. resolved
federal bribery charges against him by relinquishing his ownership interest in Jofaz and entering Jofaz into a
monitoring agreement, which has since terminated. See also G. Smith, FBI Claims School Bus Owner Paid Mob
Union, Daily News, Jan. 23, 2008.
Case 1:24-cv-00935-JLS Documenti_ Filed 09/30/24 Page 9 of 24

35. | The FCA imposes liability upon any person who “knowingly presents, or causes to
be presented [to the Government] a false or fraudulent claim for payment or approval”; or
“knowingly makes, uses or causes to be made or used, a false record or statement material to a
false or fraudulent claim”; or “knowingly makes, uses, or causes to be made or used, a false record
or statement material to 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.” 31 U.S.C. § 3729(a)(1){A), (B), (G). Any person
found to have violated these provisions or conspired to have violated these provisions is liable for
a civil penalty of at least $13,946.00 and up to $27,894.00 for each such false or fraudulent claim,
plus three times the amount of the damages sustained by the Government. 31 U.S.C. § 3729(a), 20
CFR Part 356 and 28 CFR Part 85 (see 88 FR 5776, Feb. 12, 2024).

36. | The FCA defines the terms “knowing” and “knowingly” to mean that a person (1)
“has actual knowledge of the information”; (2) “acts in deliberate ignorance of the truth or falsity
of the information”; or acts “in reckless disregard of the truth or falsity of the information.” 31
U.S.C. § 3729(b)(1)(A). The statute provides that “no proof of specific intent to defraud” is
required. 31 U.S.C. § 3729(b)(1)(B).

37. | The FCA also broadly defines a “claim” as one that includes “any request or
demand, whether under a contract or otherwise, for money or property and whether or not the
United States has title to the money or property, that — (i) is presented to an officer, employee, or
agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money
or property is to be spent or used on the Government’s behalf or to advance a Government program
or interest, and if the United States Government — (i) provides or has provided any portion of the

money or property requested or demanded; or (ii) will reimburse such contractor, grantee, or other
Case 1:24-cv-00935-JLS Documenti1 Filed 09/30/24 Page 10 of 24

recipient for any portion of the money or property which is requested or demanded.” 31 U.S.C. §

38. The FCA empowers private persons having information regarding a false or
fraudulent claim against the Government to bring an action on behalf of the Government and to
share in any recovery. The complaint must be filed under seal without service on any Defendant.
The complaint remains under seal while the Government conducts an investigation of the
allegations in the complaint and determines whether to intervene in the action. 31 U.S.C. § 3730(b).

39. Inthis action, and under well-established precedent, the false and fraudulent nature
of Defendants’ conduct is informed or measured by their violation of, or failure to comply with,
certain statutes and regulations material to the submission of applications for government-

subsidized and/or issued small business loans.

The CARES Act Authorizes Paycheck Protection Program Loans
40. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (Pub. L. 116-

136) (the “CARES Act” or the “Act”) was enacted in March 2020 to provide emergency financial
assistance to individuals and businesses affected by the COVID-19 pandemic. The Act provided
the federal Small Business Administration (“SBA”) with funding and authority to modify existing
loan programs and establish a new loan program to assist small! businesses adversely affected by
the pandemic.

41. Section 1102 of the CARES Act authorized the SBA to guarantee up to $349 billion
in forgivable 7(a) loans to small businesses for job retention and other expenses. This program
was called the Paycheck Protection Program (“PPP”). In April 2020, Congress authorized over
$300 billion to additionally fund the PPP. In June 2020, the Paycheck Protection Program

Flexibility Act of 2020 (Pub. L. 116-142) was enacted which changed certain provisions of the
Case 1:24-cv-00935-JLS Documenti1_ Filed 09/30/24 Page 11 of 24

PPP, including provisions relating to the maturity of loans, the deferral of loan payments, and loan
forgiveness.

42. Under the PPP, eligible businesses could initially obtain one SBA-guaranteed PPP
loan. Businesses were required to spend loan proceeds for employee compensation, rent or
mortgage, and other specified expenses and, depending on their use of the loan proceeds, could
qualify for loan forgiveness, up to the full amount of the loan.

43. The SBA used size standards to determine if a business was a “small business
concern” and therefore eligible to apply for an SBA-guaranteed PPP loan. To be deemed eligible,
a business had to have fewer than 500 employees or meet the SBA industry size standard, if more
than 500. The Small Business Jobs Act of 2010, Section 1116 established an alternative size
standard of not more than $15 million in tangible net worth and of not more than $5 million in the
average net income after federal income taxes (excluding any carry-over losses) of the applicant
for the two full fiscal years before the date of the application.

44. The SBA considered whether a business had “affiliates” subject to mutual
equity/stock ownership, overlapping management and/or control. See 86 Fed. Reg. 3712, 3715-16
Subpart A, § 121.103 (January 14, 2021). Businesses which are “affiliates” of each other under the
SBA’s definitions “may be treated as one party with such interests aggregated,” including
aggregating the businesses’ annual receipts and number of employees. See id. §§ 121.103, 121.104,
& 121.106. For purposes of the size standard, the size of the applicant combined with its affiliates
must not exceed the size standard designated for either the primary industry of the applicant alone
or the primary industry of the applicant and its affiliates, whichever is higher. 13 C.F.R. § 121.301.

45. | The SBA delegated authority to third-party lenders to underwrite and approve the

PPP loans. To obtain a PPP loan, a qualifying business (through its authorized representative)

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signed and submitted a PPP loan application (SBA Form 2483) online through the lender’s
application platform. The PPP loan application (SBA Form 2483) required the business (through
its authorized representative) to acknowledge the PPP program rules and make certain affirmative
certifications to be eligible to obtain the PPP loan.

46. Specifically with regard to these eligibility criteria, the loan application asked, “Is
the Applicant or any owner[*] of the Applicant an owner of any other business, or have common
management with, any other business?” If the answer was yes, the applicant was required to “list
ali such businesses and describe the relationship on a separate sheet[.]”

47. In December 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues Act (the Economic Aid Act) was enacted, authorizing the SBA to guarantee “Paycheck
Protection Program Second Draw Loans . . . under generally the same terms and conditions
available under the Paycheck Protection Program[.]” See 86 Fed. Reg. 3712-3723 (Jan. 14, 2021).

48. The second-draw PPP loan application (SBA Form 2483-SD) required the
borrower’s authorized representative to state the total number of employees “(including
affiliates, if applicable; may not exceed 300 unless ‘per location’ exception applies),” and to
indicate if “the Applicant or any owner of the Applicant an owner of any other business, or have
common management with, any other business” and if so, to “list all such businesses and
describe the relationship on a separate sheet[.]”

49. The borrower’s authorized representative was required to certify, among other
things, that:

© 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

3 Defined by the SBA as an individual with a 20% or greater equity interest in the business.

1]
Case 1:24-cv-00935-JLS Documenti1 Filed 09/30/24 Page 13 of 24

Administration (SBA) and the Department of the Treasury (Treasury)
implementing Second Draw Paycheck Protection Program Loans under Division
A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
and the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act
(the Paycheck Protection Program Rules).

The Applicant, together with its affiliates (if applicable), (1) is an independent
contractor, self-employed individual, or sole proprietor with no employees or (2)
employs no more than 300 employees; or (3) if NAICS 72, employs no more than
300 employees per physical location; (4) if a news organization that is majority
owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit
public broadcasting entity with a trade or business under NAICS code 511110 or
5151, employs no more than 300 employees per location.

%* ok ok

All loan proceeds will be used only for business-related purposes as specified in
the loan application and consistent with the Paycheck Protection Program Rules
including the prohibition on using loan proceeds for lobbying activities and

expenditures. . ..

50.

Besides the total number of employees, the borrower’s authorized representative

was also required to certify, among other things, the business’s average monthly payroll expenses.

This information was used to calculate the amount of money the business was eligible to be loaned.

The applicant also had to submit documentation showing payroll expenses, among other things.

51.

PPP loan applications were processed by participating financial institutions, which

served as the lenders. Data from the application, including information about the borrower, the

12
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total amount of the loan, and the listed number of employees, were transmitted by the lender to the
SBA in the course of processing the loan. SBA paid processing fees to lenders.

52. Once a borrower submitted its PPP loan application (SBA Form 2483) to a Lender,
the participating lender processed the PPP loan application. If a PPP loan application (SBA Form
2483) was approved by the participating lender, the lender submitted the application to SBA for
an SBA loan number and after receiving that number it thereafter funded the PPP loan using its
own monies, which were 100% guaranteed by the SBA.

53. A borrower was required to use PPP loan proceeds only for certain permissible
expenses: payroll costs, interest on mortgages, rent and utilities. The PPP allows the interest and
principal on the PPP loan to be entirely forgiven if the business spends the loan proceeds on these
expenses within a designated period (between eight and 24 weeks from receiving the proceeds)
and uses at least 60% of the proceeds for payroll expenses.

54. The applicant’s authorized representative was finally required to acknowledge and
certify in good faith by initialing the following certification:

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 U.S.C. 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

U.S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not
more than $1,000,000.

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SPECIFIC FRAUD ALLEGATIONS

Defendants in the Aggregate were Too
Large to be Eligible for PPP Loans

55. In the aggregate, the Defendants, being affiliates of one another and of Jofaz, were
too large in their total number of employees to qualify under SBA rules as “small business
concerns” eligible to receive second-draw PPP loans and forgiveness of those loans.

56. Defendants together reported 330 employees in their second-draw loan
applications, exceeding the 300-employee limit. If Jofaz’s employees had been included and
reported, the number would likely have exceeded 1,000, given that the Jofaz Entities had together
reported 1,032 employees in applying for their first-draw PPP loans (Jofaz had reported having
500 employees and Y&M had reported having 498 employees).

Defendants were Affiliates of Each Other and of Jofaz
at the Time They Applied for Second-Draw Loans

57. As previously alleged, Defendants and Jofaz were all commonly owned and
controlled by Joseph A. Fazzia, Jr.

58. New York City records showed Defendants and Jofaz [YELLOW BUS] as affiliated
“Related Entities” defined as “An entity in which the parent of the enrolling vendor either owns
more than fifty (50) percent of the voting stock and/or an entity in which a group of principal
owners or officers that owns more than fifty (50) percent of the enrolling vendor also owns more
than fifty (50) percent of that entity’s voting stock.”

59. A Complaint filed by the Attorney General of New York against the Jofaz Entities
in or about 2022 (alleging environmental offenses occurring in late 2019) alleged, among other
things, that they shared the same headquarters (1 Coffey Street, Brooklyn, NY 11231) and operated

three bus yards in Brooklyn. Complaint, People v. Jofaz Transportation, Inc., 3 Avenue Transit,

14

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Inc. and Y&M Transit Corp., Index No. 513922-2022 (N.Y. Supreme, Kings County) The
Complaint further alleged that the Jofaz Entities shared the same management team, and also
shared mechanics, maintenance workers, dispatchers and administrative staff.

60. Accordingly, at all times relevant to this action, Defendants and Jofaz were
affiliated entities and part of the same corporate group under SBA regulations governing PPP Loan
eligibility.

PPP LOANS TO INELIGIBLE BORROWERS
Despite Exceeding SBA’s Aggregate Size Limit,

3" Avenue Applied for and Received
a Second-Draw PPP Loan, which was Later Forgiven

61. In or about January 2021, an authorized representative of 3% Avenue prepared or
caused to be prepared an SBA application for a second draw PPP loan on behalf of 3 Avenue to
Manufacturers and Traders Trust Company (a/k/a M&T Bank Corporation) (“M&T Bank”), a
federally-insured financial institution based in Buffalo, New York.

62. Upon information and belief, an authorized representative of 3" Avenue prepared
SBA Form 2483-SD, in which the representative falsely and fraudulently certified that 3 Avenue
was a small business eligible for participation in the PPP Loan Program, by failing to acknowledge
that the Jofaz Entities had over 1,000 employees in the aggregate.

63. The authorized representative falsely certified that 3" Avenue, together with its
affiliates, “employs no more than 300 employees.”

64. 3% Avenue reported that it had 42 employees, whereas Y&M reported 298
employees. In total, the affiliates had 342 employees. As previously alleged, in applying for their
first-draw PPP loans within the previous year, Jofaz had reported having 500 employees and Y&M

had reported having 498 employees.

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65. The applications required the applicant’s authorized representative to “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” and acknowledge that
“knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under
the law.”

66. Upon information and belief, 3 Avenue applied for a second draw PPP loan despite
exceeding the SBA’s 300-employee aggregate limit.

67. Upon information and belief, an authorized representative of 3" Avenue falsely
certified or caused to be certified 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” while acknowledging the federal criminal penalties attendant to “knowingly making a
false statement to obtain a guaranteed loan from SBA.”

68. In or around January 2021, an authorized representative submitted or caused to be
submitted 3% Avenue’s second draw PPP loan application to M&T Bank.

69. On or about January 22, 2021, in reliance on 3™ Avenue’s materially false and
fraudulent representations and certifications in the loan application, M&T Bank issued a second-
draw PPP loan # 4109398309 (“3 Avenue Loan 8309”) to 3% Avenue in the amount of
$402,800.00.

70. The PPP Loan Forgiveness Application Form required the applicants’ authorized
representatives to certify that the borrower had complied with all requirements in the PPP Rules
provided under the Small Business Act, the PPP interim final rules, and guidance issued by SBA
through the date of the forgiveness application. The application also required the representative to

certify that all information provided was “true and correct in all material respects” and to

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acknowledge that “knowingly making a false statement to obtain forgiveness of an SBA-
guaranteed loan” was punishable under Federal law with imprisonment and/or fines.

71. ‘In or about April 2022, 3 Avenue submitted an SBA Form 3508 seeking
forgiveness of the 3% Avenue Loan 8309.

72. Upon information and belief, 3 Avenue’s authorized representative falsely and
fraudulently certified that the business had all complied with the SBA’s second-draw PPP loan
requirements and was therefore entitled to loan forgiveness.

73. Onorabout May 10, 2022, in reliance on 3" Avenue’s material false representations
and omissions, the 3% Avenue Loan 8309 was forgiven in full, causing the United States to
reimburse M&T Bank for the full amount, which cost the Government at least $407,931.56.

Despite Exceeding SBA’s Aggregate Size Limit,
Y&M Applied for and Received

a Second-Draw PPP Loan, which was Later Forgiven

74. In or about March 2021, an authorized representative of Y&M prepared or caused
to be prepared an SBA application for a second draw PPP loan on behalf of Y&M to Ridgewood
Savings Bank, a federally-insured financial institution based in Queens, New York.

75. Upon information and belief, an authorized representative of Y&M prepared SBA
Form 2483-SD, in which the representative falsely and fraudulently certified that Y&M was a
small business eligible for participation in the PPP Loan Program, by failing to acknowledge that
Y&M was a business that had more than 300 employees.

76. The authorized representative falsely certified that Y&M, together with its
affiliates, “employs no more than 300 employees.”

77. | Y&M reported that it had 298 employees, whereas 3 Avenue reported 42

employees. In total, the affiliates had 342 employees. As previously alleged, in applying for their

17
Case 1:24-cv-00935-JLS Documenti1_ Filed 09/30/24 Page 19 of 24

first-draw PPP loans within the previous year, Jofaz had reported having 500 employees and Y&M
had reported having 498 employees.*

78. The applications required the applicant’s authorized representative to “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” and acknowledge that
“knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under
the law.”

79. Upon information and belief, Y&M applied for a second-draw PPP loan despite
exceeding the SBA’s 300-employee aggregate limit.

80. Upon information and belief, an authorized representative of Y&M falsely certified
or caused to be certified 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” while
acknowledging the federal criminal penalties attendant to “knowingly making a false statement to
obtain a guaranteed loan from SBA.”

81. In or around March 2021, an authorized representative submitted or caused to be
submitted Y&M’s second draw PPP loan application to Ridgewood Savings Bank.

82. On or about April 8, 2021, in reliance on Y&M’s materially false and fraudulent
representations and certifications in the loan application, Ridgewood Savings Bank issued a second
draw PPP loan # 9398928703 (“Y&M Loan 8703”) to Y&M in the amount of $2 million.

83. | The PPP Loan Forgiveness Application Form required the applicants’ authorized
representatives to certify that the borrower had complied with all requirements in the PPP Rules

provided under the Small Business Act, the PPP interim final rules, and guidance issued by SBA

4 Notably, Jofaz had obtained its first-draw loan from Ridgewood Savings Bank, and 3"? Avenue and Y&M had
obtained theirs from M&T Bank. Jofaz apparently did not apply for a second-draw loan.

18
Case 1:24-cv-00935-JLS Documenti1 Filed 09/30/24 Page 20 of 24

through the date of the forgiveness application. The application also required the representative to
certify that all information provided was “true and correct in all material respects” and to
acknowledge that “knowingly making a false statement to obtain forgiveness of an SBA-
guaranteed loan” was punishable under Federal law with imprisonment and/or fines.

84. In or about April 2022, Y&M submitted an SBA Form 3508 seeking forgiveness of
the Y&M Loan 8703.

85. | Upon information and belief, Y&M’s authorized representative falsely and
fraudulently certified that the business had all complied with the SBA’s second-draw PPP loan
requirements and was therefore entitled to loan forgiveness

86. On or about April 13, 2022, in reliance on Y&M’s material false representations
and omissions, the Y&M Loan 8703 was forgiven in full, causing the United States to reimburse

Capital One for the full amount, which cost the Government at least $2,020,166.67.

THE GOVERNMENT HAS BEEN DAMAGED AS A RESULT OF
DEFENDANTS’ CONDUCT
87. | Defendants’ materially false statements have caused the federal government to be
defrauded of taxpayer funds in the approximate amount of $2.5 million. [$2.428,098.23 +

32,084.00 fees]

19

CUAILGR11A7 1
Case 1:24-cv-00935-JLS Documenti1_ Filed 09/30/24 Page 21 of 24

CLAIMS FOR RELIEF
COUNT 1
False Claims Act:
Making or Using False

Records or Statement to Cause Claims to be Paid
31 U.S.C. § 3729(a)(1)(B)

88. Relator repeats the allegations contained in the above paragraphs as if fully set forth
herein.

89. As more particularly set forth in the foregoing paragraphs, by virtue of the acts
alleged herein, the Defendants have knowingly made, used, or caused to be made or used, false
records or statements — i.e., the false representations made or caused to be made by Defendants —
material to false or fraudulent claims in violation of 31 U.S.C. § 3729(a)(1)(B).

90. Asa result thereof, the United States has been damaged in an amount equal to or

greater than the amount paid by the United States for such false or fraudulent claims.

COUNT II
False Claims Act:
Presenting or Causing to be Presented False and Fraudulent Claims
31 U.S.C. § 3729(a)(1)(A)
91. Relator repeats the allegations contained in the above paragraphs as if fully set forth
herein.
92. As more particularly set forth in the foregoing paragraphs, by virtue of the acts
alleged herein, the Defendants have knowingly presented, and caused to be presented, false or
fraudulent claims for payment or approval in violation of 31 U.S.C. § 3729(a)(1)(A).

93. As a result thereof, the United States has been damaged in an amount equal to or

greater than the amount paid by the United States for such false or fraudulent claims.

20
Case 1:24-cv-00935-JLS Documenti Filed 09/30/24 Page 22 of 24

DEMANDS FOR RELIEF

WHEREFORE, Relator, on behalf of the United States Government, demands judgment
against the Defendants, ordering that:

A. That Defendants be ordered to cease and desist from submitting any more false
claims, or further violating 31 U.S.C. § 3729, et seq.;

B. That judgment be entered in Relator’s favor and against Defendants in the amount
of each and every false or fraudulent claim, multiplied as provided for in 31 U.S.C. § 3729(a), plus
a civil penalty of not less than $13,946.00 and up to $27,894.00 per claim as provided by 31 U.S.C.
§ 3729(a), 20 CFR Part 356 and 28 CFR Part 85 (see 88 FR 5776, Feb. 12, 2024), to the extent
such multiplied penalties shall fairly compensate the United States of America for losses resulting
from the various schemes undertaken by Defendants, together with penalties for specific claims to
be identified at trial after full discovery;

C. That Defendants be ordered to disgorge all sums by which they have been enriched
unjustly by their wrongful conduct;

D. That judgment be granted for Relator against Defendants for all costs, including,
but not limited to, court costs, expert fees and all attorneys’ fees incurred by Relator in the
prosecution of this suit; and

E. That Relator be granted such other and further relief as the Court deems just and

proper.

21
Case 1:24-cv-00935-JLS Document1 Filed 09/30/24 Page 23 of 24

TRIAL BY JURY

Relator hereby demands a trial by jury as to all issues.

DATED: September 30, 2024

SPIRO HARRISON & NELSON

PA B. Harrison
“ric H. Jaso (pro hac vice pending)

363 Bloomfield Avenue
Suite 2C

Montclair, NJ 07042
(973) 744-2100
dharrison@shnlegal.com
ejaso(@shnlegal.com

Attorney for Relator

Nw

CUNNQC11A7 14
Case

JS 44 (Rev. 08/18)

1:24-cv-00935-JLS Document1 Filed 09/30/24 Page 24 of 24

CIVIL COVER SHEET 24 CV 935

The JS 44 civil cover sheet and the information contained herein neither replace nor seperation the filing and service of pleadings or other papers as required by law, except as

provided by local rules of court. This form, approved by the Judicial Conference of the

Jnited States in September 1974, is required for the use of the Clerk of Court for the

purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM)

I. (a) PLAINTIFFS DEFENDANTS
United States of America ex rel. Aidan Forsyth 3rd Avenue Transit, Inc. and Y&M Transit Corp.
(b) County of Residence of First Listed Plaintiff. County of Residence of First Listed Defendant Kings County) |
(EXCEPT IN U.S. PLAINTIFF CASES) (IN U.S. PLAINTIFF CASES ONLY)

David B. Harrison, Esq. Spiro Harrison & Nelson 363 Bloomfield Ave.,
Suite 2C, Montclair, NJ 07042; 973-744-2100

NOTE: INLAND CONDEMNATION CASES, USE THE LOCATION OF
THE TRACT OF LAND INVOLVED

(c) Attorneys (Firm Name, Address, and Telephone Number) Attorneys (If Known)

II. BASIS OF JURISDICTION (Place an “X" in One Box Only) Ill. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X" in One Box for Plaintiff
(For Diversity Cases Only) and One Box for Defendant)
fas 1 U.S. Government O 3 Federal Question PTF DEF PTF DEF
Plaintiff (U.S. Government Not a Party) Citizen of This State a1 O 1 Incorporated or Principal Place 0O4 04

of Business In This State

O 2 US. Government 0 4° Diversity Citizen of Another State G2 GO 2 Incorporated and Principal Place as o%
Defendant (Indicate Citizenship of Parties in Item III) of Business In Another State
Citizen or Subject of a 0 3 O 3. Foreign Nation o06 06
Foreign Country
IV. NATURE OF SUIT (Pace an “¥” in One Box Only) Click here for; Nature of Suit Code Descriptions.
[ CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES ]
0 110 Insurance PERSONAL INJURY PERSONAL INJURY © 625 Drug Related Seizure ©) 422 Appeal 28 USC 158 375 False Claims Act
0 120 Marine O 310 Airplane © 365 Personal Injury - of Property 21 USC 881 [0 423 Withdrawal % 376 Qui Tam (31 USC
© 130 Miller Act O 315 Airplane Product Product Liability © 690 Other 28 USC 157 3729(a))
0 140 Negotiable Instrument Liability 0 367 Health Care/ GO 400 State Reapportionment
© 150 Recovery of Overpayment | 0 320 Assault, Libel & Pharmaceutical PROPERTY RIGHTS © 410 Antitrust
& Enforcement of Judgment Slander Personal Injury 0 820 Copynghts 0 430 Banks and Banking
0 151 Medicare Act © 330 Federal Employers’ Product Liability © 830 Patent 0 450 Commerce
0 152 Recovery of Defaulted Liability 368 Asbestos Personal © 835 Patent - Abbreviated 0) 460 Deportation
Student Loans 0 340 Marine Injury Product New Drug Application |0 470 Racketeer Influenced and
(Excludes Veterans) © 345 Marine Product Liability © 840 Trademark Corrupt Organizations
OC 153 Recovery of Overpayment Liability PERSONAL PROPERTY LABOR SOCIAL SECURITY © 480 Consumer Credit
of Veteran's Benefits O 350 Motor Vehicle O 370 Other Fraud O 710 Fair Labor Standards O 861 HIA (1395ff) 485 Telephone Consumer
© 160 Stockholders’ Suits © 355 Motor Vehicle © 371 Truth in Lending Act © 862 Black Lung (923) Protection Act
0 190 Other Contract Product Liability GO 380 Other Personal © 720 Labor/Management © 863 DIWC/DIWW (405(g)) [O 490 Cable/Sat TV
© 195 Contract Product Liability | 360 Other Personal Property Damage Relations 0) 864 SSID Title XVI 850 Securities/Commodities/
O 196 Franchise Injury © 385 Property Damage OG 740 Railway Labor Act © 865 RSI (405(g)) Exchange
O 362 Personal Injury - Product Liability © 751 Family and Medical © 890 Other Statutory Actions
Medical Malpractice Leave Act O 891 Agricultural Acts
l REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS (| 790 Other Labor Litigation FEDERAL TAX SUITS © 893 Environmental Matters
© 210 Land Condemnation © 440 Other Civil Rights Habeas Corpus: © 791 Employee Retirement © 870 Taxes (U.S. Plaintiff ©) 895 Freedom of Information
O 220 Foreclosure 0 441 Voting 0 463 Alien Detainee Income Security Act or Defendant) Act
O 230 Rent Lease & Ejectment 0 442 Employment 0 510 Motions to Vacate 0 871 IRS—Third Party O 896 Arbitration
0 240 Torts to Land O 443 Housing/ Sentence 26 USC 7609 0 899 Administrative Procedure
OG 245 Tort Product Liability Accommodations © 530 General Act/Review or Appeal of
O 290 All Other Real Property O 445 Amer. w/Disabilities -] 535 Death Penalty IMMIGRATION Agency Decision
Employment Other: © 462 Naturalization Application 0 950 Constitutionality of
© 446 Amer. w/Disabilities - | 540 Mandamus & Other |© 465 Other Immigration State Statutes
Other 0 550 Civil Rights Actions
0 448 Education 1 555 Prison Condition
560 Civil Detainee -
Conditions of
Confinement
V. ORIGIN (Place an “X” in One Box Only)
PG Original O2 Removed from GO 3 Remanded from O 4 Reinstatedor © 5 Transferred from © 6 Multidistrict O 8 Multidistrict
Proceeding State Court Appellate Court Reopened Another District Litigation - Litigation -

(specify) Transfer Direct File

VI. CAUSE OF ACTION

Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):
31 U.S.C. Sec. 3729

Brief description of cause: , . . .

Qui Tam lawsuit alleging fraud in obtaning SBA Payroll Protection Program

VIL. REQUESTED IN

COMPLAINT:

O CHECK IF THIS IS A CLASS ACTION DEMAND S$ CHECK YES only if demanded in complaint:
UNDER RULE 23, F.R.Cv.P. JURY DEMAND: M Yes No

VIII. RELATED CASE(S)

(See instructions):

IF ANY JUDGE _____ DOCKET NUMBER
DATE SIGNATURE OF ATTORNEY OF RECORD
09/30/2024 (a
FOR OFFICE USE ONLY a

RECEIPT # AMOUNT APPLYING IFP JUDGE MAG. JUDGE


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