False Claims Act Complaint — United States ex rel. Gray v. Monofrax LLC (E.D. Mich.)
Summary
A False Claims Act Complaint (Sealed Complaint) filed 09/21/22 as ECF No. 1 in United States of America ex rel. Jeffery Gray v. Monofrax LLC, Monfrax Holding GmbH, Callista Private Equity GmbH, Compagnie de Saint-Gobain, and William Andrews, Case 5:22-cv-12221-JEL-KGA, U.S. District Court, Eastern District of Michigan, marked as filed in camera and under seal pursuant to 31 U.S.C. § 3730(b)(2). Relator Jeffery Gray brings the qui tam action on behalf of the United States. The complaint alleges that Defendants submitted materially false Paycheck Protection Program (PPP) loan applications on May 5, 2020 and January 26, 2021 and related forgiveness applications, and that Defendants mischaracterized Monofrax LLC as a small business with less than 200 employees. It alleges that the government paid $4,407,959.80 that would not otherwise have been paid.
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“False Claims Act Complaint — United States ex rel. Gray v. Monofrax LLC (E.D. Mich.).”
Original at archive.org. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/complaint-no-5-22-cv-12221-dkt-1-e-d-mich-2680b63718/
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Case 5:22-cv-12221-JEL-KGA ECF No. 1, PageID.1 Filed 09/21/22 Page 1 of 44
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
UNITED STATES OF AMERICA ex
rel. JEFFERY GRAY, Civil Action No _________________
Hon.
Plaintiff, Magistrate
v. FALSE CLAIMS ACT
COMPLAINT
MONOFRAX LLC, MONFRAX
HOLDING GmbH, CALLISTA [FILED UNDER SEAL]
PRIVATE EQUITY GmbH,
COMPAGNIE de SAINT-GOBAIN,
and WILLIAM ANDREWS,
Defendants.
FILED IN CAMERA AND UNDER SEAL PURSUANT TO
31 U.S.C. § 3730(b)(2)
DO NOT POST ON ECF
DO NOT PUT IN PRESS BOX
Patricia Stamler (P35905) Darth M. Newman
Hertz Schram PC Law Offices of Darth M. Newman LLC
1760 S. telegraph Rd 1140 Thorn Run Rd, #601
STE 300 Coraopolis, PA 15108
Bloomfield, Hills, PA 48302 (412) 436-3443
(248) 335-5000
Local Counsel for Plaintiff Relator Lead Counsel for Plaintiff Relator
i
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SEALED COMPLAINT AND DEMAND FOR JURY TRIAL
Qui tam plaintiff and Relator Jeffery Gray, by and through his undersigned
attorneys, hereby brings this action on behalf of himself and on behalf of the
United States of America, against:
• Monofrax LLC;
• Monfrax Holding GmbH;
• Callista Private Equity GmbH;
• Compagnie de Saint-Gobain; and
• William Andrews.
INTRODUCTION
The claims asserted in this Complaint are based on Defendants submitting,
or causing to be submitted, materially false applications for Paycheck Protection
Program (“PPP”) loans and related forgiveness applications. Defendants, acting
through their control and/or ownership of Monofrax LLC, submitted two
applications for PPP loans. The first loan application occurred on May 5, 2020, and
the second loan application occurred on January 26, 2021. On both applications,
Defendants made materially false statements or material omissions about the
employee size of Monofrax LLC.
Defendants mischaracterized Monofrax LLC, the nominal applicant, as a
“small business” with less than 200 employees. But, under the applicable statutes
ii
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and regulations, Monofrax was not a small business at all and did not qualify for
any PPP loan funds or forgiveness of these loans.
Defendants compounded their initial false claims by obtaining complete
forgiveness of both PPP loans with forgiveness payments being made on or about
September 16, 2021, and June 15, 2022. Altogether, Defendants caused the
government to pay $4,407,959.80 that would not otherwise have been paid but for
the false claims described herein.
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TABLE OF CONTENTS
INTRODUCTION.......................................................................................... II
TABLE OF CONTENTS ............................................................................... 1
NATURE OF THE CLAIM ........................................................................... 3
PARTIES ....................................................................................................... 3
A. Relator – Jeffery Gray............................................................................................. 3
B. Defendant Monofrax LLC ..................................................................................... 4
C. Defendant Monofrax Holding GmbH ................................................................. 5
D. Defendant Callista Private Equity GmbH .......................................................... 6
E. Defendant Compagnie de Saint-Gobain ............................................................. 7
F. Defendant William Andrews................................................................................. 8
G. Non-Party Crestmark Bank ................................................................................... 8
JURISDICTION AND VENUE ...................................................................... 9
GENERAL ALLEGATIONS ....................................................................... 10
I. Governing Law ............................................................................................................ 10
A. The Federal False Claims Act ............................................................................ 10
B. The Paycheck Protection Program.................................................................... 11
i. Affiliation Rules ................................................................................................ 14
II. Violations of the False Claims Act ......................................................................... 18
A. PPP Loan Applications ........................................................................................ 18
i. First PPP Loan Application ............................................................................ 19
ii. Second PPP Loan Application ....................................................................... 22
B. Impermissible Affiliations .................................................................................. 25
i. Callista’s Affiliations ....................................................................................... 26
ii. Saint-Gobain’s Affiliations ............................................................................ 28
C. Lack of Need for Funds ....................................................................................... 28
1
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i. Payments “Up” to Callista .............................................................................. 29
D. Forgiveness Applications .................................................................................... 30
ii. First Forgiveness Application ........................................................................ 30
iii. Second Forgiveness Application ........................................................... 31
III. Defendants’ Role(s) in the False Claims ............................................................... 31
A. Monofrax LLC ....................................................................................................... 32
B. Monofrax Holding GmbH................................................................................... 32
C. Callista Private Equity GmbH ........................................................................... 32
D. Saint-Gobain........................................................................................................... 33
E. William Andrews .................................................................................................. 34
CAUSES OF ACTION ................................................................................. 35
2
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NATURE OF THE CLAIM
1. Relator sues Defendants to recover treble damages and civil penalties
on behalf of the United States of America for Defendants’ false applications for
PPP loans and forgiveness which were submitted to the Small Business
Administration (“SBA”) through Defendants’ bank, Crestmark.
2. Defendants knew they did not meet the established criteria set by the
SBA to obtain the PPP loans or forgiveness funds.
3. Defendants engaged in the submission of false claims to the United
States in violation of the False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”).
4. As an employee of Defendant Monofrax LLC, Relator personally
observed Defendants’ financial and management practices and the preparation and
submission of the PPP loan and forgiveness applications.
PARTIES
A. Relator – Jeffery Gray
5. Jeffery Gray is an individual resident and domiciliary of the
Commonwealth of Pennsylvania.
6. In October 1989, Relator Gray commenced his employment with
Monofrax’s predecessor company.
7. At all relevant times herein, he was the Director of Information
Technology and Special Projects for Defendant Monofrax LLC.
8. In April 2022, Relator was promoted to Business Systems Manager.
3
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9. Relator’s title belies his role in the company and its operations.
10. As a long-serving high-level management employee, Relator was
given broad access to the inner financial workings of the company and the
relationship between Monofrax and its various Private Equity and other corporate
overlords.
11. Relator was present for C-Suite conversations and calculations about
the purchase by Callista and later Saint-Gobain, the payments “up” to Callista, and
the applications for the PPP loans and forgiveness.
B. Defendant Monofrax LLC
12. Defendant Monofrax LLC (“Monofrax”) is a Delaware registered
limited liability company with a principal place of business at 1870 New York
Ave, Falconer, NY 14733.
13. Its primary business is the manufacture of refractory materials used in
the glass manufacturing industry.
14. Monofrax LLC is the nominal applicant and recipient for both of the
PPP loans, and both sets of forgiveness paperwork and monies at issue here.
15. Defendant Callista Private Equity purchased 100% of Monofrax on or
about June 6, 2016.
4
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16. As a technical matter, it seems Callista purchased all the entity that
came to be known as Defendant Monofrax Holding GmbH which in turns owns all
of Monofrax LLC.
17. Callista Private Equity sold Monofrax Holding GmbH to Saint-
Gobain in April 2022.
C. Defendant Monofrax Holding GmbH
18. Defendant Monofrax Holding GmbH is a German registered business
entity and the 100% owner of Monofrax LLC.
19. Until June 20, 2016, Monofrax Holding GmbH was known as Callista
Turnaround 3 GmbH.
20. On or about June 6, 2016, Callista Private Equity purchased
Monofrax.
21. As a technical matter, it appears Callista used a wholly owned
acquisition vehicle named Callista Turnaround 3 GmbH to purchase the entirety of
Monofrax LLC from the prior owner, RHI AG, an Austrian registered business.
22. Callista then changed the name of its acquisition vehicle from Callista
Turnaround 3 GmbH to Monofrax Holding GmbH on or about June 20, 2016.
23. The Third Amended and Restated Limited Liability Company
Agreement for Monofrax Holding GmbH is signed by only one person, Olaf
Meier, the founding partner, and CEO of Callista Private Equity GmbH.
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24. Defendant Monofrax Holding GmbH appears to be the company that
Callista later sold to Saint-Gobain.
25. At all relevant times, Monofrax Holding GmbH owned and controlled
Defendant Monofrax LLC and is thereby liable for the violations of the FCA
complained of herein.
D. Defendant Callista Private Equity GmbH
26. Defendant Callista Private Equity GmbH (“Callista”) is a German
registered business entity and, from at least June 2016 through April 2022, the
100% owner of Monofrax.
27. Callista may have interposed additional paper entities between itself
and Monofrax Holding GmbH, but Callista was the final or ultimate beneficial
owner and entity with the power to control Monofrax between June 2016 and April
2022.
28. During its term of ownership, Callista controlled the management and
closely monitored the performance of Monofrax.
29. Also, Callista caused Monofrax to pay to it substantial sums of money
on a more or less monthly basis.
30. The payments Monofrax made to Callista during Callista’s ownership
of it totaled more than $1.9 million.
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E. Defendant Compagnie de Saint-Gobain
31. Defendant Compagnie de Saint-Gobain is a global conglomerate with
a global headquarters in Courbevoie, France and a North American headquarters in
Malvern, Pennsylvania.
32. Compagnie de Saint-Gobain (“Saint-Gobain”) is organized under the
laws of France with a business address of Les Miroirs 18 Ave D’Alsace
Courbevoie, Courbevoie I0 92400.
33. Saint-Gobain is a global company which brands itself as a “worldwide
leader in light and sustainable construction, Saint-Gobain designs, manufactures
and distributes materials and services for the construction and industrial markets.”
See gen., https://www.saint-gobain.com/en/group/who-are-we last visited August
25, 2022
34. Saint-Gobain purchased Monofrax from Callista on or about April 20,
2022.
35. As with Callista’s earlier purchase from RHI AG, Saint-Gobain
purchased the Monofrax Holding GmbH entity which continues to own 100% of
Monofrax LLC.
36. Saint-Gobain may have interposed additional paper entities between
itself and Monofrax Holding GmbH, but Saint-Gobain has been the final or
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ultimate beneficial owner and entity with the power to control Monofrax since
April 20, 2022.
37. Saint-Gobain previously owned Monofrax in 1996..
F. Defendant William Andrews
38. Defendant William Andrews is an individual resident and domiciliary
of New York with an address of 12118 Anne Drive, Alden, NY 14004.
39. Mr. Andrews was the President and Managing Director of Monofrax
at all relevant times and the signatory on each of the PPP loan and forgiveness
applications at issue here.
40. Mr. Andrews voluntarily left Monofrax on or about July 8, 2022.
41. He received a sizeable “commission” on the sale of Monofrax to
Saint-Gobain.
42. The purchase price which formed the basis of that commission was
itself inflated by the value of the PPP loans and forgiveness Monofrax should
never have received.
G. Non-Party Crestmark Bank
43. Non-Party Crestmark Bancorp, Inc. is a corporation organized under
the laws of the state of Michigan with a principal place of business located at 5480
Corporate Drive, Suite 350 Troy, Michigan 48098.
44. Crestmark Bank is a division of MetaBank.
8
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45. Crestmark Bank processed the Monofrax PPP loan applications and
made both loans.
46. Crestmark’s relationship with Monofrax predates the pandemic and
the PPP loan applications.
47. It provided Monofrax a $3 million revolving credit line secured by
Monofrax’s assets and accounts receivable.
JURISDICTION AND VENUE
48. This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331
and 1345 because this action involves a federal question, and the United Sates is
plaintiff. This Court also has subject matter jurisdiction under 31 U.S.C. § 3732(a).
49. The Court may exercise personal jurisdiction over the Defendants
under 31 U.S.C. § 3732(a) because at least one Defendant transacted business in
this district and the acts complained of occurred within this district.
50. Venue is proper in this District under 31 U.S.C. § 3732(a) because at
least one Defendant transacted business in this district and a substantial part of the
events establishing the alleged claims arose in this District.
51. No allegation in this Complaint is based on a public disclosure of
allegations or transactions in a Federal criminal, civil, or administrative hearing in
which the Government or its agent is a party; in a congressional, administrative, or
General Accountability Office, or other Government report, hearing, audit, or
investigation; or from the news media. Rather, Relator is the original source.
9
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52. Under 31 U.S.C. § 3730(b)(2), this Complaint is filed in camera and
under seal and shall not be served on Defendants until the Court so orders.
53. Under 31 U.S.C. § 3730(b)(2), Relator voluntarily provided the
Government with Relator’s written disclosure statement, together with exhibits, of
substantially all material evidence and material information in his possession
referenced in and/or related to the Complaint.
GENERAL ALLEGATIONS
I. Governing Law
A. The Federal False Claims Act
54. 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,” “knowingly makes, uses, or causes to be made or used, a
false record or statement material to a false or fraudulent claim,” or conspires to do
so. 31 U.S.C. § 3729(a)(1).
55. As of the date of filing, any person found to have violated these
provisions is liable for a civil penalty of not less than $12,537 and not more than
$25,076 for each such violation, plus three times the damage sustained by the
Government.
56. The FCA imposes liability where conduct is “in reckless disregard of
the truth or falsity of the information” and clarifies that “no proof of specific intent
to defraud is required.” 31 U.S.C. § 3729(b).
10
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57. The FCA also broadly defines a "claim" to include "any request or
demand, whether under a contract or otherwise, for money or property and whether
or not the United States has tittle to the money or property, that - … 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
... " 31 U.S.C. § 3729(b)(2)(A).
58. The FCA empowers private persons having information regarding a
false or fraudulent claim against the Government to sue 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 and determines whether to
intervene. 31 U.S.C. §3730(b).
B. The Paycheck Protection Program
59. The Paycheck Protection Program (“PPP”) is the United States
Government business loan program established in 2020 through the Coronavirus
Aid, Relief, and Economic Security Act (“CARES Act”) to help certain businesses,
self-employed workers, sole proprietors, certain nonprofit organizations, veterans’
organizations, and tribal businesses to continue paying their workers. The program
is implemented by the U.S. Small Business Administration (“SBA”).
11
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60. The PPP allowed qualified entities to apply for low-interest private
loans to pay for their payroll and certain other operating costs. Under the PPP, the
allowable amount of a PPP loan was calculated based on the borrowing entity’s
average monthly payroll costs multiplied by 2.5. 1
61. In some situations, an applicant might receive a second loan typically
equal to the first. 2
62. The PPP loan had to be used to cover payroll costs, rent, interest, and
utilities.
63. The loan may be partially or fully forgiven if the business keeps its
employee counts and employee wages stable.
64. The deadline for entities to apply for a PPP loan was initially June 30,
2020, which was later extended to August 8, 2020.
1
See How to Calculate Maximum Loan Amounts – by Business Type, U.S. Small
Business Administration, (Jun. 26, 2020)
https://www.sba.gov/sites/default/files/2020-06/How-to-Calculate-Loan-Amounts-
508_1.pdf (last visited September 7, 2022).
2
See Second Draw PPP Loan, U.S. Small Business Administration,
https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-
protection-program/second-draw-ppp-loan (last visited Dec. 13, 2021).
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65. The PPP was reopened on January 11, 2021. The Program ended on
May 31, 2021. 3
66. The PPP was added under Section 1102 of the CARES Act by
amending Section 7(a) of the Small Business Act, 15 U.S.C. § 636(a) et seq.,
which temporarily permitted the SBA to guarantee 100 percent of the PPP loans.
67. Section 1106 of the CARES Act, which also amended Section 7(a),
further provides for forgiveness of up to the full principal amount of qualifying
loans guaranteed under the PPP.
68. Section 1102 of the CARES Act defines an eligible recipient of a PPP
loan as follows:
(D) INCREASED ELIGIBILITY FOR CERTAIN SMALL
BUSINESSES AND ORGANIZATIONS.— (i) IN GENERAL.—
During the covered period, in addition to small business concerns, any
business concern, nonprofit organization, veterans organization, or
Tribal business concern described in section 31(b)(2)(C) shall be
eligible to receive a covered loan if the business concern, nonprofit
organization, veterans organization, or Tribal business concern
employs not more than the greater of — (I) 500 employees; or (II) if
applicable, the size standard in number of employees established by
the Administration for the industry in which the business concern,
nonprofit organization, veterans organization, or Tribal business
concern operates.
15 U.S.C. § 636(a)(36) (D).
3 See Paycheck Protection Program, U.S. SMALL BUSINESS
ADMINISTRATION, https://www.sba.gov/funding-programs/loans/covid-19-
relief-options/paycheck-protection-program (last visited Dec. 9, 2021).
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i. Affiliation Rules
69. The PPP loan program was designed and intended to benefit small
businesses.
70. For the purposes of first round PPP loans, the relevant statutes and
regulations defined small businesses as those entities with 500 or fewer employees.
71. For second round loans, the employee limit was lowered to 300.
72. SBA’s existing affiliation rules apply to the PPP loan program’s
definition of small businesses. In other words, all employees of the entities under
the same ownership or control “count” towards the 500 or 300-employee limit.
73. 13 C.F.R. 121.106 (a) sets out how the SBA calculates the number of
employees, in pertinent part, as follows:
(a) In determining a concern’s number of employees, SBA counts all
individuals employed on a full-time, parttime, or other basis. This
includes employees obtained from a temporary employee agency,
professional employer organization or leasing concern. SBA will
consider the totality of the circumstances, including criteria used by
the IRS for Federal income tax purposes, in determining whether
individuals are employees of a concern.
74. The SBA repeatedly clarified that the affiliation rules at 13 C.F.R. §
121.301(f) applied to PPP loans and that for the purposes of counting employees,
all foreign and domestic affiliated employees must be counted. For example, the
SBA’s March 12, 2021, FAQs included question 44 on this topic:
44. Question: How do SBA’s affiliation rules at 13 C.F.R. 121.301(f)
apply with regard to counting the employees of foreign and U.S.
affiliates?
14
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Answer: For purposes of the PPP’s 500 or fewer employee size
standard (or 300 employee size standard for Second Draw PPP Loans
and certain entities for First Draw PPP Loans), an applicant must
count all of its employees and the employees of its U.S and foreign
affiliates, absent a waiver of or an exception to the affiliation rules. 13
C.F.R. 121.301(f)(6). Business concerns seeking to qualify for a First
Draw PPP Loan as a “small business concern” under section 3 of the
Small Business Act (15 U.S.C. 632) on the basis of the employee-
based size standard must do the same.
Exhibit 1, March 12, 2021 SBA FAQs (emphasis added).
75. The applicable affiliation rules appear at 13 C.F.R. § 121.301.
Concerns and entities are affiliates of each other when one controls or
has the power to control the other, or a third party or parties
controls or has the power to control both. It does not matter
whether control is exercised, so long as the power to control exists.
13 C.F.R. § 121.301(f) (emphasis added).
For determining affiliation based on equity ownership, a concern is an
affiliate of an individual, concern, or entity that owns or has the power
to control more than 50 percent of the concern's voting equity.
13 C.F.R. § 121.301(f)(1).
76. The affiliation rules presented a special problem for certain industries
which typically organize themselves as several nominally individual businesses
owned or controlled by a single entity.
77. To address this reality, Congress provided statutory carveouts for
certain parts of the hospitality industry and some franchise businesses. See 15
U.S.C. § 636(A)(36)(D)(iv).
78. Importantly, Congress and the SBA took the exact opposite approach
with the private equity industry and global conglomerates generally.
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79. Indeed, private equity companies themselves were explicitly excluded
from the PPP program. See Exhibit 2, 85 Fed. Reg. 23450 at 23451(2.)(a.) (April
28, 2020).
2. Clarification Regarding Eligible Businesses
a. Is a hedge fund or private equity firm eligible for a PPP loan?
No. Hedge funds and private equity firms are primarily engaged
in investment or speculation, and such businesses are therefore
ineligible to receive a PPP loan. The Administrator, in consultation
with the Secretary, does not believe that Congress intended for these
types of businesses, which are generally ineligible for section 7(a)
loans under existing SBA regulations, to obtain PPP financing.
Exhibit 2, 85 Fed. Reg. 23450 at 23451(2.)(a.) (April 28, 2020).
80. Private equity owned operating companies were permitted to access
PPP funds only if they could meet both the employee limits under the affiliation
rule and specifically certified that “[c]urrent economic uncertainty makes this loan
request necessary to support the ongoing operations of the Applicant.” Exhibit 1,
March 12, 2021, SBA PPP FAQs at #31.
81. As the SBA repeatedly explained, companies owned by larger entities,
including private equity companies, had to take special care to ensure that no other
sources of liquidity were available before they consumed scarce PPP funds.
b. Do the SBA affiliation rules prohibit a portfolio company of a
private equity fund from being eligible for a PPP loan?
Borrowers must apply the affiliation rules that appear in 13
CFR 121.301(f), as set forth in the Second PPP Interim Final Rule (85
FR 20817). The affiliation rules apply to private equity-owned
businesses in the same manner as any other business subject to
16
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outside ownership or control. However, in addition to applying any
applicable affiliation rules, all borrowers should carefully review the
required certification on the Paycheck Protection Program Borrower
Application Form (SBA Form 2483) stating that ‘‘[c]urrent
economic uncertainty makes this loan request necessary to
support the ongoing operations of the Applicant.’’
Exhibit 2, 85 Fed. Reg. 23450 at 23451(2.)(a.) (April 28, 2020) (emphasis added).
82. The SBA specifically clarified that employees associated with foreign
affiliates must be included when calculating total number of employees.
1. Treatment of Foreign Affiliates
Are employees of foreign affiliates included for purposes of
determining whether a PPP borrower has more than 500 employees?
Yes. The CARES Act specifies that an entity is eligible for a
PPP loan only if it is (1) a small business concern, or (2) a business
concern, nonprofit organization described in section 501(c)(3) of the
Internal Revenue Code, veterans organization described in section
501(c)(19) of the Internal Revenue Code, or Tribal business concern
described in section 31(b)(2)(C) of the Small Business Act that
employs not more than the greater of 500 employees, or, if applicable,
SBA’s employee-based size standard for the industry in which the
entity operates. SBA’s affiliation regulations provide that to determine
a concern’s size, employees of the concern ‘‘and all of its domestic
and foreign affiliates’’ are included. 13 CFR 121.301(f). Therefore,
to calculate the number of employees of an entity for purposes of
determining eligibility for the PPP, an entity must include all
employees of its domestic and foreign affiliates, except in those
limited circumstances where the affiliation rules expressly do not
apply to the entity. Any entity that, together with its domestic and
foreign affiliates, does not meet the 500-employee or other
applicable PPP size standard is therefore ineligible for a PPP
loan.
Exhibit 3, 85 Fed. Reg. 30835 at 30837 (May 21, 2020) (emphasis added).
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83. Defendants applied for their first round of PPP funds on or after May
5, 2020.
84. The Defendants did not get the benefit of the government’s
enforcement discretion applicable to borrowers who applied for a PPP loan prior to
May 5, 2020.
85. The SBA often specifically warned potential borrowers that civil and
criminal liability could attach. See e.g., 85 Fed. Reg. 20811 at 20814 (April 15,
2020).
86. As described below, Monofrax fails both the affiliation and financial
need tests as the sine qua non for eligibility for a PPP loan. 4
II. Violations of the False Claims Act
87. Defendants violated the False Claims Act by submitting materially
false applications and supporting materials in connection with their two
applications for PPP loans and their two applications for PPP loan forgiveness.
A. PPP Loan Applications
88. Monofrax made successful applications for First and Second Round
PPP loans.
4 The exceptions referenced at 13 C.F.R. § 121.301(f)(7) and 13 C.F.R. §
121.103(b) do not apply. For example, neither Callista nor Saint-Gobain appear on
the list of Small Business Investment Companies, and neither is owned or
controlled by an Indian Tribe.
18
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89. Both loans were submitted to and processed by Crestmark Bank.
i. First PPP Loan Application
90. Defendants’ first loan application was signed on May 5, 2020, and
submitted thereafter. Exhibit 4, First Round Application.
91. It was signed by Defendant Andrews on behalf of Monofrax LLC. Id.
92. PPP loan applications solicit various bits of information from the
applicant including the number of employees and the identity of any owners.
93. Defendants listed Monofrax Holding GmbH as the 100% owner of
Monofrax and listed 158 employees. Id.
94. The applications also include 8 questions that require “yes” or “no”
checkbox answers. Question 3 reads:
Is the Applicant or any owner of the Applicant an owner of any other
business, or have common management with, any other business? If
yes, list all such businesses and describe the relationship on a separate
sheet identified as addendum A.
95. Defendants marked “yes” in response to this question but did not
submit any explanation or any Exhibit A. Id.
96. Defendants failed to disclose that Callista owned Monofrax and failed
to disclose that Monofrax was affiliated with entities employing well over 1,000
employees.
97. These omissions alone make the certifications in the application false.
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98. Monofrax made each of the below additional certifications and each
was false when made.
• 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
Division A, Title I of the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) (the Paycheck
Protection Program Rule).
• The Applicant (1) is an independent contractor, eligible self-
employed individual, or sole proprietor or (2) employs no
more than the greater of 500 or employees or, if applicable,
the size standard in number of employees established by the
SBA in 13 C.F.R. 121.201 for the Applicant’s industry.
• Current economic uncertainty makes this loan request
necessary to support the ongoing operations of the
Applicant.
• 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.
Id. at 2.
99. Defendants’ Borrower Certificate included as part of the loan
application packet included the below additional express certifications which were
also false when made.
• Borrower is not obtaining this account on behalf of a non-
United States citizen or legal permanent resident.
• All information and certifications in Borrower’s application
for the Loan, including, without limitation, all information
set forth in Borrower’s Paycheck Protection Program
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Borrower Application Form (SBA Form 2483) completed
and executed by Borrower in connection with the Loan,
remain true and correct in all respects, and the Borrower
has not withheld any material information.
• The Borrower is eligible for the Loan under all applicable
laws, regulations and rules, including without limitation
applicable size, affiliation and other eligibility
requirements under 15 U.S.C. § 636(a), 13 C.F.R. § 120.100
et seq., 13 C.F.R. § 121.101 et seq., SBA SOP 50 10 5(K),
the Coronavirus Aid, Relief, and Economic Security Act of
2020 (“CARES Act”), and rules or other guidance issued by
the SBA.
Id. at 17 (emphasis added).
100. As part of the Disbursement Direction, Request and Authorization
form which formed a part of the application packet, Defendants again affirmed that
the above certifications were true by making the below affirmation.
Borrower affirms that the representations and warranties contained in
the Loan Documents are true, accurate and complete as of the date
hereof.
Id. at 28.
101. Nowhere did Defendants indicate to Crestmark or the government that
Monofrax was actually owned by Callista and that through Callista and the
applicable affiliation rules, Monofrax did not have 158 employees but had well
over 1,000 employees.
102. For its part, after Saint-Gobain acquired Monofrax, it did not correct
any of the above false claims or otherwise take any steps to remedy the false
claims or return any of the unlawfully obtained government funds.
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103. These affirmative and by omission false statements make the First
Round PPP loan application false under the FCA.
104. Defendants obtained a First Round PPP loan in the amount of
$2,509,290.00.
ii. Second PPP Loan Application
105. Defendants’ second loan application dated January 26, 2021 was also
signed by Mr. Andrews, listed only Monofrax Holding GmbH as an owner, and did
not include any Exhibit A or other explanation or disclosure of Monfrax’s many
affiliated employees. Exhibit 5, Second PPP Loan Application.
106. The phrasing for Question 3 of the SBA’s FAQs was changed slightly
to read:
Is the Applicant or any owner of the Applicant an owner of any other
business, or have common management (including a management
agreement) with any other business? If yes, list all such businesses
(including their TINs if available) and describe the relationship on a
separate sheet identified as addendum A.
Id. (changes in italics).
107. Despite the expansion of the inquiry, Defendants checked “no” in
response to Question 3 on the second application. Id.
108. Defendants falsely reported that Monofrax had only 130 employees
when, according to the applicable laws, rules, and regulations then in force, should
have reported it had well over 1,000 employees.
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109. On the face of the application, Defendants made several false
certifications including by certifying each of the below statements were true when
they were not:
• 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) 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; (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.
• Current economic uncertainty makes this loan request
necessary to support the ongoing operations of the
Applicant.
Id. at 2 (emphasis added).
110. For its part, Crestmark reported under Part E General Eligibility,
Defendants had made the below certification to the bank.
The Applicant has certified to the Lender that the Applicant, together
with its affiliates (if applicable), (1) is an independent contractor,
self-employed individual, or sole proprietor with no employees; (2)
employs no more than 300 employees; (3) if NAICS 72, employs no
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more than 300 employees per physical location; or (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.
Id. at 8 (emphasis added).
111. Defendants’ certification to the bank was false.
112. Crestmark made a similar report of apparent compliance at Part F
Applicant Certification of Eligibility, that “[t]he Applicant has certified to the
Lender that the Applicant is eligible under the Paycheck Protection Program
Rules.” Id.
113. As above, Defendants’ underlying certification to Crestmark was
false.
114. As part of the “Loan Agreement” Defendants represented and
certified to Crestmark:
Each of the answers provided and certifications made by Borrower in
the application submitted under the Act to the SBA in connection with
the Loan (“Application”) is true, accurate and complete, and
Borrower will comply with all such certifications.
and
Borrower is eligible to receive the Loan under the rules and
regulations that have been issued by the SBA relating to the PPP.
Borrower shall comply with all rules, regulations and requirements of
the PPP and the SBA in existence at the time of the Loan and as are
thereafter promulgated, including, but not limited to, those relating to
affiliates.
Id. at 18-19 (emphasis added).
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115. As with the first application, Defendants’ affirmative and by omission
false statements about its ownership structure and affiliations with over 1,000
employees makes the Second Round PPP loan application false under the FCA.
116. Also as above, after Saint-Gobain acquired Monofrax, it did not
correct any of the above false claims or otherwise take any steps to remedy the
false claims or return any of the unlawfully obtained funds
117. Defendants obtained a Second Round PPP loan in the amount of
$1,838,971.78.
B. Impermissible Affiliations
118. Through application of the affiliation rules, and at all relevant times,
Monofrax did not qualify for any PPP Loans or forgiveness.
119. The PPP was intended to benefit small American businesses, not
permit foreign private equity companies and conglomerates to siphon taxpayer
funded emergency relief funds out of the country.
120. At the time the First and Second PPP loan applications were
submitted, approved, and funded, and when the first loan was forgiven, Monofrax
was owned by Callista.
121. As detailed below, Callista owns or controls numerous businesses
including some truly large businesses.
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122. In total, through Callista, Monofrax was affiliated with entities
employing well over 1,000 employees.
123. This information was omitted from its application materials and false
and inaccurate information was submitted instead.
124. At the time the Second PPP loan was forgiven, Monofrax was owned
by Saint-Gobain, a gigantic international conglomerate.
125. Had the government been aware of the true facts, that Monforax was
affiliated with so many employees, it would not have awarded any PPP loan
guarantees or forgiveness monies to Defendants.
i. Callista’s Affiliations
126. Callista publishes press releases announcing the purchase and sale of
businesses.
127. Tracking these self-reported transactions reveals the size and scope of
the web of affiliated companies under the Callista umbrella at the time Monofrax
submitted false PPP loan and forgiveness applications.
128. Monofrax falsely reported 158 employees on its Round One
application and 130 on its Round Two application.
26
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129. In addition, and at the same time, Callista owned at least 6 other
companies with over 1,500 employees.5
130. Each of Callista’s portfolio companies are affiliated with each other
through Callista as the common owner.
131. Callista itself boasts that “[w]e are actively involved in our portfolio
companies and support them with our many years of expertise in optimizing
corporate processes and structures.” See https://www.callista-pe.de/en/about-us last
visited August 26, 2022.
132. This boasting rang true for Monofrax, Callista was actively involved
in the management and direction of Monofrax.
5Employees counts taken from Callista press releases announcing company
purchases:
• 740 employees – ETM Engineering
• 235 employees – Globus Gummiwerke
• 200 employees – Mainsite Technologies
• 190 employees – MWK Renningen
• 90 employees – MelchersRaffel
• 100 employees – PCH Metals
See Exhibit 6, Collection of Callista Press Releases.
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ii. Saint-Gobain’s Affiliations
133. Saint-Gobain asserts it has over 166,000 employees across 76
countries – well beyond the number of employees permitted by the PPP. See
https://www.saint-gobain.com/en/group/who-are-we last visited August 23, 2022.
134. In addition, for only the first half of 2022, Saint-Gobain claims to
have operating income of over €2.7 billion, recuring net income of over €1.8
billion, free cash flow of over €1.6 billion, and to have spent €431 million in share
buybacks. Exhibit 7, Saint-Gobain Half-Year Financial Report 2022 at 1.
135. In fact, the very press release Saint-Gobain issued announcing the
purchase of Monofrax boasted similar figures including 166,000 employees across
75 countries and €44.2 billion in sales in 2021. See Exhibit 8, May 12, 2022, Saint-
Gobain Press Release at 2.
136. Despite its great economic success and immense size, Saint-Gobain
obtained the benefit of $1,864,363.71 in government funds through the Second
PPP loan forgiveness to which it was not entitled.
137. Additionally, Saint-Gobain is the final beneficiary of the First PPP
loan and forgiveness obtained by Monofrax – an additional $2,543,595.09.
C. Lack of Need for Funds
138. Callista acquired 8 additional companies between January 2020 and
November 2021.
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139. Callista’s own press releases reported sales or revenue figures for five
of these companies which total to nearly €150 million. See Exhibit 9, Collection of
Pandemic Acquisition Press Releases.
140. Any company completing this many acquisitions during the pandemic
could not have truthfully certified that “[c]urrent economic uncertainty makes [a
PPP] loan request necessary to support the ongoing operations of the Applicant”.
141. During the period of time when PPP funds were sought and obtained,
Callista was continuing to suck cash out of Monofrax for its own benefit. See
Exhibit 10, List of Payments to Callista.
142. Ultimately, Callista used its illegally obtained government monies to
bolster the Monofrax balance sheet in advance of selling the business.
143. There was no fire sale of Monofrax.
144. While Saint-Gobain ultimately purchased Monofrax in April 2022,
another corporation had been actively negotiating to purchase Monofrax at the
same time.
i. Payments “Up” to Callista
145. During Callista’s term of ownership, it required Monofrax to pay to it
roughly $50,000 per month as a “management fee”.
146. In some months this payment by Monofrax to Callista was as large as
$100,000 and in some months Monofrax also had to spend thousands of dollars to
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fund the travel and housing for various visiting Callista staff. See Exhibit 10, List
of Payments to Callista. 6
147. Starting in July 2019, Crestmark, then the bank providing Monofrax a
revolving line of credit, imposed a Free Cash Flow Covenant which prohibited the
payment of management fees to Callista if the trailing 12-month financial records
showed less than $10,000 in free cash flow.
148. During the pandemic, Monofrax failed the free cash flow covenant
test more often than it passed but still made 6 payments to Callista in 2020 and
2021 totaling $259,191.72.
D. Forgiveness Applications
149. Defendants sought and obtained forgiveness for both PPP loans
thereby costing the government at least $4,407,959.80.
ii. First Forgiveness Application
150. On September 9, 2021, Defendant Andrews signed a First Round PPP
Loan Forgiveness Application. See Exhibit 11, First Loan Forgiveness Application.
151. That application was granted, and the loan was paid off seven days
later. See Exhibit 12, Notice of Paycheck Protection Program Forgiveness Payment
(indicating First PPP Loan Forgiveness Payment Date of September 16, 2021).
6
Callista also caused Monofrax to pay for various IT conversion and supervision
services to Premium IT Services a company wholly owned by Callista. Some or all
of these services were either unnecessary or above fair market value.
30
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152. Through the forgiveness process, Defendants extracted from the
government a total of $2,509,290.00 in principal and $34,305.09 in interest.
iii. Second Forgiveness Application
153. Defendant Andrews signed a Second Round PPP Loan Forgiveness
Application which was submitted by Defendants in or around May 2022.
154. This application was also granted, and the loan was paid off. See
Exhibit 13, Notice of Paycheck Protection Program Forgiveness Payment
(indicating Second PPP Loan Forgiveness Payment Date of June 15, 2022).
155. In connection with their Second PPP loan and forgiveness application,
Defendants were able to extract from the government a total of $1,838,971.78 in
principal and $25,392.93 in interest.
156. As between the two loans, the government paid a total of
$4,407,959.80 because of Defendants’ violations of the FCA.
III. Defendants’ Role(s) in the False Claims
157. Each of Defendants is liable for the false claims at issue here as each
took steps to facilitate them and/or refused to take necessary action to ameliorate
them.
158. In addition, each benefitted from the submission of false claims.
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A. Monofrax LLC
159. Monofrax LLC is the nominal applicant and signatory on each piece
of paper submitted to the government and/or Crestmark in support of both loan
applications and both forgiveness applications.
160. Monofrax LLC received the loan disbursements, and the forgiveness
payments were made on its behalf.
161. Monofrax continued paying monies to Callista after receiving PPP
loan funds.
B. Monofrax Holding GmbH
162. Monofrax Holding GmbH is the German paper entity that owns 100%
of the units or equity of Monofrax LLC.
163. As the 100% equity owner, Monofrax Holding controls and directs the
activities of Monofrax LLC, and benefits from the financial performance of
Monofrax LLC and the ill-gotten PPP monies at issue here.
C. Callista Private Equity GmbH
164. Callista Private Equity owned and/or controlled Monofrax Holding
GmbH and through that paper entity owned and/or controlled Monofrax LLC at the
time both PPP loan applications were submitted, when the loans were disbursed, at
the time the first forgiveness application was submitted, and when the first
forgiveness funds were disbursed.
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165. In addition, Callista caused Monofrax to pay to Callista substantial
sums of money both before and after the PPP loan and forgiveness applications
were made and granted.
166. Through regular meetings, including in-person meetings, and
performance monitoring, Callista directed and controlled the management and
performance of Monofrax LLC.
167. Callista could have directed a portion of its capital reserves or other
access to liquidity to reduce or eliminate Monofrax’s need for PPP loan funds but
chose not to.
168. Callista reaped the benefit of the false PPP applications and
disbursements at issue here through direct savings, payments from Monofrax to
Callista, and by increasing the sale price paid by Saint-Gobain.
D. Saint-Gobain
169. Saint-Gobain obtained Monofrax LLC and Monofrax Holding GmbH
from Callista after the balance sheet had been improved by the disbursement of
two rounds of PPP loans, the forgiveness of the first round, and submission of the
second forgiveness application.
170. Saint-Gobain owned Monofrax when the second forgiveness
payments were made on behalf of Monofrax.
33
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171. At no time did Saint-Gobain seek to return any PPP monies, or the
monies paid by the government in connection with either forgiveness application.
172. Instead, through its purchase, Saint-Gobain facilitated Callista’s final
conversion of PPP monies.
E. William Andrews
173. Defendant Andrews personally signed each PPP loan and forgiveness
application at issue here.
174. In addition to presiding over the balance sheet improvements
occasioned by fraudulent access to the PPP program, Defendant Andrews directed
continued payments “up” to Callista despite violations of the Free Cash Flow
Covenant imposed by Crestmark.
175. Defendant Andrews also personally benefited as his commission
increased commensurate with the increased sale price paid by Saint-Gobain which
priced in the PPP loan funds.
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CAUSES OF ACTION
COUNT I
Violations of the False Claims Act: Presenting or Causing a False Claim
(31 U.S.C. § 3729(a)(1)(A))
(All Defendants)
176. The foregoing allegations are repeated and realleged as if fully set
forth herein.
177. The False Claims Act, 31 U.S.C. § 3729(a)(1)(A), imposes liability
upon those who knowingly present or cause to be presented false claims for
payment or approval.
178. Defendants knowingly and willfully violated the False Claims Act by
presenting, or causing to be presented, false claims for payment or approval.
179. Specifically, and as alleged in more detail above, Defendants
presented, or caused to be presented, materially false applications for PPP loan
funds and then for forgiveness of those loans.
180. Defendants repeatedly certified compliance with applicable PPP laws,
rules, and regulations despite not being compliant.
181. Defendants similarly repeatedly certified the existence of facts which
were not true.
182. All Defendants knew or should have known (as defined in 31 U.S.C. §
3801(a)(5)) that the facts and certifications to which they attested were not true and
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that they made, presented, or submitted, or caused to be made, false or fraudulent
claims for payment to the government.
183. Each of the applications submitted or caused to be submitted by the
Defendants is a separate false and fraudulent claim.
184. The Defendants presented or caused to be presented these claims
knowing their falsity, or in deliberate ignorance or reckless disregard that such
claims were false.
185. The United States was unaware of the foregoing circumstances and
conduct of the Defendants and, in reliance on said false and fraudulent claims,
authorized payments to be made to or on behalf of the Defendants, made such
payments, and has been damaged.
186. Because of these false or fraudulent claims submitted or caused to be
submitted by Defendants, the United States has been damaged in an amount to be
determined at trial.
36
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COUNT II
Violations of the False Claims Act: Making, Using, or Causing to be Used a
False Record or Statement
(31 U.S.C. § 3729(a)(1)(B))
(All Defendants)
187. The foregoing allegations are repeated and realleged as if fully set
forth herein.
188. The False Claims Act, 31 U.S.C. § 3729(a)(1)(B), imposes liability
upon those who knowingly make, use, or cause to be made or used, false records or
statements material to a false or fraudulent claim.
189. Defendants knowingly and willfully violated the False Claims Act by
making, using, or causing to be made or used, false records or statements material
to false or fraudulent claims.
190. Specifically, for purposes of obtaining or aiding to obtain PPP loans
and then forgiveness of those loans, Defendants made or presented, or caused to be
made or presented, to the United States false or fraudulent applications and/or
records, knowing these materials to be false or fraudulent, or acting with reckless
disregard or deliberate ignorance thereof.
191. Each application submitted to the Government in support of
Defendants' above-described false claims is a separate false record or statement
and separate violation of 31 U.S.C. § 3729(a)(1)(B).
192. The United States was unaware of the foregoing circumstances and
conduct of the Defendants and, in reliance on said false and fraudulent applications
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and/or records, authorized payments to be made to or on behalf of the Defendants,
made such payments, and has been damaged.
193. Because of these false or fraudulent statements submitted or caused to
be submitted by Defendants, the United States paid the claims, resulting in
damages to the United States in an amount to be determined at trial.
COUNT III
Violations of the False Claims Act: Conspiring to Violate the False Claims Act
(31 U.S.C. § 3729(a)(1)(C))
(All Defendants)
194. The foregoing allegations are repeated and realleged as if fully set
forth herein.
195. The False Claims Act, 31 U.S.C. § 3729(a)(1)(C), imposes liability
upon those who conspire to commit a violation of another sub-section of the False
Claims Act.
196. Defendants knowingly, in reckless disregard, and/or in deliberate
ignorance of the truth conspired between themselves, with their employees and
administrators, and others, to violate the False Claims Act.
197. Defendants conspired to submit false and fraudulent claims related to
their applications for PPP loans and then forgiveness of those loans.
198. Defendants did in fact submit false and fraudulent claims.
199. As a consequence of their conspiracies, the United States paid these
claims when it would not have but for Defendants' unlawful conduct.
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200. As a result of this conspiracy, and the resulting false or fraudulent
claims submitted or caused to be submitted by Defendants, the United States paid
the claims, resulting in damages to the United States in an amount to be determined
at trial.
COUNT IV
Violations of the False Claims Act: Conspiring to Violate the False Claims Act
(31 U.S.C. § 3729(a)(1)(G))
(All Defendants)
201. The foregoing allegations are repeated and realleged as if fully set
forth herein.
202. The False Claims Act, 31 U.S.C. § 3729(a)(1)(G), imposes liability
upon those who knowingly make, use, or cause to be made or used, false records or
statements material to an obligation to pay or transmit money or property to the
Government, or conceals or knowingly and improperly avoids or decreases an
obligation to pay or transmit money or property to the Government.
203. Upon receipt of improperly obtained PPP loan and forgiveness funds,
Defendants had an obligation to repay and refund to the Government the amounts
paid by the government.
204. Defendants knowingly and willfully violated the False Claims Act by
failing to so repay or refund the monies it received.
205. Each improperly obtained set of loan or forgiveness funds received by
or on behalf of Defendants generates a separate obligation to repay or refund those
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ill-gotten monies and Defendants’ failure to do so is a separate violation of 31
U.S.C. § 3729(a)(1)(G).
206. The United States was unaware of the foregoing circumstances and
conduct of Defendants.
207. Had the government been aware of Defendants’ knowing false
certifications and knowing failure to return overpayments it would have taken steps
to recover them.
208. The United States has been damaged as a result in an amount to be
determined at trial.
PRAYER FOR RELIEF
WHEREFORE, Relator, on behalf of himself as well as the United
States requests the following relief:
a. A judgment against Defendants, jointly and severally, in an amount
equal to all damages due to the Government, including treble
damages, under the FCA;
b. A judgment against Defendants, jointly and severally, for all civil
penalties due to the Government for each of Defendants’ violations of
the FCA;
c. That Relator recover from Defendants, jointly and severally, all costs
of this action, with interest, including the cost to the Government for
its expenses related to this action;
d. That Relator be awarded all reasonable attorneys’ fees in bringing this
action;
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e. That Relator be awarded the maximum amount of the proceeds of this
action as allowed under 31 U.S.C. § 3730, and/or any other applicable
provision of law;
f. An award of pre- and post-judgment interest; and
g. Such other and further relief to Relator and/or the United States of
America as this Court may deem just and proper.
REQUEST FOR TRIAL BY JURY
Under Rule 38 of the Federal Rules of Civil Procedure, Relator hereby
requests a trial by jury.
BY: /s/Patricia Stamler
Patricia Stamler
Hertz Schram PC
1760 S. telegraph Rd
STE 300
Bloomfield, Hills, PA 48302
Telephone: (248) 335-5000
Email: pstamler@hertzschram.com
Local Counsel for Plaintiff Relator
/s/ Darth M. Newman
Darth M. Newman
Law Offices of Darth M. Newman LLC
1140 Thorn Run Rd, # 601
Coraopolis, PA 15108
Telephone: 412-436-3443
Email: darth@dnewmanlaw.com
Lead Counsel for Plaintiff Relator
41
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- SHA-256
- 24d9419227ad285b832cd3da0aa88f5016f73332661233e3b6d5468078a9d5bc
- Our copy
- 1-complaint.pdf
- Original
- archive.org