Complaint, United States ex rel. H. Remidez LLC v. Delta Air Lines, No. 1:23-cv-01116 (N.D. Ga.), Doc. 1 (March 15, 2023)

Summary

Qui Tam Complaint, Case 1:23-cv-01116-SEG, Document 1, filed 03/15/23, in the U.S. District Court for the Northern District of Georgia, in United States of America ex rel. H Remidez, LLC v. Delta Air Lines, Inc. The caption reads "Filed In Camera and Under Seal". The complaint states that it seeks damages and civil penalties on behalf of the United States for statements made to the U.S. Treasury that allegedly falsely certified compliance with the Payroll Support Program. It alleges that Delta knew its certifications to the Treasury were false. The prayer asks for an order determining that Defendants violated the FCA and requiring payment of the maximum civil penalties for each false claim.

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“Complaint, United States ex rel. H. Remidez LLC v. Delta Air Lines, No. 1:23-cv-01116 (N.D. Ga.), Doc. 1 (March 15, 2023).” Original at storage.courtlistener.com. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/complaint-united-states-ex-rel-h-remidez-llc-v-delta-air-lines-no-1-23-53c7bf2339/, SHA-256 584267594826f0c1823049b291f9fa0cdf8e0b541fa32cc11ccf9cd333608025.

Full text

Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 1 of 33

FILED INCLERK'S OFFICE
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UNITED STATES DISTRICT COURT FOR HE ~~b~~;;z--'
NORTHERN DISTRICT OF GEORGI

UN ITED STATES OF AMERICA )
ex rel.
H REMIDEZ, LLC
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SEALED
Filed In Camera and Under Seal
Plaintiffs, )

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) Do Not Place on PACER
DELTA AIR LINES, INC. )
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Defendant )
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QUI TAM COMPLAINT

1. This is an action to recover damages and civil penalties on behalf of

the United States arising from false and fraudulent statements, records and

claims made by Defendant Delta Air Lines, Inc. The allegations involve

statements made to the U.S. Treasury that falsely certified compliance with the

provisions of the Payroll Support Program (PSP), a program authorized by

Congress to provide financial support to the nation's airlines during the

COVID-19 pandemic. Delta knew its certifications to the Treasury were false

and did not comply with the PSP as detailed herein.

2. The Coronavirus Aid, Relief and Economic Security Act ("CARES

Act"), the Consolidated Appropriations Act of 2021 ("CAA") and the
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American Rescue Plan Act of 2021 ("ARP A") authorized the Treasury

Department to provide payroll support to passenger air carriers, cargo air

carriers and certain related contractors in the form and on the terms and

conditions the Department determined appropriate. The $63 billion program

offered financial support to the industry in three separate phases.

3. To ensure recipients used the tax money to keep employees working,

Congress prohibited recipients from repurchasing their own stock or paying

dividends to shareholders, and limited compensation to executives making $3

million or more a year.

4. Treasury required each airline to sign an agreement detailing the terms

and conditions that must be followed. For example, the agreement describing

the conditions in the program's first phase said at item 5:

DiYidends and Buvbach

5. Through September 30, 202 l . neither the Recipient nor any Affiliate shall , in any transaction.
purchase nn equity security of the Recipient or of any direct or indirect parent company of
the Recipient that, in either case. is listed on a national securities exchange.

The terms and conditions continued at item 8:

8. Beginning March 24, 2020. and ending March 24, 2022, the Recipient and its Affiliates shall
not pay any of the Rec ipient's Corporate Officers or Employees whose Total Compensation
ex ceeded S3.000.000 in calendar year 20 19 Total Compensation in excess of the sum of:

a. S3.000.000: and

b. 50 percent of the excess over S3.000.000 of the Total Compensation received by such
Corporate Officer or Employee in calendar year 20 19.

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5. The agreement signed by Delta said the airline:

... agrees to comply with this agreement and applicable Federal law as
a condition of receiving Payroll Support. The Signatory Entity and its
undersigned authorized representatives acknowledge that a materially
false, fictitious or fraudulent statement (or concealment or omission of
a material fact) in connection with this Agreement may result in
administrative remedies as well as civil and/or criminal penalties.

6. The restrictions described in the letter of agreement with Treasury

mirror the prohibitions enacted by Congress in Division A, Title IV of the

CARES Act, Subtitle A of Title IV of Division N of the Consolidated

Appropriations Act of 2021 and Section 7301 of the American Rescue Act of

2021. Each program phase extended the time period covered by the prohibition

and required a new agreement. Each agreement with Treasury required Delta to

certify compliance and reiterated the prohibitions and restrictions.

7. As explained in greater detail herein, Defendant Delta did not comply

with these terms and conditions, which purposefully led to the submission of

claims in violation of the Federal False Claims Act ("FCA"). 31 U.S.C.

Section 3 729 et seq. Delta certified it complied when it did not. Its

misrepresentations to Treasury allowed one of the country's largest airlines to

receive $8.5 billion - more than 15 percent of all of the PSP financial aid

provided to air carriers by Treasury - to enable it to keep paying its employees.

Treasury provided another $3.5 billion in loans subsidized by taxpayers.
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8. The FCA provides that any person who knowingly submits or causes

to be submitted to the Government a false or fraudulent claim for payment or

approval is liable for a civil penalty of $10,781 to $21,563 for each such claim

submitted after November 2, 2015, as well as three times the amount of the

damages; ustained by the Government. The FCA permits 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 the defendants. The

complaint remains under seal while the Government conducts an investigation

of the complaint's allegations and determines whether to join the action.

PARTIES

9. Relator H Remidez, LLC is a Texas limited liability company. Dr.

Herbert Remidez, Jr. is the president, secretary and treasurer of the company.

Dr. Remidez holds a Ph.D. in Information Science and Learning Technologies

from the University of Missouri at Columbia. He has been employed as a

faculty member in the Satish and Yasmin Gupta College of Business at the

University of Dallas since 2010, where he currently serves as a tenured

Associate Professor. From 2014 through the present, Dr. Remidez has taught

business analytics courses with a focus on cloud computing, big data analytics,

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predictive modeling, advanced business analytics and artificial intelligence in

the University's Master of Science in Business Analytics degree program. Dr.

Remidez used data analytics to identify the fraud specified here.

10. Defendant Delta Air Lines, Inc., a Delaware corporation with

principal offices in Atlanta, is the world's largest airline by total revenue. In

2019, prior to the onset of the COVID-19 pandemic, it served approximately

200 million customers. The company asserts in filings with the U.S. Securities

and Exchange Commission (SEC) that it is one of the country's most profitable

passenger airlines. It recorded five consecutive years of $5 billion or more in

pre-tax income between 2015 and 2019. It employs the equivalent of 83,000

full-time workers, 81,000 of whom work in the United States.

JURISDICTION AND VENUE

11. This Court has jurisdiction over the subject matter of this action

pursuant to 28 U.S.C. § 1331, 28 U.S.C. § 1367 and 31 U.S.C. § 3732.

12. Venue is proper in this District pursuant to 31 U.S.C. § 3732(a)

because the Defendant can be found in, resides in and/or has transacted business

in the Northern District of Georgia.

13. Relator knows of no other FCA complaints that have been filed

against the Defendant alleging the same or similar actions for the time period at
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issue. Additionally, Relator is an original source as defined in 31 U.S.C. §

3730( e )( 4)(B).

REGULATORY OVERVIEW

The Federal False Claims Act

14. The Federal False Claims Act, 31 U.S.C. §§ 3729 et seq.

reflects Congress' objective to "enhance the Government's ability to recover

losses as a result of fraud against the Government." S. Rep. No. 99-345 at 1

(1986). As relevant to this case, the FCA establishes liability for an individual

or entity that:

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

fraudulent claim for payment or approval;

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

record or statement material to a false or fraudulent claim;

and (a)(l)(B); and

(D) 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

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knowingly and improperly avoids or decreases an obligation to pay

or transmit money or property to the Government.

15. 31 U.S.C. § 3729(a)(l)(A); 31 U.S.C. § 3729(a)(l)(B); 31 U.S.C.

§(a)(l )(C); 31 U.S.C. §(a)(l)(G)

16. The FCA defines "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 (3) acts in reckless

disregard of the truth or falsity of the information. 31 U.S.C. § 3729(b )(1 ). No

proof of specific intent to defraud is required and an innocent mistake is not a

defense to an action under this act. Id.

17. In addition to treble damages, the FCA provides for civil

penalties for each violation.

The CARES Act and the Payroll Support Program

18. The CARES Act was enacted for the purpose of providing fast

and direct economic assistance for American workers, families, small

businesses and industries. It was passed by Congress on March 25, 2020 and

signed into law on March 27, 2020. At $1.9 trillion, it is one of the largest

rescue packages in U.S. history. In late 2020 and early 2021 , the Consolidated

Appropriations Act and the American Rescue Plan Act together offered

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another $2.8 trillion in pandemic relief to businesses and individuals hard hit

by the pandemic.

19. Congress first established the Payroll Support Program to

provide financial support to passenger airlines, cargo air carriers and certain

industry-related contractors in the CARES Act, 15 U.S.C. §9074 and §9076. It

required that these grants from taxpayers be used exclusively for the

continuation of employee wages, salaries and benefits. The Act authorized

Treasury to provide "payroll support in such form, and on such terms and

conditions, as determined appropriate." Congress extended the program in the

Consolidated Appropriation Act of 2020, 15 U.S.C. §9094 and §9096, and the

American Rescue Plan Act of 2021, 15 U.S.C. §9141.

20. The three laws and the regulations developed by Treasury each

imposed restrictions on recipients of the financial bailout offered through the

Payroll Support Program. They specifically state recipients must not

repurchase their own publicly traded stock, including shares of any affiliates;

must restrict compensation to employees making $425,000 or more a year,

provided the pay package was not determined through a collective bargaining

agreement; and must limit pay to employees making $3 million or more in

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2019. For these employees, the total compensation could not exceed 50 percent

of the "excess over $3,000,000."

21. Between April 202 0 and April 2021, the program allocated $54

billion in grants to passenger airlines through three separate programs. In the

first phase, Treasury based individual payments to carriers and contractors on

payroll expenses incurred between April 2019 and September 2019, subject to

proration. The program's second phase, PSP2, awarded the amount approved

under the first phase of the program. The third phase, PSP3, used a formula to

calculate grants.

22. Delta received $8.5 billion through these programs.

23. To obtain financial aid, Treasury required passenger airlines,

cargo carriers and certain other covered entities to complete a letter of

agreement in which an authorized representative pledged to comply with the

terms and conditions of the agreement as well as applicable Federal law.

24. The agreement with Treasury and subsequent guidelines

published by the Department reiterate and elaborate on each prohibition. A

breach of any of these provisions allows Treasury to demand repayment with

interest, or initiate suspension or debarment proceedings or take any action as

Treasury deems appropriate.

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25. Terms and conditions in the letter of agreement contained these

restrictions:

Payroll Support Program 1

Dividends and Buybacks
Through September 30, 2021, neither the Recipient nor any Affiliate
shall, in any transaction, purchase an equity security of the Recipient
or of any direct or indirect parent company of the Recipient that, in
either case, is listed on a national securities exchange.
Payroll Support Program 2
Dividends and Buybacks
Through March 31, 2022, neither the Recipient nor any Affiliate shall,
in any transaction, purchase an equity security of the Recipient or of
any direct or indirect parent company of the Recipient that, in either
case, is listed on a national securities exchange.

Payroll Support Program 3
Dividends and Buybacks

Through September 30, 2022, neither the Recipient nor any Affiliate
shall, in any transaction, purchase an equity security of the Recipient or
of any direct or indirect parent company of the Recipient that, in either
case, is listed on a national securities exchange

26. The PSP agreement also required passenger airlines to restrict

the pay for employees whose total compensation exceeded $3 million in

calendar year 2019 by half of the excess over $3 million. For example, an

executive with a compensation package of $6 million in 2019 only would be

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allowed to receive $4.5 million in 2020 - $3 million plus half of the excess of

$3 million received in 2019.

27. The letter of agreement from Treasury explained:

The Signatory Entity ... agrees to comply with this agreement and
applicable Federal law as a condition of receiving Payroll Support. The
Signatory Entity and its undersigned authorized representatives
acknowledge that a materially false, fictitious or fraudulent statement
(or concealment or omission of a material fact) in connection with the
Agreement may result in administrative remedies as well as civil and/or
criminal penalties.

28. At signature, recipients were required to certify that they may

be subject to penalti es, administrative remedies or false claims if their

application contained materially false, fictitious or fraudulent statements.

I ac knowl edge that a materially fa l~e. fictitiou s, or fraudul ent stat ... ment (or conc ealment or
omis~ion of a matl'rial fact) in this cc•rtifkation , or in th e application that it supports, may
l>e th e su bj ect o f criminal prnsenrtio n and al so ma y subj ect me and the R edpient to ciYil
pe11 ;1l til's and /o r administrnth·e remedi es for fal se daims or otherwise.

CorpNate Officer of Signatory Enti ty Second Authori zed Representati\·e

Name: Name:

Title: Title:

Date:

29. After acceptance, Treasury required Delta to file quarterly

"compliance reports." The reports contain mandatory sections detailing

employee headcount, compensation information, the number of high-income

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employees and corporate officers subject to financial restrictions, supporting

documentation and certifications. The supporting documentation included

financial statements and IRS Form 941 -- the employer's quarterly federal tax

return.

30. In the certification section, Treasury mandated:

... recipients certify their ongoing compliance with the terms and
conditions of the PSP agreement, maintenance of internal controls
related to compliance with the PSP Agreement, and the veracity and
accuracy of any data, documents or information provided to Treasury.

31. Treasury warned participants that failure to provide timely and

accurate information may result in the Department finding the recipient in

violation of the PSP agreement. Under the agreement, Treasury alone has the

authority to withhold additional support, terminate the arrangement and require

repayment, if it concludes a participant was non-compliant. For example:

If Treasury makes a final determination . . . that an instance of
noncompliance has occurred, Treasury may, in its sole discretion,
withhold any Additional Payroll Support Payments; require repayment
of the amount of any previously disbursed Payroll Support, with
appropriate interest; require additional reporting or monitoring; initiate
suspension or debarment proceedings as authorized under 2 CFR Part
180; terminate the Agreement; or take any such other action as
Treasury, in its sole discretion, deems appropriate.

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ALLEGATIONS

Background and Relator's Methodology

32. In 2020, Dr. Remidez, the principal of the Relator, used his

knowledge of advanced analytics in conjunction with various software

packages that rely on artificial intelligence to review electronic information

maintained by the Small Business Administration ("SBA") detailing PPP loans

made to individuals, sole proprietorships and companies across the country.

33. Using cloud-based software, Dr. Remidez assembled a PPP-

loan database of 67 separate and related tables ranging in size from 2,840 to

8.8 million rows. Database tables organize information into rows and columns,

much like an Excel spreadsheet, making it easier to store and compare. His

analysis began by converting each of the PPP program regulations and

guidance into software rules that could be used to help examine the hundreds

of billions of dollars in taxpayer-backed loans.

34. After structuring and organizing the SBA data, Dr. Remidez

augmented his PPP-loan database with information from 26 separate sources

including non-profit tax information maintained by the Internal Revenue

Service, data from the U.S. Treasury, the Department of Labor, the Federal

Deposit Insurance Corporation and legislative lobbying records maintained by

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Congress as well as datasets detailing individuals and companies debarred or

excluded from federal contracting, businesses registered under the Foreign

Agents Registration Act, investment firms supervised by the Securities and

Exchange Commission and firms that are traded on national stock exchanges.

3 5. These datasets use different naming conventions and identifiers,

making an electronic comparison impossible. Resolving these differences to

allow an accurate comparison required exploratory analysis, data preparation

and the development of customized computer code, commonly called recipes, to

identify and resolve inconsistencies and anomalies. In this case, the data

"cleaning" process used customized software recipes with as many as 59 steps.

This cleaning process was applied to each of these varied datasets. Many of the

database inquiries used to standardize the information required hours to

complete.

36. Dr. Remidez then employed an entity resolution software

program powered by artificial intelligence (AI). Entity resolution software

determines whether records from diverse sources match. Record matching

programs can match names with slight misspellings, accent marks and

abbreviation. They cannot recognize relationships within the data or update

results to incorporate newly added information. AI-driven programs perform the

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rudimentary matching while incorporating additional techniques to recognize

what the underlying data strings represent.

37. The AI software used by Dr. Remidez recogmzes common

nicknames, common misspellings and variations on the same address. For

example, the AI learning model equates Jim with James, Bill with William and

Mohammed with Mohammad. It also recognizes address variations and matches

them, such as 1 First St. and One 1st • Street. When new information is added,

the AI-driven software dynamically updates. In simple terms, it "learns" with

every update.

38. An analysis of PPP loan data for November 2021 in Arizona

illustrates the operation of the AI-driven software. An analysis using Microsoft

Excel found 209 duplicate borrowers among 128,807 loans. After cleaning the

data, it identified 253. Using only the PPP loan data maintained by SBA, the AI-

driven software labeled 865 as duplicates, four as possible duplicates and 24,000

as possibly related.

39. In this example, after adding eight additional data sets -

comprising medical practices and business addresses, Economic Injury Disaster

Loans, resident visa applications, Shuttered Venue and Restaurant

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Revitalization loans - the duplicates increased by 63 and the possibly related

category fell by 2,600.

40. While these results are impressive, all AI systems are fallible. To

mitigate errors, Dr. Remidez compared the results against additional records,

such as state business registries, and employed other filters and software to

verify the outcome. Dr. Remidez manually checked the results.

41 . With the help of these advanced software packages and custom

programming code developed for this project, Dr. Remidez compared borrower

names, addresses and project locations and applied the software rules he

developed to identify violations of the regulations governing the PPP loan

program.

42. The extensive fraud uncovered in the PPP program through the

use of advanced software tools and custom programming prompted Dr. Remidez

to expand his examination to other government financial aid programs. Insights

gained from the fraud uncovered in the loan program led him to focus on

programs with eligibility and compliance requirements that are difficult to

monitor.

43. PPP fraud clustered around program requirements that are

difficult to track, reducing the likelihood that wrongdoing would be identified

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and perpetrators would be caught. Academic research repeatedly has concluded

the perceived likelihood of getting caught is a major deterrent. Dr. Remidez

reviewed the terms and conditions of other federal financial aid programs,

targeting those with difficult to monitor eligibility or compliance requirements.

44. The terms and conditions of the PSP program required retention

of employees, restricted executive compensation and prohibited dividend

distributions and stock buybacks. Reports required by the Department of

Treasury clearly identified the number of employees, but made it difficult to

track executive compensation and stock purchases.

45. Dr. Remidez expanded his databases with information from the

Treasury department detailing aid to passenger airlines, cargo carriers and

certain contractors to the airline industry. Treasury records listed the recipients

and the amount of federal grants and loans, but provided little insight into

related corporations, the number of employees, executive pay or stock

purchases.

46. Data from the Department of Transportation, the Securities and

Exchange Commission (SEC) and USAspending.gov, which maintains

spending records on other pandemic aid programs, augmented his databases.

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DOT records, for example, track the number of airline employees on a monthly

basis.

47. USAspending.gov provided names, addresses, amounts

received and parent company information. Once incorporated, the AI software

detected relationships in the PSP program and participants in the PPP loan

program. The program detected declared and undeclared relationships between

companies.

48. After identifying the relationships, Dr. Remidez developed a

custom software program to extract information from the Electronic Data

Gathering, Analysis and Retrieval system (EDGAR) database maintained by

the SEC.

49. The Buyback Detection Program he developed extracts the

information needed to determine the number of outstanding shares using the

earnings per share and net revenue from annual and quarterly company filings

in the EDGAR system. Dr. Remidez instructed the program to gather financial

information from each PSP recipient.

50. For Delta, the compiled data showed decreases in the number of

outstanding shares, a practice that violated PSP program requirements. Dr.

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Remidez then verified the findings of his electronic investigation by examining

the individual quarterly and annual filings made by Delta.

51. Upon verification, Dr. Remidez reviewed executive

compensation. His review found that Delta paid its executives more than allowed

under the program requirements enacted by Congress

52. The expanded data warehouse constructed by Dr. Remidez

allowed him to apply the program rules governing the PSP program, identify

recipients and compare the results to information filed by Delta with the SEC.

53. Relator is the original source of the allegations and the

proprietary analysis, methodology and data synthesis detailed herein.

Specifics of the Fraud

54 . Congress enacted the Payroll Support Program to avert mass

layoffs and furloughs caused by an unprecedented drop in airline travel. In

April 2020, the number of passengers on U.S. airlines was 96 percent lower

than a year earlier. Six months later, in October 2020, air travel remained 65

percent below pre-pandemic levels. The first phase of the PSP program

disbursed $28 billion to 610 recipients, including 352 passenger airlines, 38

cargo carriers and 220 contractors.

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55. To obtain taxpayer-funded grants and loans, Delta signed a

letter of agreement with the Department of the Treasury that specifically

required the company to certify that it would:

a. Use the proceeds from the Payroll Support Program exclusively for

the continuation of the payment of wages, salaries and benefits to

Delta's employees. Delta agreed not to conduct the involuntary

termination or furlough of any employee;

b. Not purchase its own publicly traded stock, including shares of

affiliates;

c. Restrict compensation to employees making $425,000 or more a

year, provided the pay package wasn't determined through a

collective bargaining agreement;

d. Limit pay to employees making $3 million or more in 2019. For

these employees, the total compensation in the relevant time periods

could not exceed $3 million plus half of the excess over $3 million.

56. Federal law, letters of agreement and guidelines issued by

Treasury unequivocally and absolutely prohibit recipients from purchasing

stock of the applicant or its direct indirect parent company. 15 U.S.C §9704,

for example, states:
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To be eligible for financial assistance under this part, an air carrier or
contractor shall enter into an agreement with the Secretary, or
otherwise ce1iify in such form and manner as the Secretary shall
prescribe, that the air carrier or contractor shall -- ...

(2) Through September 30, 2021, ensure that neither the air carrier or
contractor nor any affiliate of the air carrier or contractor may, in any
transaction, purchase an equity security of the air carrier or contractor
or the parent company of the air carrier or contractor that is listed on a
national securities exchange.

The Consolidated Appropriations Act and the American Rescue Plan both

apply and impose the same restriction. The CAA prohibits stock repurchases

through March 31, 2022, 15 U.S.C. §9094(a)(2). The ARPA restricts equity

repurchase through September 30, 2022, 15 U.S.C. 9141(4)(D)(ii).

57. Delta memorialized these arrangements in its securities filings.

In its 2021 10-K annual report, for example, the airline explained:

Payroll Support Program Extension (PSP2) ... Other conditions
include prohibitions on share repurchases and dividends through
March 2022 and certain limitations on executive compensation
until October 2022 .

.. . Payroll Support Program 3 (PSP3) ... Other conditions
include prohibitions on share repurchases and dividends through
September 30, 2022 and certain limitations on executive
compensation until April 1, 2023.

58. Delta told investors that it agreed to extend the prohibition

against stock repurchase through September 30, 2022 so that it could take

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advantage of the final phase of the program, which brought the company $3 .1

billion.

59. The company expanded on the terms and conditions of the

financial aid program in other securities filings. It explained in its 2020 10-K

filing:

Capital Returns to Shareholders. In early March 2020, we
suspended both our share repurchase program and future
dividends due to the impact of the pandemic. Prior to suspending
these activities, in the March 2020 quarter, we repurchased and
retired 6 million shares of our common stock at a cost of $344
million and paid a quarterly dividend of $260 million. The
CARES Act payroll support program initially restricted share
repurchase and the payment of dividends through September
2021 , which have been continued under the terms of the payroll
support extension.

60. Contrary to its certifications to Treasury and its disclosures to

stockholders, Delta repurchased 6.8 million shares of common stock.

61. Quarterly and annual financial reports filed with the SEC

calculate the earnings per share (EPS) as well as the company's profit or loss.

EPS is calculated by net income less preferred stock dividends by the number

of outstanding common shares. Delta did not issue dividends after accepting

federal financial aid.

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62. The number of shares fluctuates with the exercise of stock

options and warrants, effectively increasing the stock total. The outstanding

shares decrease if the company buys back some of the stock it issued. These

stock buybacks increase the market value of existing shares.

63 . An analysis of quarterly and annual security filings shows the

company did not follow the stock buy-back prohibition imposed by Treasury

and federal law, despite telling investors it complied. From March 31 , 2020

through September 30, 2022, the number of outstanding shares declined by

6,793 ,390 shares.

Source Date Earnings Profit/ Number of Increase/
per share (loss) (in Shares* (Decrease)
millions)
10-Q 3/31/2020 $ (0.84) $ (534) 635 ,714,286
10-Q 6/3 0/2020 $ (9.01) $ (5,717) 634,517,203
(1,197,083)
10-Q 9/3 0/2020 $ (8.4 7) $ (5 ,379) 635 ,064,935 547,732
10-K 12/31/2020 $ (19.49) $ (12,385) 635 ,454,079 389,144
10-Q 3/31/2021 $ (1.85) $ (1 ,177) 636,216,216 762,137
10-Q 6/30/2021 $ 1.02 $ 652 639,215 ,686 2,999,470
10-Q 9/3 0/2021 $ 1.90 $ 1,212 637,894,737 (1 ,320,949)
10-K 12/3 1/2021 $ 0.44 $ 280 636,363 ,636 (1,531 ,100)
10-Q 3/31/2022 $ (1.48) $ (940) 635,135,135 (1 ,228,501)
10-Q 6/3 0/2022 $ 1.15 $ 735 639,130,435 3,995 ,3 00
10-Q 9/3 0/2022 $ 1.09 $ 695 637,614,679 (1 ,515 ,756)
Purchased shares
(6,793,390)
*Calculated by dividing the net income or loss by the EPS.

23
Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 24 of 33

64. Further, these decreases are not accounted for in the quarterly

and annual filings as required under securities regulations. Delta disguised its

actions by failing to properly disclose its stock purchases as required under Items

703 of Regulation S-K §229.703. Item 703 requires publicly traded companies

to disclose any stock purchases in Form 10-Q for the first three quarters and in

Form 10-K for the fourth quarter. More specifically, it requires companies to

disclose in tabular format:

■ The total number of shares (or units) purchased, regardless of amount
and regardless of whether made pursuant to a publicly announced plan
or program, by the issuer or any affiliated purchaser during the relevant
period reported on a monthly basis and by class, including footnote
disclosure regarding the number of shares purchased other than through
a publicly announced plan or program and the nature of the transaction;

■ The average price paid per share ( or unit);

■ The total number of shares (or units) purchased as part of a publicly
announced repurchase plan or program; and

■ The maximum number (or approximate dollar value) or shares (or
units) that may yet be purchased under the plan or program.

65. Contrary to its certifications to Treasury and its reports to

investors in filings with the SEC, Delta repurchased some 6.8 million shares of

common stock - a practice specifically prohibited by the federal aid programs,

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Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 25 of 33

the funding applications signed by airline executives, federal law and guidelines

enacted by the Treasury.

66. The airline paid about $240 million to buy back its stock, based

on the closing price of its shares.

Executive Compensation

67. Federal law, the letters of agreement and Treasury guidelines

also required Delta to limit compensation to executives making more than

$425 ,000 a year. It placed additional limits on corporate officers or employees

making $3 million or more. For example, the agreement for the initial payment

from the program said:

8.... the Recipient and its affiliates shall not pay any of the Recipient's
Corporate Officers or Employees whose Total Compensation exceeded
$3,000,000 in calendar year 2019 Total compensation in excess of the
sum of:
a. $3,000,000; and
b. 50 percent of the excess over $3,000,000 of the Total
Compensation received by such Corporate Officer or Employee
in calendar year 2019.
9. For purposes of determining applicable amounts under paragraphs 7
and 8 with respect to any Corporate Officer or Employee who was
employed by the Recipient or an Affiliate for less than all of calendar
year 2019, the amount of Total Compensation in calendar year 2019
shall mean such Corporate Officer's or Employee's Total
Compensation on an annualized basis.

25
Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 26 of 33

68. Both the PSP2 and PSP3 agreements include similar provisions.

69. Treasury rules do not pertain to compensation determined

through a collective bargaining agreement entered into before March 27, 2020.

Delta does not issue employment contracts to its corporate executives. Their

compensation package was not determined as part of a collective bargaining

agreement. A collective bargaining agreement refers to an arrangement between

an employer and a union arrived at through a negotiation process.

70. Delta reiterated the limitations imposed by law, the letters of

agreement with Treasury, guidelines and regulations on compensation to its

executives in a 2021 proxy provided investors in a filing with the SEC:

As explained earlier, the Personnel & Compensation Committee
determined our named executive officers' 2020 compensation in
February 2020, before the CARES Act compensation limitations went
into effect. Accordingly, the target award opportunities provided under
the 2020 LTIP are not eligible for inclusion in the CARES Act
compensation calculation and are not subject to the Cares Act
compensation limitations.

Company management has designed processes to ensure compliance
with the CARES Act compensation limitations. As of the date of this
proxy statement, the total compensation provided to our named
executives (and all other employees to which these limitations apply)
for the 12-month period ending March 23, 2021, is within these
limitations.

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Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 27 of 33

71. The Treasury rules provide no exemption for executive

compensation set before a company agreed to accept federal emergency aid.

The agreement signed by Delta and Treasury states that the limitation on

executive compensation would be based on the total compensation paid in

2019. There is no provision for newly negotiated payment schedules unless the

arrangement was determined through a collective bargaining agreement.

72. The agreement explicitly states that, "Beginning March 24, 2020,

and ending March 24, 2022, the Recipient and its affiliates shall not pay any of

the Recipients Corporate Officers or Employees whose Total Compensation

Exceeded" $3 million plus half of the amount over $3 million that had been paid

to each corporate officer or employee in calendar year 2019. The CARES Act

delineates the same restriction at 15 U.S.C. §9076. The CAA and ARP A extend

the program deadlines while imposing the same restrictions at 15 U.S.C. §9096

and 15 U.S.C. §9141.

73. In 2019, for example, Edward H Bastian, the chief executive

officer, recorded compensation of $17,325,379. In 2020, his compensation

package was $13,134,012 -- $2,971,323 more than allowed by the formula put

in place by Treasury. This table shows compensation that exceeded the amount

27
Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 28 of 33

allowed by Treasury for Delta's CEO, President and an executive vice

president:

El(ecutlve 2019 Compensation Overage (compensation sreater than $3 m111io n) Half the OYerafe Half the overa,e pJus $3 milllon Ma1dmum Executive Compe1'1$1tlon Actual Compensation ~rpayment
CEO Edward Bastian S 17,325,379 S 14,325,379 S 7,162,690 S 10,162,690 S 10, 162,690 S 13,134,012 S 2, 971,323
Preside nt Gle n W. Hal S 9,967,833 S 6,967,833 S 3,483,917 S 6,483,917 S 6,483,917 S 7,455,109 S 971,193
E,cecVP Peter Carter S 5,037,459 S 2,037,459 S 1,018,730 S ~ 018,730 S 4,018,730 S 3,618,050 0
SubTotal 2020 S 3,942,515
bewtive 2019 Compe nsation Overaa:e (compensation greaterthan$3 million) Half t~ overac;e Half the O\'erag-e p&us $3 million Mui mum Executive Compensation Actual Compensation CNe~nt
CEO Edward Bastian S 17,325,379 S 14,325,379 S 7,162,690 S 10, 162,690 S 10,162,690 S U ,360,420 S 2,197,731
Pr esident Gle n W. Hai S 9,967, 833 S 6,967,833 S 3,483,917 S 6,483,917 S 6,483,917 S 7,059,850 S 575,934
ExecVPPe te r Carte r S 5,037,459 S 2,037,459 S 1,018,730 S 4,018,730 S 4,018,730 S 5,219,037 S 1,200,308
SubTota1 2021 S 3, 973,972
Total 2020, 2021 $ 7,916,.487

74. Treasury required quarterly reports from Delta certifying that the

company remained in compliance with the terms and conditions of each PSP

agreement. The report must include information regarding the expenditure of

payroll support funds, the recipient's financial statements and information

regarding employee headcount and compensation.

75. In April 2020, Treasury told recipients they could satisfy the

financial statement reporting requirement by linking to relevant filings with the

SEC. In an April 29, 2022 proxy statement, Delta describes the restrictions on

compensation. It told its shareholders:

Delta has designed compliance processes for the CARES Act
compensation limitations, including, in certain cases, making
adjustments to the composition of an individual 's long-term incentive
awards, and has provided comprehensive reports to the Treasury
Department, as required by the PSP agreements.
76. Reports filed by Delta with the SEC do not reflect payment

arrangements for the company's top executives that comply with the regulations.

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Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 29 of 33

77. Delta caused the U.S . Treasury to provide $8.5 billion in

financial aid through the PSP programs for which it did not qualify in violation

of federal law and regulations. The airline is liable for damages and penalties to

the United States.

78 . Delta repeatedly electronically transmitted these false claims and

certifications to Treasury in letters of agreement and the required quarterly

compliance reports. Transmittal of these false claims constitutes wire fraud.

79. Treasury also required recipients to electronically submit

financial and other records filed with the Securities and Exchange Commission.

In electronic filings with the SEC and made available to investors, the airline

misrepresented its compliance with federal law and regulations governing the

emergency lending program in violation of Treasury rules and regulations.

80. These misrepresentations, which were electronically transmitted,

violate Section 1O(b) of the Securities and Exchange Act of 1934 which prohibits

the use of "any device, scheme or artifice to defraud" and the making of any

"untrue statement of material fact" or the omission of any material fact necessary

to make reports to the SEC not misleading. The knowing electronic transmittal

of these untrue statements - part of the company's artifice to defraud -

constitutes wire fraud.

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Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 30 of 33

81. These knowing and fraudulent representations to Treasury - a

scheme buoyed by misrepresentations to investors in SEC reports filed with the

Department to support its claims to emergency aid from taxpayers -- allowed

Delta to obtain, retain and spend $8.5 billion in federal aid that could only be

used for the continuation of employee salaries, wages and benefits, provided the

recipients adhered to specific restrictions and prohibitions detailed in federal law

and regulations.

82. In its agreement to acquire financial aid, Delta certified that

Treasury, in its sole discretion, could require repayment, suspend or debar a

recipient from contracting with the federal government, impose penalties or

take other appropriate action.

83. Delta, through the fraudulent schemes it enacted during the

pandemic, directed approximately $240 million in federal emergency aid to

repurchase outstanding stock and enrich its top executives in violation of federal

law and regulations. It is liable to the United States for the $240 million it

fraudulently acquired and used as well as interest and penalties.

COUNTI

VIOLATIONS OF THE FEDERAL FALSE CLAIMS ACT
31 U.S.C. §§ 3729 et seq.

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Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 31 of 33

84. Relator incorporates paragraphs 1 through 83 of this Complaint

as fully set forth herein. This count sets forth claims for treble damages and civil

penalties under the FCA.

85. As described in greater detail above, Delta failed to comply with

the provisions, restrictions and prohibitions set forth by federal law and

regulations governing the Payroll Support Program. The airline fraudulently

represented that Delta did not repurchase company stock and that it reduced the

compensation of its highest paid employees. These representations constitute

false claims under the FCA.

86. Under the FCA, Defendants have violated:

1. 31 U.S.C. § 3729(a)(l)(A) by knowingly presenting, or causing

to be presented, a false or fraudulent claim for payment or

approval;

11. 31 U.S.C. § 3729(a)(l )(B) by knowingly making, using, or

causing to be made or used, a false record or statement material

to a false or fraudulent claim; and

n1. 31 U.S.C. § 3729(a)(l)(G) by knowingly making, using, or

causing to be made or used a false record or statement material

to an obligation to pay or transmit money or property to the

31
Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 32 of 33

government, or knowingly and improperly avoiding or

decreasing an obligation to pay or transmit money or property

to the government.

87. Because of the false claims made by Defendants, the United

States has suffered and continues to suffer damages, and is therefore entitled to

a recovery as provided by the FCA of an amo unt to be determined at trial, plus

a civil penalty for each violation.

PRAYER

WHEREFORE, Relator, on behalf of the United States, respectfully requests

that:

a. This Court enter an order determining that Defendants violated the FCA

by making false statements and records to cause false claims to be

submitted to the United States;

b. This Court enter an order requiring Defendants to pay the maximum civil

penalties allowable to be imposed for each false or fraudulent claim

presented to the United States;

c. This Court enter an order requiring Defendants to cease and desist from

violating the FCA;

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Case 1:23-cv-01116-SEG Document 1 Filed 03/15/23 Page 33 of 33

d. This Court enter an order requiring Defendants to pay all expenses,

attorney's fees and costs associated with this action;

e. This Court enter an order paying Relator the maximum statutory award

for its contributions to the prosecution of this action; and

f. Any and all other relief as this Court determines to be reasonable and

just.

PLAINTIFF/RELATOR DEMANDS A TRIAL BY JURY ON ALL COUNTS

Respectfully submitted this 15 th day of March, 2023.

Counsel for Plaintiff/Relator:

The Wallace Law Firm L.L.C.

LEE TARTE WALLACE
Georgia Bar No.: 698320

6030 River Chase Cir.
Atlanta, Georgia 30328
(404) 550-4615

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