On March 12, 2025, the Department of Justice (DOJ) issued a press release announcing the $20 million False Claims Act (FCA) settlement against Patrick Walsh and ten companies he controlled, resolving allegations of FCA violations stemming from fraudulent Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) applications. Beyond the headlines, however, cases like Walsh raise critical questions about the broader impact of FCA enforcement, particularly on employees who may find themselves unwittingly entangled in their employer’s fraudulent schemes. The Suarez Law Firm had a front font row seat to that Northern District of Florida case and the suffering it caused its employees. We are proud of the fact that we successfully guided our client through the investigation resulting in no criminal charges or civil liability but are also keenly aware of the sleepless nights, and the financial and professional impact these cases have on innocent employees.
Case Summary
According to the DOJ press release and publicly available information, Patrick Walsh, through his network of companies, systematically defrauded the PPP and EIDL programs established under the CARES Act. The government alleged, and Walsh admitted in a civil settlement, that he submitted fraudulent loan applications on behalf of ten companies, including American Blimp Company LLC and various “Airsign” entities. These applications contained fabricated information regarding employee numbers and payroll expenses.
In total, Walsh secured approximately $7.8 million in fraudulent loan proceeds. Instead of using these funds for legitimate business expenses as intended by the PPP and EIDL programs, Walsh allegedly diverted the money for personal luxuries, including the purchase of a private island, investments in Texas oil ventures, and the repayment of personal debts. When Walsh defaulted on the PPP loans, the Small Business Administration (SBA), as guarantor, was forced to cover the losses, further burdening taxpayers.
Walsh’s legal troubles extend beyond the civil realm. He pleaded guilty to wire fraud and money laundering in a parallel criminal case and is currently serving a 66-month federal prison sentence. He was also ordered to pay $7.8 million in restitution and forfeiture, mirroring the initial fraudulent loan amount.
The Plight of Innocent Employees: Caught in the Crossfire
While the focus of FCA cases rightly rests on the perpetrators of fraud, it’s crucial to consider the often-overlooked impact on innocent employees. In cases like Walsh, bookkeepers, office managers, administrative assistants, and even lower-level executives may find themselves swept up in the investigation, facing significant legal and personal risks, despite having no malicious intent.
Potential Legal Risks for Innocent Employees:
- FCA Liability: While the FCA primarily targets those who “knowingly” submit false claims, the definition of “knowledge” under the statute can be broad. It includes not only actual knowledge but also “deliberate ignorance” and “reckless disregard” of the truth or falsity of information. Employees who are aware of red flags or questionable practices but fail to investigate or report them could potentially face FCA liability, even if they were not the architects of the fraud.
- Civil Investigative Demands (CIDs): During an FCA investigation, the DOJ can issue CIDs, which are akin to subpoenas, demanding documents and testimony from individuals and companies. Innocent employees may be compelled to produce documents, answer interrogatories, and sit for depositions, which can be time-consuming, stressful, and require legal counsel.
- Reputational Damage: Even if an employee is ultimately not found liable under the FCA, being associated with a fraud investigation can severely damage their reputation and career prospects. News reports and public records can link their names to the case, regardless of their level of culpability.
- Emotional and Financial Strain: Facing government scrutiny, potential legal action, and the uncertainty of an FCA investigation can take a significant emotional and financial toll on innocent employees and their families. Legal fees, lost work time, and the stress of the situation can be overwhelming.
Protective Measures for Innocent Employees:
- Due Diligence and Questioning: Employees should exercise due diligence in their work and not blindly accept information or instructions without question. If something seems “off” or raises red flags, they should ask clarifying questions and seek further information.
- Documentation: Employees should meticulously document their work, including any concerns or questions they raise regarding potentially questionable practices. Maintaining records of communications and actions can be crucial in demonstrating their good faith and lack of knowledge of any fraudulent scheme.
- Reporting Concerns Internally: If employees suspect fraudulent activity, they should report their concerns internally through established channels, such as to their supervisor, HR department, or compliance officer. Many companies have whistleblower policies in place to protect employees who report wrongdoing.
- Seeking Legal Counsel: If an employee becomes aware of an FCA investigation or receives a CID, it is crucial to seek legal counsel immediately. An experienced attorney can advise them of their rights, help them navigate the investigation process, and protect their interests.
- Understanding Company Compliance Programs: Employees should familiarize themselves with their company’s compliance programs and ethical guidelines. Understanding these policies can help them identify potential red flags and know how to report concerns appropriately.
Conclusion
The Walsh case serves as a stark reminder of the impact federal investigations have on innocent employees who may be caught in the crossfire. By understanding the risks, dispelling common misconceptions, and taking proactive protective measures, employees can safeguard themselves and contribute to a culture of ethical conduct and compliance within their organizations. Ultimately, vigilance, ethical decision-making, and a willingness to speak up when something seems wrong are crucial in preventing and addressing fraud, protecting both employees and the integrity of government programs.
