United States ex rel. HMI v. Pinnacle Bank
The United States has joined a whistleblower lawsuit against Pinnacle Bank. The lawsuit was filed by a whistleblower represented by Shauna Itri and Dan Miller of Berger Montague, a nationally known full-spectrum civil litigation law firm with one of the largest and most successful whistleblower practices in the U.S.
The lawsuit was filed under the qui tam, or whistleblower provisions of the False Claims Act, which provides an opportunity for private parties to bring a lawsuit on behalf of the United States if they have some knowledge of fraud committed against the government. The private parties are entitled to receive a share of any funds recovered through the lawsuit. The False Claims Act authorizes the United States to intervene in such a lawsuit and take over primary responsibility for litigating it. According to the whistleblower’s complaint, Pinnacle violated the False Claims Act by withholding material information from and making materially false statements to the Small Business Administration (“SBA”) with regard to the funding of an SBA “504” loan.
The SBA’s 504 Loan Program offers small-businesses long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. Financing of 504 projects typically consists of (1) a contribution from the borrower covering approximately 10 percent of the project costs; (2) a loan obtained from a Certified Development Company (“CDC”) and assigned to the SBA, covering approximately 40 percent of the project costs and certain administrative costs, collateralized by a second lien on the project property; and (3) a loan secured from a private sector lender covering the remainder of the project costs (approximately 50 percent) and collateralized by a first lien on the project property. The 504 Loan Program requires banks such as Pinnacle to make certain certifications. The lawsuit alleges that Pinnacle made false certifications, including that (1) it had no knowledge of any un-remedied substantial adverse change in the borrower’s financial condition since the date of the application for the SBA 504 Loan; (2) the borrower was current on its payments to Pinnacle and not otherwise in default of the loan; and (3) Pinnacle had disclosed to the SBA/CDC all material information known to it.
Shauna Itri, lead counsel for the whistleblower, praised the government prosecutors and investigators: “The attorneys and investigators in the District of Wyoming and at the Small Business Administration have moved very swiftly and have been diligent in investigating the allegations in the complaint.”
The case settled in June 2014 for $3 million.