PPP Loan Fraud: Southwick Company Pays $2 Million Settlement

Massachusetts Firm to Pay Over $2 Million to Settle false claims act Allegations in PPP Loan Fraud

A Massachusetts-based company, Kokusai Denki Electric America, Inc., formerly known as Hitachi Kokusai Electric Comark, LLC (Comark), will pay $2,092,371 to resolve allegations of fraudulently obtaining a paycheck Protection Program (PPP) loan. Teh settlement underscores ongoing federal efforts to ensure accountability in the distribution of COVID-19 relief funds.

The case stems from the coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted on March 29, 2020, which authorized billions in forgivable loans to small businesses struggling during the pandemic. Administered by the U.S. Small Business Administration (SBA), the PPP aimed to support job retention and cover approved business expenses. A second round of funding began in early 2021, with eligibility criteria including a maximum of 300 employees, inclusive of affiliate employees.

According to the Department of Justice, Comark received a $1,342,232 second-round PPP loan in January 2021. In its application, the company certified it met the eligibility requirements and reported having 67 employees, including those of its affiliates. Comark subsequently received full forgiveness of the loan amount from the SBA.

Did you know? – The CARES Act was a $2.2 trillion economic stimulus package passed by Congress in response to the economic fallout of the COVID-19 pandemic. It included provisions for direct payments to individuals, expanded unemployment benefits, and aid to businesses.

However, investigations revealed that Comark did not qualify for the loan. A senior official stated that the company exceeded the 300-employee threshold when considering the workforce of its affiliates. From 2021 through 2022,Comark operated as a wholly-owned subsidiary of Hitachi Kokusai Electric Inc., based in Tokyo. During that same period, Hitachi kokusai Electric Inc. maintained a workforce exceeding 300 employees, excluding Comark’s staff.

Why did this happen? Comark fraudulently obtained a PPP loan by misrepresenting its employee count. The company claimed 67 employees, including affiliates, to qualify for the $1.34 million loan. However, its parent company, Hitachi Kokusai Electric Inc., employed over 300 people, disqualifying Comark from receiving the funds.

Who was involved? Kokusai Denki Electric America, Inc. (formerly Hitachi Kokusai Electric Comark, LLC) is the primary entity involved. The U.S. Department of Justice, the U.S. Attorney’s Office for the District of Massachusetts, and the U.S. Small Business Administration were also key players in the inquiry and resolution. Hitachi Kokusai Electric Inc., Comark’s parent company, was central to the ineligibility determination.

Pro tip: – Businesses applying for federal assistance should carefully review eligibility requirements and maintain accurate records. False statements can lead to significant penalties, including financial repercussions and legal action.

The settlement acknowledges Comark’s cooperation with authorities, citing the Department of Justice’s guidelines for voluntary disclosure, cooperation, and remediation in False Claims Act matters. This cooperation likely played a role in the resolution amount.

“This settlement demonstrates our commitment to protecting taxpayer funds and holding accountable those who seek to defraud the government,” said U.S. Attorney Leah B. Foley in a released statement.

Assistant U.S. Attorney Brian M.LaMacchia,Chief of the Affirmative Civil Enforcement Unit,handled the matter,highlighting the ongoing scrutiny of PPP loan recipients. The case serves as a stark reminder that businesses receiving federal assistance must adhere to all eligibility requirements and maintain accurate records.

How did it end? Comark agreed to pay $2,092,371