A Palo Alto bakery has settled a lawsuit with the federal government for making false claims to acquire $430,000 through a program designed to help struggling businesses during the COVID-19 pandemic, the U.S. Department of Justice said on Friday.
La Baguette, a French bakery located at 170 Stanford Shopping Center, unlawfully applied for and received two loans through the Paycheck Protection Program (PPP) and later asked for and received loan forgiveness for both, leaving the Small Business Administration on the hook to cover the costs to the lenders.
The program was established through the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, enacted in March 2020, to provide emergency financial assistance to Americans suffering economic effects caused by the pandemic. It also authorized forgivable loans to small businesses for employee payroll and certain other expenses. Participating lenders received processing fees from the Small Business Administration for handling the PPP loan applications. The lenders funded the loans, which were 100% guaranteed by the SBA, after application approvals.
In April 2020, La Baguette, through principal owner Scott Brunello, submitted an application for a PPP loan to a lender. La Baguette certified that from Feb., 15, 2020, through Dec. 31, 2020, the company hadn't and wouldn't receive another loan under the PPP. La Baguette received $214,700 from the lender by electronic transfer.
But while that loan was still pending, La Baguette submitted an application for another PPP loan to a second lender claiming that it hadn't and wouldn't receive another loan through the program during the same time period. The second lender loaned La Baguette $215,000 through an electronic funds transfer. The bakery knowingly kept the funds from both loans, the government said in its settlement agreement with La Baguette.
"The United States further contends that, despite knowing that it should not have received more than one PPP loan prior to December 31, 2020, La Baguette applied for and received forgiveness of both loans from SBA," the government wrote.
Under its settlement agreement, La Baguette and Brunello agreed to pay the government $430,000, of which $215,000 is restitution. The settlement does not protect against any liability under criminal or Internal Revenue Service codes.
Two other Bay Area businesses also agreed to settlements, the Department of Justice said. Dynamic Integrated Solution Inc., an industrial equipment supplier located in Santa Clara, has also agreed to pay $50,000 in civil penalties to settle allegations that it received and retained a duplicate PPP loan. The company agreed to repay the loan it received in full to its lender, of approximately $985,000 on the duplicate loan.
A third company, Priority Acquisitions Inc., a Castro Valley licensed general contractor, has agreed to pay $50,000 in civil damages and penalties to settle allegations that it received and retained a duplicate loan. The company agreed to repay the loan in full to its lender. It will also repay the lender in full approximately $200,625.
The cases were filed in the U.S. District Court for the Northern District of California under whistleblower provisions of the False Claims Act by J. Bryan Quesenberry. He will receive a portion of the settlements totaling approximately $80,000, the Department of Justice said.
Tips and complaints from all sources about potential fraud affecting COVID-19 government relief programs can be reported to the Civil Division's Fraud Section at justice.gov/civil/report-fraud. Anyone with information about allegations of attempted fraud involving COVID-19 can also file a report by calling the Department of Justice's National Center for Disaster Fraud Hotline at 866-720-5721 or through the NCDF web complaint form at justice.gov/disaster-fraud/ncdf-disaster-complaint-form.