California Country Club Agrees to Pay $850,000 to Resolve False Claims Act Allegations of Improper Receipt of Paycheck Protection Program Loan

WASHINGTON - The United States Attorney's Office for the District of Columbia announced today that it has reached a civil settlement agreement with the Club at Morningside Inc., whereby the club agreed to pay $850,000, plus interest, to resolve allegations that the club violated the False Claims Act when it applied for and received a loan under the Paycheck Protection Program (PPP) for which it was not eligible.

When Congress enacted the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, it authorized forgivable PPP loans to eligible small businesses and nonprofit organizations for job retention and certain other expenses. The PPP loan program was administered by the Small Business Administration (SBA). At the time of the loan covered by this settlement, certain entities organized under section 501(c) of the Internal Revenue Code were not eligible for PPP loans, including section 501(c)(7) organizations.

In 2020, Morningside, a country club located in Rancho Mirage, California, applied for a PPP loan in the amount of $727,427 and certified that it was eligible to receive the loan even though it was ineligible as a section 501(c)(7) nonprofit organization. After receiving the PPP loan, Morningside sought and received forgiveness of the entire loan amount. The United States contended that Morningside knowingly falsely represented its eligibility to receive the PPP loan, and that it caused the SBA to pay lender fees to the bank that processed the loan. After an analysis of Morningside's ability to pay pursuant to a settlement, Morningside agreed to pay $850,000, plus interest, to the United States to resolve these allegations.

The settlement resolves claims brought under the qui tam or whistleblower provisions of the False Claims Act. Under these provisions, a private party can file an action on behalf of the United States and receive a portion of the recovery. The qui tam complaint was filed by Relator Aidan Forsyth and is captioned United States ex rel. Aidan Forsyth v. Club at Morningside Inc., et al., Civ. A. No. 24-1175 (D.D.C.). Forsyth will receive a total share of approximately $83,266.55, plus a portion of interest paid by Morningside, in connection with the settlement.

The civil settlement resulted from an investigation by Assistant United States Attorney Sean M. Tepe and Auditor Timothy J. Hurley with the support of attorney Caitlin J. Kelly of SBA's Office of the General Counsel.

Tips and complaint regarding potential fraud affecting COVID-19 government relief programs can be reported by calling the Department of Justice's National Center for Disaster Fraud (NCDF) Hotline at (866) 720-5721 or by submitting a NCDF Web Complaint form at https://www.justice.gov/disaster-fraud/ncdf-disaster-complaint-form.

On April 7, the Department of Justice announced the creation of the National Fraud Enforcement Division. The core mission of the Fraud Division is to zealously investigate and prosecute those who steal or fraudulently misuse taxpayer dollars. Department of Justice efforts to combat fraud support President Trump's Task Force to Eliminate Fraud, a whole-of-government effort chaired by Vice President J.D. Vance to eliminate fraud, waste, and abuse within Federal benefit programs.

The claims resolved by the civil settlement are allegations only, and there has been no determination of liability.