Three Chinese-Owned Companies to Pay More Than $7.3M to Resolve False Claims Act Allegations Relating to Paycheck Protection Program Loans

Under the Paycheck Protection Program (PPP), a borrower generally had to be a “small business” under SBA rules. That meant counting not just its own employees, but also the employees of all of its “affiliates.” If the combined employee total was above the applicable limit, the borrower was ineligible.

Key PPP affiliation rules that could disqualify a borrower:

• SBA’s general affiliation rule: Companies are affiliates when one controls or has the power to control the other (or a third party controls both). When determining size, SBA must aggregate the receipts or employees of the applicant and all domestic and foreign affiliates.
• For PPP specifically, SBA’s April 3, 2020 guidance said four tests of affiliation apply:
  1. Affiliation based on ownership – e.g., one person or entity owns or controls more than 50% of a company’s voting equity, or has the ability to block a quorum or major actions.
  2. Affiliation based on management – the same CEO, president, or managing partner controls multiple businesses, or one firm controls the management of another through a management agreement.
  3. Affiliation based on identity of interest – close relatives with substantially identical business or economic interests, such as multiple firms in the same industry and area, are treated as one.
  4. Affiliation based on franchise/license agreements – in some cases, the degree of control in the agreement can create affiliation (subject to specific SBA rules and waivers).

For PPP eligibility, the borrower generally had to:

• Have no more than 500 employees, including its affiliates, or meet the SBA industry size standard (which also counts affiliates). If affiliated entities pushed total employees above that cap, the business was not eligible (except for a few narrow statutory waivers, such as certain hospitality and restaurant businesses).

These are the rules the government says the Greenland USA entities violated by allegedly undercounting affiliated employees when applying for PPP loans.

SBA’s industry size standards and employee-count rules work in two steps:

1. How SBA sets an industry “size standard”

• SBA publishes a table of size standards by NAICS industry code (13 C.F.R. § 121.201). Each industry is assigned either:
  • a maximum number of employees (e.g., 500 employees), or
  • a maximum average annual receipts amount.
• These standards are based on analysis of each industry’s structure, competition, typical firm size, and policy judgments about what should count as “small.” PPP borrowed those standards but also allowed a general 500‑employee threshold in many cases.

2. How SBA counts employees, including affiliates

• Under 13 C.F.R. § 121.106 and § 121.103:
  • SBA counts all individuals employed on a full‑time, part‑time, or other basis, including temps and leased employees; volunteers are not counted.
  • SBA uses an average headcount across pay periods for the preceding 24 calendar months (or for all months in business if the firm is younger).
  • SBA must include employees of all domestic and foreign affiliates of the applicant when the size standard is based on number of employees.
  • For a business with affiliates, SBA adds together the average number of employees of the applicant and each affiliate to see if the combined total is under the size standard.

Applied to PPP, this meant a borrower had to include the employees of its parent companies and sister companies when checking whether it met the 500‑employee or industry-specific limit.

Congress changed the law for Second Draw PPP loans to exclude businesses with certain ties to China or Hong Kong.

Section 7(a)(37) of the Small Business Act (added by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act) defines who is an “eligible entity” for a Second Draw PPP loan. It explicitly excludes:

• any business for which an entity created in or organized under the laws of the People’s Republic of China or the Hong Kong SAR, or that has significant operations there,
• “owns or holds, directly or indirectly, not less than 20 percent of the economic interest” (equity, capital, or profit interest) of the business; or
• any business that has a board member who is a resident of the PRC.

The Second Draw PPP borrower application required applicants to certify that they were not such a business. If a company was more than 20% owned, directly or indirectly, by PRC‑organized entities, it was statutorily ineligible for a Second Draw PPP loan and could not truthfully make that certification. The Greenland USA entities are alleged to have been in that category.

This restriction reflected a policy choice by Congress that PPP round two funds should not flow to businesses significantly owned or controlled from China or Hong Kong.

A qui tam lawsuit is a type of case under the federal False Claims Act (FCA) where a private person, called a “relator” or whistleblower, files a civil action on behalf of the United States alleging that someone defrauded the government (for example, by obtaining PPP loans they were not eligible for).

How it works and how whistleblowers are paid:

• The relator files the case under seal; DOJ investigates and decides whether to intervene (take over the case) or let the relator proceed alone.
• If money is recovered through settlement or judgment, the statute guarantees the relator a share of the proceeds:
  • If the government intervenes, the relator typically receives 15–25% of the recovery, depending on their contribution.
  • If the government does not intervene and the relator successfully prosecutes, the share is 25–30%.
• These percentages are set in 31 U.S.C. § 3730(d).

In this PPP case, the DOJ press releases state that the settlement resolves two related qui tam suits filed by GNGH2 Inc. and Aidan Forsyth, and that GNGH2 Inc. will receive $697,757.80 and Forsyth $33,470.53 from the government’s recovery—consistent with the FCA’s whistleblower reward framework.

Greenland Holding Group Company Limited (often called Greenland Group or Greenland Holdings) is a large Chinese real estate conglomerate headquartered in Shanghai. It is a major developer of residential and commercial properties in China and abroad and has significant state-linked ownership.

Relationship to the Greenland USA entities:

• Greenland Group operates internationally through subsidiaries, including Greenland USA, which develops real estate projects in the United States (such as large mixed‑use projects in Los Angeles and other cities).
• The Justice Department’s PPP press release alleges that the three Greenland USA entities involved in this case (Greenland LA Metropolis Hotel Development LLC, Greenland US Management LLC, and Greenland LA Metropolis Development III) were more than 20% owned, directly or indirectly, by entities organized in the People’s Republic of China, including Greenland Holding Group Company Limited.
• Because Greenland Holding Group is organized under PRC law and held those ownership stakes, its relationship to the Greenland USA entities is central to the allegation that the U.S. borrowers were ineligible for Second Draw PPP loans under the 20% PRC‑ownership rule.

In substance, Greenland Holding Group Company Limited is the Chinese parent (or part of the parent ownership group) behind the Greenland USA entities that settled the PPP False Claims Act allegations.

A civil False Claims Act settlement like this one does not automatically shield a company from criminal or other enforcement actions arising from the same underlying conduct.

Key points:

• The FCA is a civil statute. Settling an FCA case resolves civil monetary liability to the United States for the claims covered by the agreement, but it does not bar the government from pursuing criminal charges (for example, wire fraud, bank fraud, or other criminal PPP‑fraud statutes) if it chooses.
• Legal commentary and case law consistently note that civil settlements do not preclude criminal prosecution; at most, cooperation and repayment might be considered favorably at sentencing if charges are later brought.
• Separate administrative actions are also possible, such as suspension or debarment from federal programs or adverse actions by the Small Business Administration (e.g., on loan forgiveness or future loan eligibility).
• In this particular case, the Justice Department press release emphasizes that the settlement resolves civil allegations and that there has been no determination of liability. It does not announce any criminal charges against the Greenland USA entities, and there is no public indication in the cited materials that such charges have been filed. However, legally, they remain possible.