Brooklyn Clothing Company Pays $3 Million to Settle Claims That it Defrauded Federal Covid Loan Program

Joseph Nocella, Jr., United States Attorney for the Eastern District of New York, announced today a settlement agreement with Brooklyn-based clothing company Lafayette 148, Inc. (Lafayette). The settlement addresses allegations that Lafayette violated the federal False Claims Act (FCA) by falsely certifying that it was eligible for a pandemic-era second-draw Paycheck Protection Program (PPP) loan and obtaining forgiveness of that loan.

"Congress created the Paycheck Protection Program to help eligible small businesses survive the severe disruptions of the COVID-19 pandemic by offering loans that could be forgiven if program rules were followed," stated United States Attorney Nocella. "Unfortunately, Lafayette applied for and took government money to which they were not entitled. Our Office will continue to investigate and hold companies accountable who took advantage of pandemic relief programs."

Mr. Nocella thanked the Small Business Administration (SBA) for its partnership in the investigation.

"SBA is committed to identifying and pursuing those alleged to have perpetrated fraud on COVID Relief Programs to the detriment of small businesses. By working closely with the US Attorney's Office in the Eastern District of New York and our other law enforcement partners, SBA continues its enhanced efforts to uncover fraud and pursue recoveries on behalf of taxpayers," stated SBA General Counsel Wendell Davis.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide emergency assistance for individuals, families, and businesses affected by the coronavirus pandemic. The CARES Act authorized the Paycheck Protection Program, administered by the SBA, to provide forgivable loans to eligible small businesses during the national emergency. The PPP provided loans in two draws. For second-draw PPP loans, among other requirements, an applicant could not employ more than 300 employees.

The United States Attorney's Office commenced an investigation after whistleblowers alleged that Lafayette had knowingly defrauded the federal government by obtaining a $2 million PPP loan and forgiveness of that loan when it was not eligible. Based in Brooklyn, Lafayette has a workshop and production facility in China. The government contended that Lafayette was ineligible for a second-draw PPP loan because its certifications about the number of its employees and its operations associated with China were false.

Under the terms of the agreement with the United States, Lafayette agreed to pay $3 million to the United States. The claims asserted against the defendant are allegations only and there has been no determination of liability.

The civil settlement resolves a case brought under the qui tam provisions of the FCA. The FCA authorizes private parties to sue on behalf of the United States and receive a share of any recovery. It also permits the United States to intervene and take over such lawsuits, as it did here. The relator will receive a 10% share of the government's recovery in this matter.

The case was handled by Assistant U.S. Attorney Logan J. Gowdicott and Special Assistant U.S. Attorney Franka Cepele of the Office's Civil Division, with assistance from Paralegal Specialists Loan Nguyen and Jude Glashow.