Local Manufacturer Agrees to Pay Nearly $900K in Settlement Over PPP Loan Fraud Allegations

Northern Kentucky manufacturer Segepo-FSM has agreed to pay nearly $900,000 to resolve allegations that it improperly obtained and received forgiveness of a Paycheck Protection Program (PPP) loan, according to federal officials.

The Cold Spring-based company will pay $887,234 to settle claims that it violated the False Claims Act by falsely certifying its eligibility for a second-draw PPP loan. Federal authorities allege that Segepo-FSM incorrectly stated it had fewer than 300 employees when applying for a $503,900 loan and its subsequent forgiveness.

According to government officials, Segepo-FSM was actually part of a larger corporate structure that exceeded the PPP program’s employee limit, which would have made the company ineligible for the funding. The Small Business Administration approved the loan and later forgave the debt based on certifications that authorities now contend were inaccurate.

The PPP program was established in March 2020 as part of the CARES Act to provide financial relief to small businesses affected by the COVID-19 pandemic. Second-draw PPP loans, which became available in January 2021, were specifically targeted at smaller businesses that demonstrated significant revenue losses during the pandemic, with stricter eligibility requirements than the initial program.

The case highlights ongoing efforts by federal authorities to identify and prosecute alleged fraud related to pandemic relief programs. The Department of Justice has made combating such fraud a priority, establishing a COVID-19 Fraud Enforcement Task Force in May 2021. Since then, the DOJ has pursued hundreds of cases involving PPP fraud totaling billions of dollars.

“The settlement demonstrates our office’s commitment to ensuring that pandemic relief funds reached their intended recipients,” said a federal prosecutor familiar with the case. “Companies that misrepresented their eligibility for these programs diverted critical resources away from eligible small businesses during an unprecedented economic crisis.”

The settlement also resolves a lawsuit filed under the whistleblower provisions of the False Claims Act, which allows private citizens to file suits on behalf of the government against those who falsely claim federal funds. The whistleblower, whose identity was not disclosed in public documents, is eligible to receive a portion of the settlement amount – typically between 15% and 30% of recovered funds.

Manufacturing has been a vital sector in Northern Kentucky’s economy, with companies like Segepo-FSM providing significant employment in the region. The manufacturing industry was particularly vulnerable during the pandemic due to supply chain disruptions and fluctuating demand.

Federal officials emphasized that the case was resolved through a settlement agreement and that the claims are allegations only. There has been no determination of liability against Segepo-FSM, and the company has not publicly admitted to any wrongdoing as part of the settlement.

This case represents one of several recent settlements involving alleged PPP fraud in the manufacturing sector. As pandemic relief programs wind down, federal investigators continue to scrutinize loan applications and forgiveness requests for potential misrepresentations or fraud.

The $887,234 settlement amount exceeds the original loan value, reflecting the government’s inclusion of damages and penalties in addition to recovery of the original funds. This approach aligns with the Justice Department’s strategy of imposing financial consequences beyond mere repayment to deter similar conduct by other companies.

Local business leaders note that while most businesses applied for pandemic relief in good faith, the complexity of eligibility requirements—particularly regarding affiliation rules that determine employee counts across corporate structures—created compliance challenges for some companies.

Assistant U.S. Attorneys from the Eastern District of Kentucky handled the case in coordination with investigators from the Small Business Administration’s Office of Inspector General.