MEA, health insurance affiliate agree to pay $226k to settle fraud claims over PPP loans

Washington ― The U.S. Department of Justice says Michigan's largest teachers union and an affiliate will pay $225,887 to settle allegations that they violated the federal False Claims Act by applying for and receiving loans under the COVID-era Paycheck Protection Program that they were not eligible for.

The Michigan Education Association (MEA) and the Michigan Education Special Services Association (MESSA) previously repaid their loan proceeds, over $12.5 million total, in December 2020, according to the DOJ.

Both East Lansing-based organizations have denied any wrongdoing. The union represents about 120,000 teachers, education support professionals and higher-education employees throughout Michigan, and MESSA is its affiliated health insurance entity, which manages health insurance benefits for unionized teachers and other public sector employees.

“Those who violate the False Claims Act by fraudulently receiving SBA pandemic program funds meant for eligible small businesses will be held accountable,” said Special Agent in Charge Sharon Johnson of the Small Business Administration's Office of the Inspector General's central region, in a statement. 

“Today’s settlements send a strong message that those responsible will be held accountable. I want to thank the Department of Justice and our law enforcement partners for their dedication and pursuit of justice.”

Prosecutors alleged that MEA and MESSA knew or should have known they were ineligible to receive PPP loans, and that they caused the Small Business Administration to pay lender fees to the bank that processed their loans, according to a DOJ news release.

The PPP program was created under the 2020 CARES Act to provide forgivable loans to certain private businesses and some nonprofits to allow them to keep paying employees during the pandemic; however, certain nonprofit organizations were not eligible to receive loans under federal rules governing the program at the time.

“The PPP was intended to provide critical economic relief to eligible small businesses and other entities,” Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division, said in a statement. “This settlement reflects the department’s commitment to ensuring the integrity of the PPP loan process.”

DOJ said the settlement concludes a lawsuit brought under the whistleblower provision of the False Claims Act by the conservative Midland-based Mackinac Center for Public Policy, a longtime critic of the MEA. The DOJ said Monday that the Mackinac Center's share of the settlement has not been determined.

“The union and MESSA obtained some of the largest PPP loans in the country," Joseph G. Lehman, president of the Mackinac Center, said in a statement last week. "They took these funds, for which they were clearly ineligible, while shuttered restaurants, stores, other businesses and their workers struggled to stay afloat.”

More:MEA agrees to pay $115,000 in processing fees for pandemic aid

MEA called the lawsuit filed by the Mackinac Center "frivolous" and "politically-motivated." MEA officials said that based on the rules published by the federal government when the union had applied for a PPP loan in April 2020, MEA believed it was fully eligible for the PPP program, and its bank agreed, according to a union statement.

The MEA repaid the loan with interest totaling $6,461,876 in December 2020, the union said. MESSA had received a loan in the amount of $6.13 million, according to federal PPP data.

A year later, the Mackinac Center filed the lawsuit in January 2022 in U.S. District Court for the Western District of Michigan, claiming that the MEA had knowingly violated the law in applying for the loan.

"The facts clearly do not back up those claims, which have more to do with the Mackinac Center’s political agenda than principles of truth or justice," the MEA stated in a news release, denying any wrongdoing.

The MEA said the cost of litigation to MEA members and the "waste" of federal justice resources prompted the union to enter the settlement agreement with the federal government. The MEA will pay $115,265 to cover the costs of loan processing fees it paid to the bank, and MESSA will pay $110,622 as part of the settlement.

"MEA did not engage in any wrongdoing, which is notable compared to news coverage about bad actors who used PPP loans to enrich themselves," the MEA said in its statement.

A MESSA spokesperson, Gisgie Dávila Gendreau, reiterated Tuesday that MESSA was not found to be liable. MESSA is a separate corporate entity from the MEA.

"While MESSA was not found to be liable, we settled a meritless lawsuit with the federal government to avoid the extraordinary time and expense that should instead be invested in the public service workers who stepped up during the pandemic to take care of our children and our communities," Gendreau said.

Gendreau said MESSA applied for the PPP loan in good faith "at a time of unprecedented uncertainty."

"The loan provided stability at a time when it wasn’t clear whether schools and municipalities would be able to pay their share of premium dollars, potentially affecting MESSA’s ability to provide public servants with health insurance during a pandemic," Gendreau said. "Once the crisis passed, MESSA repaid the full amount of the loan plus interest."

Staff writer Jennifer Chambers contributed.

mburke@detroitnews.com