The CARES Act, enacted in March 2020, aimed to provide emergency financial assistance to American businesses impacted by the COVID-19 pandemic. A key component of this act was the Paycheck Protection Program (PPP), which authorized loans to small businesses for specific business-related expenses like payroll. The U.S. Small Business Administration (SBA) administered these loans, which were eligible for forgiveness if certain conditions were met. SBA regulations mandated that businesses undergoing bankruptcy proceedings were ineligible for PPP loans, and borrowers were required to certify their eligibility in the application process.
ARC, a manufacturer of automotive airbag inflators with offices in Knoxville and operations in Tennessee, Kentucky, and abroad, received $2,935,062 in PPP loans in May 2020. However, it allegedly falsely certified its eligibility, stating its owners were not involved in bankruptcy proceedings. In truth, one of its parent companies was undergoing bankruptcy in China, making ARC ineligible for the loan.
The settlement stems from a collaborative investigation by the U.S. Attorney’s Office for the Eastern District of Tennessee and the SBA’s Office of General Counsel, prompted by a whistleblower lawsuit filed in July 2025. As part of the settlement, the relator will receive a share of the payments made by ARC.
In response to issues of fraud, the Department of Justice announced the creation of the National Fraud Enforcement Division to investigate fraud against American federal programs, aligning with initiatives to eliminate fraud and waste under President Trump’s administration.
