PPP fraud lawsuit against New York Racing Association dismissed

A federal judge in Central Islip has dismissed a lawsuit accusing the New York Racing Association of defrauding a pandemic relief program of millions of dollars.

U.S. District Judge Eric Komitee said the men who brought the suit provided insufficient evidence to back up their claims the  NYRA knowingly submitted a false application for a $10 million Paycheck Protection Program loan in 2020.

“The complaint does not plausibly allege that [NYRA] lied about its economic necessity or its employment figures,” the judge said.

Private citizens Anoush Hakimi and Peter Shahriari, who practice law in Encino, California, filed suit against NYRA in U.S. District Court in Central Islip in early 2024. The pair alleged NYRA lied about the size of its workforce and the financial impact of the COVID-19 pandemic to obtain the loan. NYRA operates thoroughbred racetracks in Elmont, Queens and Saratoga Springs.

The NYRA suit is among more than 50 Hakimi and Shahriari have brought under the False Claims Act, a 162-year-old law that allows whistleblowers to take legal action on the federal government’s behalf — and collect a share of whatever is recovered.

False Claims Act cases, along with investigations by the U.S. Justice Department, Small Business Administration, FBI and others, have returned billions of dollars to the federal treasury that shouldn’t have gone to COVID-19 fraudsters. By incentivizing citizens to pursue wrongdoing, the False Claims Act bolsters the efforts of law enforcement, experts said.

At the pandemic’s height in 2020 and 2021, the Paycheck Protection Program offered forgivable bank loans to businesses and nonprofits that met certain income and employment requirements and used at least 60% of the funds to pay employees.

The PPP loan for NYRA was approved by the SBA in April 2020, weeks after the coronavirus struck the country. Sixteen months later, the loan was forgiven and the lender, TD Bank, was repaid by the U.S. Department of Treasury after NYRA showed it had used the money to sustain its operations as required by the 2020 law establishing the PPP, according to court filings.

Still, the California attorneys through their company, Relator LLC, accused NYRA of falsely stating only 453 people were on the payroll at the time the loan was sought. The NYRA workforce was at least double that size and far above the loan eligibility requirement of 500 for fewer employees, the lawsuit states.

Relator also alleged NYRA’s financial position remained strong in the pandemic’s first year despite the weekslong closure of Belmont Park in Elmont, Aqueduct in Queens and Saratoga Raceway in Saratoga Springs to slow the spread of COVID-19.

“NYRA did not suffer enough business decline to endanger them being able to pay their own employees’ wages,” the suit states.

Komitee, in a 13-page order, granted NYRA’s request to dismiss the case in March and gave Relator 30 days to amend its complaint. The complaint wasn’t revised, so the case was closed late last month, according to court filings. 

Relator’s three attorneys and a NYRA spokesman didn’t respond to requests for comment on Monday.

Federal prosecutors in Manhattan reviewed the suit but chose not to pursue the allegations against NYRA in July 2024, leaving Relator to make its case alone to the judge, according to court filings.

Separately, at least two other False Claims Act suits that were brought by Relator in California have led to PPP borrowers repaying more than $7 million in funds they obtained fraudulently. Relator received nearly $600,000 from the settlements, according to the Justice Department.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.