Marymount Manhattan College to pay $8.4M to settle suit alleging COVID-19-era fraud

A private liberal arts college in Manhattan has agreed to pay $8.4 million to the federal government to settle allegations of defrauding a pandemic relief program.

Marymount Manhattan College has admitted it wasn’t eligible for the $6.6 million Paycheck Protection Program loan that it received in spring 2020, when the coronavirus was at its worst. The college’s workforce a year earlier totaled more than 800 employees, far above the 500 limit to qualify for help, according to federal prosecutors.

The negotiated settlement between the U.S. Attorney for the Southern District of New York and Marymount highlights a little-known but powerful enforcement tool that has emerged since the pandemic: lawsuits brought by private citizens under the False Claims Act.

Help for whistleblowers

The 162-year-old law allows whistleblowers to take legal action on the government’s behalf — and to collect a share of whatever is recovered. The cases, along with investigations by the U.S. Department of Justice, Small Business Administration and others, have returned billions of dollars to the federal treasury that shouldn’t have gone to COVID-19 fraudsters.

The Marymount suit was filed two years ago in Manhattan federal court by Patricia Lesko, a Michigan resident who describes herself in court filings as an independent investigative journalist.

Besides Marymount, Lesko, in the same suit, accused nine other nonprofit arts and educational institutions in New York State with defrauding the PPP of more than $50 million. The suit is like others that she filed in 2023 in Michigan and Ohio.

Lesko, 64, is among at least a dozen people who’ve filed False Claims Act suits about PPP fraud in the past five years, based on a Newsday review of court filings in nine states. At the pandemic's height in 2020 and 2021, the PPP 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.

Citizen prosecutors

In nearly 20 False Claims Act cases, federal prosecutors across the country concluded the allegations were worth pursuing and reached settlements with the defendants totaling $64 million. Of that, more than $5.5 million went to those who had initially brought the cases, the filings show.

News of the financial rewards for citizens who use the False Claims Act to pursue pandemic fraudsters will likely renew the debate about the law's purpose. Two years ago, three U.S. Supreme Court justices questioned whether the Constitution permits citizens to act as prosecutors on behalf of the government.

Lesko received $419,638 from the Marymount settlement, according to court documents. She and the New Jersey-based attorney who filed the suit, Patrick S. Almonrode, both declined to answer Newsday’s questions. A spokesperson for the college on Manhattan's Upper East Side also declined to comment.

U.S. Attorney Jay Clayton, in announcing the settlement with Marymount, said the PPP was supposed "to ease financial and economic strain caused by the pandemic by providing businesses with forgivable loans. But too many applicants applied for and received taxpayer money that they had no right to receive."

Marymount has about 1,600 undergraduates, including some from Long Island. Six in 10 students major in the visual and performing arts, according to U.S. News & World Report’s annual guide to colleges. Marymount's most recent available income tax return shows 2024 revenue of more than $80 million and assets of $132 million.

Midwest lawsuits

Five months before filing the Marymount suit in January 2024, Lesko had her then-attorney Thomas F. Wieder bring a case in Michigan federal court against 25 colleges and universities, as well as symphony orchestras and art museums, alleging each had improperly received PPP loans. Two months later, Lesko had Wieder file a similar suit in Ohio federal court against 28 more colleges and universities, along with religious schools, orchestras, museums and a zoo.

"Pat has filed a bunch of these cases around the country — in New York, in Michigan, in Ohio, and possibly elsewhere," said Wieder, adding that cases brought under the False Claims Act are confidential until federal prosecutors review the allegations and decide whether to take up the matter.

Wieder said Lesko’s claims of fraud are based on her review of PPP regulations, a database of PPP recipients, and the federal income tax forms of nonprofits that received PPP loans.

"She matched up the public information and then looked for nonprofits that had more than 500 employees because that meant they weren’t eligible for the loan," he said in an interview.

Lesko, as far as Wieder knows, has no direct knowledge of the defendants’ alleged fraud and no ties to them.

"Pat wasn’t personally involved. She discovered something that she thought was wrong and filed claims," he said.

Motivating factor

Lesko has spent much of her career in Ann Arbor reporting on higher education and participating in that city’s politics. She founded a book publishing company, a weekly newspaper and a politics blog.

In 2010, Lesko unsuccessfully challenged the incumbent mayor in the Democratic primary, receiving 16% of the vote. During the campaign, Lesko wrote that she would’ve voted for Satan before the current mayor, according to a July 2010 report in the Ann Arbor Observer.

So, what’s motivating private citizens like Lesko to go after PPP fraudsters?

Partly, Wieder said, the same thing that led him to help her with the lawsuits: money from settlements reached between defendants and federal prosecutors.

"Under the False Claims Act, the system is set up to reward you for discovering and pursuing a wrong that the government may not be aware of or lacks the resources to bring a case. People are incentivized to file suit because they will receive a good payoff if a settlement is reached," said Wieder, who also lives in Ann Arbor but no longer represents Lesko.

Cases dismissed

There were no payoffs in the two cases that Wieder filed in Michigan and Ohio for Lesko.

U.S. attorneys in both jurisdictions declined to intervene in the cases without publicly disclosing their reasons. Weeks later, Lesko asked that the cases be dismissed, which the judges did after the U.S. Attorneys concurred, according to court filings.

Rodger D. Citron, associate dean for research and scholarship at Touro University’s Jacob D. Fuchsberg Law Center in Central Islip, said it isn’t unusual for a False Claims Act case to be dropped after prosecutors decide not to become involved. "Without the Justice Department, the likelihood of recovery often is lower, sometimes much lower," he said.

In the Marymount case, prosecutors chose not to pursue the allegations made by Lesko against the other nine defendants. Spokespeople for the defendants, all of whom are based in New York State, said they denied the charges or declined to comment.

Court documents show Lesko hasn’t filed an amended complaint against the remaining defendants or requested that the case be dismissed.

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.