The federal government accused Hidalgo County EMS of fraud on Saturday, claiming that the ambulance company obtained a nearly $ 2.6 million Paycheck Protection Program loan by making a false statement during the application process.
In May, when Hidalgo County EMS was embroiled in a legal battle with the U.S. Small Business Administration over whether companies in bankruptcy were not properly excluded from the Paycheck Protection Program, the ambulance company applied for a loan.
A federal bankruptcy judge had signed a statement against the Small Business Administration, allowing Hidalgo County to apply for EMS. By the time Hidalgo County EMS actually filed the application, though, another judge had upheld the order.
In a motion filed Saturday, the U.S. Attorney’s Office for the Southern District of Texas alleged that Hidalgo County had committed EMS fraud by applying for the loan three days after the order remained.
“People can enforce legal positions, factual claims, the merits of claims, or even the wisdom of policy decisions – but there is no room to deny that dishonesty held by a debtor threatens the integrity of the bankruptcy process,” according to the motion. , which refers to Hidalgo County EMS as the debtor in possession.
Channel 5 News asked Hidalgo County EMS on Saturday about the motion. The company responded Monday afternoon with a statement.
“Hidalgo County EMS denies the government’s allegations of any dishonesty,” according to a statement released by Nathaniel Peter Holzer, a lawyer representing the ambulance company. “The government’s motion is clearly a reaction for the government to punish the debtor for having the deadline to prosecute the Small Business Administration. Any further response to these allegations will be addressed to the Government in court. ‘
How the dispute is handled can dictate whether or not Hidalgo County EMS survives bankruptcy.
Hidalgo County EMS – a private ambulance company responding to 911 calls in Edinburgh, Pharr, parts of rural Hidalgo County, Jim Hogg County, Jim Wells County, Peñitas, Sullivan City and Taft – filed for Chapter 11 bankruptcy last year.
Chapter 11 bankruptcy protects companies from creditors as they try to restructure debt. During the restructuring process, the coronavirus pandemic struck South Texas.
Dealing with a dramatic drop-off in 911 calls, Hidalgo County EMS wanted to apply for a loan for Paycheck Protection Program.
However, the Small Business Administration excluded companies in bankruptcy of the program with a long, complicated question: ‘Is the company as any owner currently detained, postponed, proposed for debarmentation, declared uneligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or currently involved in any bankruptcy? ”
Any company that answered “yes” would not get a loan.
Hidalgo County EMS filed a lawsuit against the Small Business Administration, claiming the claim illegally discriminated against companies in bankruptcy.
David R. Jones, Chief Bankruptcy Judge for the Southern District of Texas, joins Hidalgo County EMS. On May 8, he signed a lawsuit against the Small Business Administration, allowing Hidalgo County EMS to submit a custom loan application.
However, Hidalgo County EMS could not find a local bank willing to accept the amended loan application. While the ambulance company was looking for a bank, the Small Business Administration appealed.
U.S. District Judge David S. Morales withdrew the preliminary injunction on May 11, meaning that Hidalgo County EMS could not file a modified loan application.
On May 14, three days after the preliminary promotion continued, Hidalgo County EMS submitted a loan application signed by owner Kenneth B. Ponce. When asked about bankruptcy, Hidalgo County EMS answered “No.”
“On that date, the debtor could not rely on the prior jurisdiction of this Court without infringing the order of the District Court to stay the order. It also could not honestly respond to the PPP loan application without refusing to risk the application, ”according to the motion. “To deal with these two problems, the debtor under Mr Ponce’s control chose to be dishonest.”
Hinton, Oklahoma-based Legacy Bank accepted the loan application. Hidalgo County EMS received $ 2,559,600.
The Small Business Administration won the appeal in June, when the 5th U.S. Circuit Court of Appeals ruled that the federal bankruptcy judge had overruled its jurisdiction by issuing the advance notice.
That left Hidalgo County EMS in an awkward position: It lost the lawsuit, but received the Paycheck Protection Program loan nonetheless.
In the motion filed Saturday, the U.S. Attorney’s Office accused Hidalgo County EMS of fraud.
“The debtor has made a material statement to obtain a PPP loan,” according to the motion. “That false statement could result in a $ 2.5 million administrative claim against the bankruptcy estate, which could jeopardize reorganization and the jobs of those indebted to the debtor.”
The motion asks Jones, the bankruptcy judge, to appoint a Chapter 11 trustee to oversee Hidalgo County EMS.
“The United States requests that the court appoint a Chapter 11 trustee to protect the bankruptcy, while still allowing the bankruptcy team to track what claims it has or not – and hopefully confirm a reorganization plan that will retain jobs,” according to the motion.
Appointment of a Chapter 11 trustee is “a rarity,” according to a bankruptcy manual published by the U.S. Department of Justice. Reasons why a judge may appoint a trustee include “fraud, dishonesty, incompetence, or gross misconduct, or if such appointment is in the interest of creditors, any security guards and other interests of the estate.”
The small business administration could also throw a wrench in the reorganization process by refusing to forgive the loan, which would saddle Hidalgo County EMS with a massive new debt.
“If SBA decides that the debtor’s misrepresentation makes it unsuitable for loan forgiveness, then Legacy Bank will have a large unsecured claim against the debtor,” according to the motion. If Legacy Bank requires full repayment of this loan on the effective date of a plan, as it has the right to do under 11 USC § 1129 (a) (9) (A), then this loan may prevent the debtor from reorganizing . ”
