Program Fraud Civil Remedies Act Regulations

SMALL BUSINESS ADMINISTRATION

13 CFR Part 142

Program Fraud Civil Remedies Act Regulations

AGENCY: Small Business Administration.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: In response to President Clinton's government-wide regulatory

reform initiative, the Small Business Administration (SBA) has

completed a page-by-page, line-by-line review of all of its existing

regulations to determine which might be revised or eliminated. This

proposed rule would renumber, reorganize, condense and rewrite in plain

language the existing regulation implementing the program ``Fraud Civil

Remedies Act of 1986''. The goal of the plain language style is to

eliminate cumbersome wording, redundancies and ambiguities. The goal of

the reorganization and revision is to make this part consistent in

practice and procedure with other parts of this title and to clarify

requirements under this regulation and applicable statutes of the

United States.

DATES: Comments must be submitted on or before December 27, 1995.

ADDRESSES: Written comments should be addressed to David R. Kohler,

Regulatory Reform Team Leader, (142) Small Business Administration, 409

3rd Street, S.W., Suite 13, Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT: Cheri Wolff, Chief Counsel for General

Litigation; Office of General Counsel, at (202) 205-6643.

SUPPLEMENTARY INFORMATION: On March 4, 1995, President Clinton issued a

Memorandum to each federal agency, directing them to simplify their

regulations. In response to this directive, SBA has completed a page-

by-page, line-by-line review of all of its existing regulations to

determine which might be revised or eliminated. This proposed rule

reorganizes and partially redrafts former provisions for clarity and

user-friendliness. Extensive renumbering was necessary for

[[Page 58298]]

reorganization, simplification and clarification of existing

provisions. No substantive changes to existing provisions are proposed.

Section By Section Analysis

As background, the following section by section analysis discusses

each provision of Part 142 that would be affected by this proposed

rule:

Proposed section 142.1, ``Overview of Regulations,'' corresponds to

section 142.1 of the existing part. The proposed section is revised to

reflect the intent of the revisions to this Part. Modifications to the

text are intended to eliminate confusion as to the purpose of the part

and the proposed revision as a whole, and do not represent substantive

change.

Proposed sections 142.2-142.6 correspond to the definitions found

in existing sections 142.2 and 142.3. The proposed rules would renumber

and rewrite in plain language the definitions and explanations

applicable to this Part. Duplication is avoided in this section, and

practice and procedure under this Part are made more consistent with

practice and procedure under other Parts of this title.

Proposed sections 142.7-142.8 and 142.40, correspond to existing

sections 142.4 and 142.5. The proposed rule would be renumbered and

revised. The section is condensed and rewritten in plain language.

Proposed sections 142.90 and 142.11, correspond to existing section

142.7. The proposed rule would be renumbered and revised. The sections

are condensed and rewritten in plain language.

Proposed section 142.10, corresponds to existing section 142.6. The

proposed rule would be renumbered and revised. The section is condensed

and rewritten in plain language.

Proposed section 142.12, corresponds to existing section 142.9. The

proposed rule would be renumbered and revised. The section is moved,

condensed and rewritten in plain language.

Proposed section 142.13, corresponds to existing section 142.10.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.14, corresponds to existing section 142.12.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.15, corresponds to existing section 142.13.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.16, corresponds to existing section 142.17.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.17, corresponds to existing section 142.18.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.18, corresponds to existing section 142.16.

The proposed rule would be renumbered, moved, condensed and rewritten

in plain language.

Proposed section 142.19, corresponds to existing section 142.28.

The proposed rule would be renumbered and revised. The section would be

moved, condensed and rewritten in plain language.

Proposed section 142.20, corresponds to existing sections 142.8 and

142.26. The proposed rule would be renumbered, moved, condensed and

rewritten in plain language.

Proposed section 142.21, corresponds to existing sections 142.30

and 142.35. The proposed rule would be renumbered and revised,

condensed and rewritten in plain language.

Proposed section 142.22, corresponds to existing sections 142.33

and 142.34. The proposed rule would be renumbered and revised. The

sections would be moved, condensed and rewritten in plain language.

Proposed section 142.23, corresponds to existing sections 142.20

and 142.21. The proposed rule would be renumbered, moved, condensed and

rewritten in plain language.

Proposed section 142.24, corresponds to existing sections 142.23

and 142.25. The proposed rule would be partially renumbered and

revised. The sections are condensed and rewritten in plain language.

Proposed section 142.25, corresponds to existing section 142.24.

The proposed rule would be revised, condensed and rewritten in plain

language.

Proposed section 142.26, corresponds to existing section 142.15.

The proposed rule would be renumbered, moved, condensed and rewritten

in plain language.

Proposed section 142.27, corresponds to existing section 142.29.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.28, corresponds to existing section 142.32.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.29, corresponds to existing section 142.22.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.30, corresponds to existing section 142.37.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.31, corresponds to existing section 142.38.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed sections 142.32 through 142.36, correspond to existing

subsections of section 142.39. The proposed rule would be renumbered

and revised. The old section is broken into separate subgroups and then

rewritten in plain language.

Proposed section 142.37, corresponds to existing section 142.42.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.38, corresponds to existing section 142.46.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Proposed section 142.39, corresponds to existing sections 142.43

and 142.44. The proposed rule would be renumbered and revised. The

sections are moved, condensed and rewritten in plain language.

Proposed section 142.40, corresponds to existing sections 142.4 and

142.5. The proposed rule would be renumbered and revised. The sections

are moved, condensed and rewritten in plain language.

Proposed section 142.41, corresponds to existing section 142.14.

The proposed rule would be renumbered and revised. The section is

moved, condensed and rewritten in plain language.

Existing sections 142.2, 142.11, 142.19, 142.31, 142.36, 142.40,

142.45 and 142.47 are deleted in their current form as duplicative and

confusing.

Compliance With Executive Orders 12612, 12778, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork

Reduction Act (44 U.S.C. Ch. 35)

SBA certifies that this proposed rule would not have a significant

economic impact on a substantial number of small entities within the

meaning of Executive Order 12866 or the Regulatory Flexibility Act, 5

U.S.C. 601, et seq. This rule would renumber, reorganize and rewrite

the existing regulation for clarity and ease of use. Contracting

opportunities and financial assistance for small business would not be

affected by this proposed rule. Therefore, it is

[[Page 58299]]

not likely to have an annual economic effect of $100 million or more,

result in a major increase in costs or prices, or have a significant

adverse effect on competition or the United States economy.

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this proposed rule, if adopted in final form, would

contain no new reporting or record keeping requirements.

For purposes of Executive Order 12612, SBA certifies that this rule

would not have any federalism implications warranting the preparation

of a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this rule

is drafted, to the extent practicable, in accordance with the standards

set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 142

Administrative practice and procedure; Claims; Fraud; Penalties.

For the above reasons, SBA proposes to revise Part 142 of Title 13

of the Code of Federal Regulations as follows:

PART 142--PROGRAM FRAUD CIVIL REMEDIES ACT REGULATIONS

Overview and Definitions

142.1 Overview of regulations.

142.2 What kind of conduct will result in program fraud

enforcement?

142.3 What is a claim?

142.4 What is a statement?

142.5 What is a false claim or statement?

142.6 What does the phrase ``know or have reason to know'' mean?

Procedures Leading to Issuance of a Complaint

142.7 Who investigates program fraud?

142.8 What happens if program fraud is suspected?

142.9 When will SBA issue a complaint?

142.10 What is contained in a complaint?

142.11 How will the complaint be served?

Procedures Following Service of a Complaint

142.12 How does a defendant respond to a complaint?

142.13 What happens if the defendant fails to file an answer?

142.14 What happens once an answer is filed?

Hearing Provisions

142.15 What kind of hearing is contemplated?

142.16 At the hearing, what rights do the parties have?

142.17 What is the responsibility and authority of the ALJ?

142.18 Can the reviewing official or the ALJ be disqualified?

142.19 How are issues brought to the attention of the ALJ?

142.20 How are papers served?

142.21 How will the hearing be conducted and who has the burden of

proof?

142.22 How is evidence presented at the hearing?

142.23 Are there limits on disclosure of documents or discovery?

142.24 Can witnesses be subpoenaed?

142.25 Can a party or witness object to discovery?

142.26 Can a party informally discuss the case with the ALJ?

142.27 Are there sanctions for misconduct?

142.28 Where is the hearing held?

142.29 Are witness lists exchanged before the hearing?

Decisions and Appeals

142.30 How is the case decided?

142.31 Can a party request reconsideration of the initial decision?

142.32 When does the initial decision of the ALJ become final?

142.33 What are the procedures for appealing the ALJ decision?

142.34 Are there any limitations on the right to appeal to the

Administrator?

142.35 How does the Administrator dispose of an appeal?

142.36 Can I obtain judicial review?

142.37 What judicial review is available?

142.38 Can the administrative complaint be settled voluntarily?

142.39 How are civil penalties and assessments collected?

142.40 What if the investigation indicates criminal misconduct?

142.41 How does SBA protect the rights of defendants?

Authority: 15 U.S.C. 634(b), 31 U.S.C. 3803(g)(2).

Overview amd Definitions

Sec. 142.1 Overview of regulations.

(a) Statutory basis. This Part implements the Program Fraud Civil

Remedies Act of 1986, 31 U.S.C. 3801-3812 (``the Act''). The Act

provides SBA and other federal agencies with an administrative remedy

to impose civil penalties and assessments against persons making false

claims and statements. The Act also provides due process protections to

all persons who are subject to administrative proceedings under this

Part.

(b) Possible remedies for program fraud. In addition to any other

penalty which may be prescribed by law, a person who submits, or causes

to be submitted, a false claim or a false statement to SBA is subject

to a civil penalty of not more than $5,000 for each statement or claim,

regardless of whether property, services, or money is actually

delivered or paid by SBA. If SBA has made any payment, transferred

property, or provided services in reliance on a false claim, the person

submitting it is also subject to an assessment of not more than twice

the amount of the false claim. This assessment is in lieu of damages

sustained by SBA because of the false claim.

Sec. 142.2 What kind of conduct will result in program fraud

enforcement?

(a) Any person who makes, or causes to be made, a false,

fictitious, or fraudulent claim or written statement to SBA is subject

to program fraud enforcement. A person means any individual,

partnership, corporation, association, or other legal entity.

(b) If more than one person makes a false claim or statement, each

person is liable for a civil penalty. If more than one person makes a

false claim which has induced SBA to make payment, an assessment is

imposed against each person. The liability of each such person to pay

the assessment is joint and several.

(c) No proof of specific intent to defraud is required to establish

liability under this Part.

Sec. 142.3 What is a claim?

(a) Claim means any request, demand, or submission--

(1) Made to SBA for property, services, or money;

(2) Made to a recipient of property, services, or money from SBA or

to a party to a contract with SBA for property or services, or for the

payment of money. This provision applies only when the claim is related

to the property, services or money from SBA or to the contract with

SBA; or

(3) Made to SBA which decreases an obligation to pay or account for

property, services, or money.

(b) A claim can relate to grants, loans, insurance, or other

benefits, and includes SBA guaranteed loans made by participating

lenders. A claim is made when it is received by SBA, an agent, fiscal

intermediary, or other entity acting for SBA, or when it is received by

the recipient of property, services, or money, or the party to the

contract.

(c) Each voucher, invoice, claim form, or individual request or

demand for property, services, or money constitutes a separate claim.

Sec. 142.4 What is a statement?

Statement means any written representation, certification,

affirmation, document, record, or accounting or bookkeeping entry made

with respect to a claim or with respect to a contract, bid or proposal

for a contract, grant, loan or other benefit from SBA. SBA must provide

some portion of the money or property in connection with the contract,

bid, grant, loan, or benefit, or be potentially liable to another party

for any portion of the money or property under such contract, loan,

grant, or

[[Page 58300]]

benefit. A statement is made, presented, or submitted to SBA when it is

received by SBA or an agent, fiscal intermediary, or other entity

acting for SBA.

Sec. 142.5 What is a false claim or statement?

(a) A claim submitted to SBA is a false claim if the person making

the claim, or causing the claim to be made, knows or has reason to know

that the claim

(1) Is false, fictitious or fraudulent;

(2) Includes or is supported by a written statement which asserts

or contains a material fact which is false, fictitious, or fraudulent;

(3) Includes or is supported by a written statement which is false,

fictitious or fraudulent because it omits a material fact that the

person making the statement has a duty to include in the statement; or

(4) Is for payment for the provision of property or services which

the person has not provided as claimed.

(b) A statement submitted to SBA is a false statement if the person

making the statement, or causing the statement to be made, knows or has

reason to know that the statement

(1) Asserts a material fact which is false, fictitious, or

fraudulent; or

(2) Is false, fictitious, or fraudulent because it omits a material

fact that the person making the statement has a duty to include in the

statement. In addition, the statement must contain or be accompanied by

an express certification or affirmation of the truthfulness and

accuracy of the contents of the statement.

Sec. 142.6 What does the phrase ``know or have reason to know'' mean?

A person knows or has reason to know (that a claim or statement is

false) if the person:

(a) Has actual knowledge that the claim or statement is false,

fictitious, or fraudulent; or

(b) Acts in deliberate ignorance of the truth or falsity of the

claim or statement; or

(c) Acts in reckless disregard of the truth or falsity of the claim

or statement.

Procedures Leading to Issuance of a Complaint

Sec. 142.7 Who investigates program fraud?

Allegations that a false claim or statement has been made are

investigated by the Inspector General, or his designee. As the

investigating official, the Inspector General, or his designee, has

authority under the Program Fraud Civil Remedies Act and the Inspector

General Act of 1978, as amended, to issue administrative subpoenas for

the production of records and documents. The methods for serving a

subpoena are set forth in Part 101 of this title.

Sec. 142.8 What happens if program fraud is suspected?

If the investigating official concludes that an action under this

Part is warranted, the investigating official submits a report

containing the findings and conclusions of the investigation to a

reviewing official. The reviewing official is the General Counsel or

his designee. If, based on the report of the investigating official,

the reviewing official determines there is adequate evidence to believe

that a person submitted a false claim or statement under this Part, the

reviewing official transmits to the Attorney General a written notice

of the reviewing official's intention to refer the matter for

adjudication. This notice will include the reviewing official's

statements concerning:

(a) The reasons for the referral;

(b) The claims or statements upon which liability would be based;

(c) The evidence that supports liability;

(d) An estimate of the amount of money or the value of property,

services, or other benefits requested or demanded in the false claim or

statement;

(e) Any exculpatory or mitigating circumstances that may relate to

the claims or statements known by the reviewing official or the

investigating official; and

(f) The likelihood of collecting the proposed penalties and

assessments.

Sec. 142.9 When will SBA issue a complaint?

SBA will issue a complaint:

(a) If the Attorney General or his designee approves the referral

of the allegations for adjudication and,

(b) In a case of submission of false claims, the amount of money or

the value of property or services demanded or requested in a false

claim, or a group of related claims submitted at the same time, does

not exceed $150,000. A group of related claims submitted at the same

time includes only those claims arising from the same transaction (such

as a grant, loan, application, or contract) which are submitted

simultaneously as part of a single request, demand, or submission.

Sec. 142.10 What is contained in a complaint?

(a) A complaint is notice to the person alleged to be liable under

31 U.S.C. 3802 of the specific allegations being referred for

adjudication and the person's right to request a hearing with respect

to those allegations. The person alleged to have made false statements

or to have submitted false claims to SBA is referred to as the

defendant.

(b) The reviewing official may join in a single complaint false

claims or statements that are unrelated or were not submitted

simultaneously, regardless of the amount of money or the value of

property or services demanded or requested.

(c) The complaint will state that SBA is seeking to impose civil

penalties, assessments, or both, against the persons named in the

complaint and will also include:

(1) The allegations of liability against the defendant, including

the statutory basis for liability, identification of the claims or

statements that are the basis for the alleged liability, and the

reasons liability allegedly arises from such claims or statements;

(2) The maximum amount of penalties and assessments requested and

for which the defendant may be held liable;

(3) A statement of a defendant's rights to request a hearing by

filing an answer and to be represented by an attorney;

(4) Instructions for filing an answer to request a hearing;

(5) A statement that failure of a defendant to file an answer

within 30 days of service of the complaint will result in the

imposition of the maximum amount of penalties and assessments.

(d) The reviewing official will serve a complaint on the defendant

and provide a copy to the Office of Hearings and Appeals (OHA). If a

hearing is requested, an Administrative Law Judge (ALJ) from OHA will

serve as the Presiding Officer.

Sec. 142.11 How will the complaint be served?

(a) The complaint must be served on a person alleged to be liable,

or to a general partner of a partnership alleged to be liable, or to an

executive officer or a director of a corporation or unincorporated

association alleged to be liable, or to a person authorized by

appointment or by law to receive process for the person named in the

complaint.

(b) Service of a complaint may be effected by either of the

following means:

(1) By mail. The complaint must be addressed to the Defendant at

his or her residence or usual dwelling place, principal office or place

of business, and must be sent by registered or certified mail (return

receipt requested).

(2) By personal delivery.

(c) The complaint may be served by anyone 18 years of age or older.

(d) Service is complete when made in accordance with the preceding

provisions.

[[Page 58301]]

(e) The date of service is the date of personal delivery or, in the

case of service by registered or certified mail, the date of postmark.

(f) Proof of service--

(1) When service is by registered or certified mail, the return

postal receipt will serve as proof of service.

(2) When service is by personal delivery, an affidavit of the

individual serving the complaint or written acknowledgment of receipt

by the individual actually served or the defendant or a representative

will serve as proof of service.

(g) At the same time the reviewing official serves the complaint,

the defendant will be served with a copy of this Part and 31 U.S.C.

Secs. 3801-3812.

Procedures Following Service of a Complaint

Sec. 142.12 How does a defendant respond to the complaint?

(a) A defendant may request a hearing by filing an answer with the

reviewing official and the Office of Hearings and Appeals within 30

days of service of the complaint. An answer will be considered a

request for a hearing.

(b) In the answer, a defendant--

(1) Must admit or deny each of the allegations of liability

contained in the complaint. A failure to deny an allegation is

considered an admission;

(2) Must state any defense on which the defendant intends to rely;

(3) May state any reasons why the defendant contends that the

penalties, assessments, or both should be less than the statutory

maximum; and

(4) Must state the name, address, and telephone number of the

person authorized by the defendant to act as defendant's

representative, if any.

(c) If the defendant is unable to file an answer which meets the

requirements set forth in paragraph (b) of this section, the defendant

may file with the reviewing official a general answer denying liability

and requesting a hearing. In addition, the general answer may include a

request for an extension of time in which to file a complete answer. A

general answer must be filed within 30 days of service of the

complaint.

(d) If the defendant files a general answer requesting an extension

of time, the reviewing official must promptly file with the ALJ the

complaint, the general answer, and the request for an extension of

time.

(e) For good cause shown, the ALJ may grant the defendant up to 30

additional days within which to file an answer meeting the requirements

of paragraph (b) of this section. Such answer must be filed with OHA

and a copy must be served on the reviewing official.

Sec. 142.13 What happens if a defendant fails to file an answer?

(a) If a defendant does not file an answer within 30 days after

service of the complaint, the reviewing official may refer the

complaint to the ALJ.

(b) Once the complaint is referred, the ALJ will promptly serve on

the defendant a notice that an initial decision will be issued.

(c) The ALJ will assume the facts alleged in the complaint to be

true and, if such facts establish liability under the statute, the ALJ

will issue an initial decision imposing the maximum amount of penalties

and assessments allowed under the statute.

(d) Except as otherwise provided in this section, when a defendant

fails to file a timely answer, the defendant waives any right to

further review of the penalties and assessments imposed in the initial

decision.

(e) The initial decision becomes final 30 days after it is issued.

(f) If, at any time before an initial decision becomes final, a

defendant files a motion with the ALJ asking that the case be reopened

and stating that extraordinary circumstances prevented the defendant

from filing an answer, the initial decision is stayed until the ALJ

makes a decision on the motion. The reviewing official may respond to

the motion.

(g) If, in his motion to reopen, a defendant demonstrates

extraordinary circumstances excusing his failure to file a timely

answer, the ALJ will withdraw the initial decision, and grant the

defendant an opportunity to answer the complaint.

(h) A decision by the ALJ to deny a defendant's motion to reopen a

case is not subject to review or reconsideration.

Sec. 142.14 What happens once an answer is filed?

(a) When the reviewing official receives an answer, he must file

the complaint and the answer with the ALJ, along with a designation of

a representative.

(b) When the ALJ receives the complaint and the answer, the ALJ

will promptly serve a notice of hearing upon the defendant and the

representative for SBA. The notice of hearing is served in the same

manner as the complaint, service of which is described in Sec. 142.11.

(c) The notice shall include:

(1) The tentative time, place and nature of the hearing;

(2) The legal authority and jurisdiction under which the hearing is

to be held;

(3) The matters of fact and law to be asserted;

(4) A description of the procedures for the conduct of the hearing;

(5) The name, address, and telephone number of the defendant's

representative and the representative for SBA; and

(6) Such other matters as the ALJ deems appropriate.

Hearing Provisions

Sec. 142.15 What kind of hearing is contemplated?

The hearing is a formal proceeding conducted by the ALJ during

which a defendant will have the opportunity to cross-examine witnesses,

present testimony, and argue that he is not liable for the imposition

of civil penalties, assessments, or both.

Sec. 142.16 At the hearing, what rights do the parties have?

(a) The parties to the hearing shall be the defendant and SBA.

Pursuant to 31 U.S.C. 3730(c)(5), a private plaintiff in an action

under the False Claims Act may participate in the hearing to the extent

authorized by the provisions of that Act.

(b) Each party has the right to:

(1) Be represented by a representative;

(2) Request a pre-hearing conference and participate in any

conference held by the ALJ;

(3) Conduct discovery;

(4) Agree to stipulations of fact or law which will be made a part

of the record;

(5) Present evidence relevant to the issues at the hearing;

(6) Present and cross-examine witnesses;

(7) Present arguments at the hearing as permitted by the ALJ; and

(8) Submit written briefs and proposed findings of fact and

conclusions of law after the hearing, as permitted by the ALJ.

Sec. 142.17 What is the responsibility and authority of the ALJ?

The Presiding Officer at the hearings described herein and in 31

U.S.C. Sec. 3803(d)(2)(B), is an Administrative Law Judge (ALJ). The

ALJ has the authority set forth in Sec. 134.218(b) of this Title.

Sec. 142.18 Can the reviewing official or ALJ be disqualified?

(a) A reviewing official or an ALJ may disqualify himself or

herself at any time.

(b) Upon motion of any party, the reviewing official or ALJ in a

particular case may be disqualified provided that:

[[Page 58302]]

(1) The motion is supported by an affidavit containing specific

facts that support the party's belief that personal bias or other

reason for disqualification exists, including the time and

circumstances of the party's discovery of such facts;

(2) The motion and affidavit are promptly filed when the party

discovers grounds for disqualification, or such objection will be

deemed waived; and

(3) The party, or representative of record, certifies in writing

that the motion is made in good faith.

(c) Once such a motion has been filed to disqualify the reviewing

official, the ALJ will halt the proceedings until the matter of

disqualification is resolved. If the ALJ determines that the reviewing

official is disqualified, the ALJ will dismiss the complaint without

prejudice. If the ALJ disqualifies himself or herself, the case will be

promptly reassigned to another ALJ.

Sec. 142.19 How are issues brought to the attention of the ALJ?

Any application to the ALJ for an order or ruling is by motion.

Motions must state the relief sought, the authority relied upon, and

the facts alleged. Procedures for filing motions under this section are

governed by section 134.211 of this Title.

Sec. 142.20 How are papers served?

Except for service of a complaint or a notice of hearing under

section 142.11 and section 142.14(b) respectively, service of all

papers is made by the manner prescribed by section 134.204 of this

Title.

Sec. 142.21 How will the hearing be conducted and who has the burden

of proof?

(a) The ALJ conducts a hearing in order to determine whether a

defendant is liable for a civil penalty, assessment, or both and, if

so, the appropriate amount of the civil penalty or assessment. The

hearing will be recorded and transcribed, and the transcript of

testimony, exhibits admitted at the hearing, and all papers and

requests filed in the proceeding constitute the record for a decision

by the ALJ.

(b) SBA must prove a defendant's liability and any aggravating

factors by a preponderance of the evidence.

(c) A defendant must prove any affirmative defenses and any

mitigating factors by a preponderance of the evidence.

(d) The hearing will be open to the public unless otherwise ordered

by the ALJ for good cause shown.

Sec. 142.22 How is evidence presented at the hearing?

(a) Witnesses at the hearing must testify orally under oath or

affirmation unless otherwise ordered by the ALJ. At the discretion of

the ALJ, testimony may be admitted in the form of a written statement

or deposition, a copy of which must be provided to all other parties,

along with the last known address of the witness, in a manner which

allows sufficient time for other parties to subpoena the witness for

cross-examination at the hearing.

(b) The ALJ determines the admissibility of evidence in accordance

with Sec. 134.223 (a) and (b).

Sec. 142.23 Are there limits on disclosure of documents or discovery?

(a) Upon written request to the reviewing official, the defendant

may review all non-privileged, relevant and material documents, records

and other material related to the allegations contained in the

complaint. After paying SBA a reasonable fee for duplication, the

defendant may obtain a copy of the records described.

(b) Upon written request to the reviewing official, the defendant

may obtain a copy of all exculpatory information in the possession of

the reviewing official or investigating official relating to the

allegations in the complaint. If the document would otherwise be

privileged, only the portion of the document containing exculpatory

information must be disclosed. As used in this section, the term

``information'' does not include legal materials such as statutes or

case law obtained through legal research.

(c) The notice sent to the Attorney General from the reviewing

official is not discoverable under any circumstances.

(d) Other discovery is available only as ordered by the ALJ and

includes only those methods of discovery allowed by section 134.213(c)

of this Title.

Sec. 142.24 Can witnesses be subpoenaed?

A party wishing to procure the appearance and testimony of any

individual and/or documents and records at the hearing may request that

the ALJ issue a subpoena. A written request for a subpoena must be

filed with the ALJ not less than 15 days before the scheduled hearing

date unless otherwise allowed by the ALJ for good cause. A subpoena

shall be issued by the Presiding Officer, in the manner specified by

section 134.214 of this Title.

Sec. 142.25 Can a party or witness object to discovery?

A party or prospective witness may file a motion to quash a

subpoena or to limit discovery or the disclosure of evidence. Motions

to limit discovery or to object to the disclosure of evidence are

governed by Sec. 134.213 (d) and (e) of this title. Motions to limit or

quash subpoenas are governed by Sec. 134.214(d) of this Title.

Sec. 142.26 Can a party informally discuss the case with the ALJ?

No. The proscription against and rules concerning ex parte

communications with the ALJ are set forth in section 134.220 of this

Title. This provision does not prohibit a party from communicating with

any other employee of OHA solely for the purpose of inquiring about the

status of a case or asking routine questions concerning administrative

functions and procedures.

Sec. 142.27 Are there sanctions for misconduct?

The ALJ may sanction a person, including any party or

representative, pursuant to the rules set forth at section 134.219 of

this Title.

Sec. 142.28 Where is the hearing held?

The hearing is held in any judicial district of the United States:

(a) In which the defendant resides or transacts business; or

(b) In which the claim or statement on which liability is based was

made, presented or submitted to SBA; or

(c) As agreed upon by the defendant and the ALJ.

Sec. 142.29 Are witness lists exchanged before the hearing?

(a) At least 15 days before the hearing or at such other time as

ordered by the ALJ, the parties must exchange witness lists and copies

of proposed hearing exhibits, including copies of any written

statements or transcripts of deposition testimony that the party

intends to offer in lieu of live testimony.

(b) If a party objects, the ALJ will not admit into evidence the

testimony of any witness whose name does not appear on the witness list

or any exhibit not provided to an opposing party unless the ALJ finds

good cause for the omission or that there is no prejudice to the

objecting party.

(c) Unless a party objects within the time set by the ALJ,

documents exchanged in accordance with this section are deemed to be

authentic for the purpose of admissibility at the hearing.

[[Page 58303]]

Decisions and Appeals

Sec. 142.30 How is the case decided?

(a) The ALJ issues an initial decision based only on the record,

which will contain findings of fact, conclusions of law, and the amount

of any penalties and assessments imposed.

(b) The ALJ serves the initial decision on all parties within 90

days after close of the hearing or after the time for submission of any

post-hearing briefs, if permitted has expired. If the ALJ fails to meet

this deadline, he or she shall promptly notify the parties of the

reason for the delay set a new deadline.

(c) The findings of fact must include a finding on each of the

following issues:

(1) Whether any one or more of the claims or statements identified

in the complaint violate this Part; and

(2) If the defendant is liable for penalties or assessments, the

appropriate amount of any such penalties or assessments, considering

any mitigating or aggravating factors.

(d) The initial decision will include a description of the right of

a defendant found liable for a civil penalty or assessment to file a

motion for reconsideration with the ALJ or a notice of appeal with the

Administrator.

Sec. 142.31 Can a party request reconsideration of the initial

decision?

(a) Any party may file a motion for reconsideration of the initial

decision with the ALJ within 20 days of receipt of the Initial

decision. If the initial decision was served by mail, there is a

rebuttable presumption that the initial decision was received by the

party 5 days from the date of mailing.

(b) A motion for reconsideration must set forth each matter claimed

to have been erroneously decided and the nature of the alleged errors.

The motion must be accompanied by a supporting brief.

(c) Any response to a motion for reconsideration must be filed

within 20 days of receipt of the motion for reconsideration.

(d) The ALJ disposes of a motion for reconsideration by denying it

or by issuing a revised initial decision.

(e) If the ALJ issues a revised initial decision upon motion of a

party, that party may not file another motion for reconsideration.

Sec. 142.32 When does the initial decision of the ALJ become final?

(a) The initial decision of the ALJ becomes the final decision of

SBA, and shall be binding on all parties 30 days after it is issued,

unless any party timely files a motion for reconsideration or any

defendant adjudged to have submitted a false claim or statement timely

appeals to the SBA Administrator, as set forth in Sec. 142.33.

(b) If the ALJ disposes of a motion for reconsideration by denying

it or by issuing a revised initial decision, the ALJ's order on the

motion for reconsideration becomes the final decision of SBA 30 days

after the order is issued, unless a defendant adjudged to have

submitted a false claim or statement timely appeals to the

Administrator, as set forth in Sec. 142.33, within 30 days of the ALJ's

order.

Sec. 142.33 What are the procedures for appealing the ALJ decision?

(a) Any defendant who submits a timely answer and is found liable

for a civil penalty or assessment in an initial decision may appeal the

decision.

(b) The defendant may file a notice of appeal with the

Administrator, at any time within the 30 day period following the

issuance of an initial decision. At the same time, a copy of the notice

of appeal must be served on all parties and the ALJ.

(c) If another party files a timely motion for reconsideration with

the ALJ, the defendant's appeal will not be considered until the motion

for reconsideration has been resolved.

(d) If a motion for reconsideration is timely filed, a notice of

appeal may be filed at any time within the 30-day period following the

ALJ's denial of the motion for reconsideration or issuance of a revised

initial decision, whichever applies.

(e) A notice of appeal must be supported by a written brief

specifying the reasons why the defendant believes the initial decision

should be reversed or modified.

(f) SBA's representative may file a brief in opposition to the

notice of appeal within 30 days of receiving the defendant's notice of

appeal and supporting brief.

(g) The Administrator may extend the initial 30-day period for not

more than an additional 30 days if the defendant files a request for an

extension within the initial 30-day period and shows good cause.

(h) If a defendant timely files a notice of appeal, and the time

for filing motions for reconsideration has expired, the ALJ forwards

the record of the proceeding to the Administrator.

Sec. 142.34 Are there any limitations on the right to appeal to the

Administrator?

(a) A defendant has no right to appear personally, or through a

representative, before the Administrator.

(b) There is no right to appeal any interlocutory ruling by the

ALJ.

(c) The Administrator will not consider any objection or evidence

that was not raised before the ALJ unless the defendant demonstrates

that the failure to object was caused by extraordinary circumstances.

If the appealing defendant demonstrates to the satisfaction of the

Administrator that extraordinary circumstances prevented the

presentation of evidence at the hearing, and that the additional

evidence is material, the Administrator will remand the matter to the

ALJ for consideration of the additional evidence.

Sec. 142.35 How does the Administrator dispose of an appeal?

(a) The Administrator may affirm, reduce, reverse, compromise,

remand, or settle any penalty or assessment imposed by the ALJ in the

initial decision or reconsideration decision.

(b) The Administrator will promptly serve each party to the appeal

and the ALJ with a copy of his or her decision. This decision must

contain a statement describing the right of any person, against whom a

penalty or assessment has been made, to seek judicial review.

Sec. 142.36 Can I obtain judicial review?

If the initial decision is appealed, the decision of the

Administrator is the final decision of SBA and is not subject to

judicial review unless the defendant files a petition for judicial

review within 60 days after the date on which the Administrator serves

the defendant with a copy of the final decision.

Sec. 142.37 What judicial review is available?

31 U.S.C. Sec. 3805 authorizes judicial review of the final SBA

decision imposing penalties or assessments hereunder, by the

appropriate United States District Court and specifies the procedures

for such review. If a defendant fails to file a judicial petition for

review in a timely fashion, the final SBA decision is no longer subject

to judicial review.

Sec. 142.38 Can the administrative complaint be settled voluntarily?

(a) Parties may make offers of compromise or settlement at any

time. Any compromise or settlement must be in writing.

(b) The reviewing official has the exclusive authority to

compromise or settle a case under this Part at any time after the date

on which the reviewing official is permitted to issue a complaint and

before the date on which the ALJ issues an initial decision.

(c) The Administrator has exclusive authority to compromise or

settle a case under this Part at any time after the date on which the

ALJ issues an initial

[[Page 58304]]

decision and before the initiation of any judicial review or any action

to collect the penalties and assessments.

(d) The Attorney General has exclusive authority to compromise a

case under this Part while any judicial review or any action to recover

penalties and assessments are pending.

(e) The investigating official may recommend settlement terms for

the reviewing official, the Administrator, or the Attorney General, as

appropriate. The reviewing official may recommend settlement terms to

the Administrator or the Attorney General, as appropriate.

Sec. 142.39 How are civil penalties and assessments collected?

31 U.S.C. 3806 and 3808(b) authorize the Attorney General to bring

actions for collection of civil penalties and assessments imposed under

this Part and specify the procedures for such actions. Actions to

collect civil penalties and assessments may include administrative

offset under 31 U.S.C. 3716. The penalties and assessments may not,

however, be administratively offset against an overpayment of federal

taxes (then or later owed) to the defendant by the United States.

Sec. 142.40 What if the investigation indicates criminal misconduct?

(a) This Part does not preclude or limit an investigating

official's discretion to:

(1) Refer allegations of criminal misconduct directly to the

Department of Justice for prosecution or for suit under the False

Claims Act or other civil proceeding;

(2) Defer or postpone a report or referral to the reviewing

official to avoid interference with a criminal investigation or

prosecution; or

(3) Issue subpoenas under other statutory authority.

(b) Nothing in this Part limits the requirement that SBA employees

report suspected violations of criminal law to the SBA Office of

Inspector General or to the Attorney General.

Sec. 142.41 How does SBA protect the rights of defendants?

The procedures implemented in this Part completely separate the

functions of the investigating official, reviewing official, and the

ALJ. In accordance with 31 U.S.C. Sec. 3801, each of these officials

fall under a separate organizational authority. Moreover, except for

the purposes of settlement, the investigating official, reviewing

official, and any employee or agent of SBA who takes part in

investigating, preparing, or presenting a particular case may not in

such case, or a factually related case, participate or advise in the

initial decision or the review of the initial decision by the

Administrator, except as a witness or a representative in public

proceedings. This separation of functions and organization is designed

to assure the independence and impartiality of each government official

during every stage of the proceeding. The representative for SBA may be

employed in the offices of either the investigating official or the

reviewing official.

Dated: November 11, 1995.

Philip Lader,

Administrator.

[FR Doc. 95-28516 Filed 11-24-95; 8:45 am]

BILLING CODE 8025-01-P