[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Rules and Regulations]
[Pages 2691-2697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1349]



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SMALL BUSINESS ADMINISTRATION
13 CFR Part 142


Program Fraud Civil Remedies Act Regulations

AGENCY: Small Business Administration.

ACTION: Final rule.

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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 
rule renumbers, reorganizes, condenses and rewrites 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 
redundancies, ambiguities and cumbersome wording. 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.

EFFECTIVE DATE: This rule is effective February 28, 1996.

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 completed a page-by-
page, line-by-line review of all of its existing regulations to 
determine which might be revised or eliminated. This rule reorganizes 
and rewords former provisions for clarity and user-friendliness. 
Extensive renumbering was necessary for reorganization, simplification 
and clarification of existing provisions. No substantive changes to 
existing provisions were made.
    SBA published its proposed changes to Part 142 in the Federal 
Register on November 27, 1995 (60 FR 58297), inviting the public to 
comment during a thirty day comment period. Since no comments were 
received, SBA has decided to issue the final rule substantially as 
proposed (subject only to minor typographical corrections).

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 rule does 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 renumbers, reorganizes and rewrites the existing 
regulation for clarity and ease of use. Contracting opportunities and 
financial assistance for small business are not affected by this rule. 
Therefore, it is 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 rule contains no new reporting or recordkeeping 
requirements. For purposes of Executive Order 12612, SBA certifies that 
this rule does 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 revises Part 142 of Title 13 of the Code 
of Federal Regulations to read as follows:

PART 142--PROGRAM FRAUD CIVIL REMEDIES ACT REGULATIONS

Overview and Definitions
142.1  Overview of regulations. 

[[Page 2692]]

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 the complaint?
142.13  What happens if a 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 role of the ALJ?
142.18  Can the reviewing official or 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 and 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, that is, each is responsible for 
the entire amount.
    (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?

    A ``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. ``From SBA'' 
means that SBA provides some portion of the money or property in 
connection with the contract, bid, grant, loan, or benefit, or is 
potentially liable to another party for some portion of the money or 
property under such contract, bid, grant, loan, or 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 

[[Page 2693]]
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?

    The Inspector General, or his designee, is responsible for 
investigating allegations that a false claim or statement has been 
made. In this regard, the Inspector General has authority under the 
Program Fraud Civil Remedies Act and the Inspector General Act of 1978 
(5 U.S.C. App. 3), 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 chapter.


Sec. 142.8  What happens if program fraud is suspected?

    (a) 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 the reviewing official determines that the report 
provides adequate evidence that a person submitted a false claim or 
statement, the reviewing official transmits to the Attorney General 
written notice of an intention to refer the matter for adjudication, 
with a request for approval of such referral. This notice will include 
the reviewing official's statements concerning:
    (1) The reasons for the referral;
    (2) The claims or statements upon which liability would be based;
    (3) The evidence that supports liability;
    (4) 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;
    (5) Any exculpatory or mitigating circumstances that may relate to 
the claims or statements known by the reviewing official or the 
investigating official; and
    (6) The likelihood of collecting the proposed penalties and 
assessments.
    (b) If at any time, the Attorney General or designee requests in 
writing that this administrative process be stayed, the Administrator 
must stay the process immediately. The Administrator may order the 
process resumed only upon receipt of the written authorization of the 
Attorney General.


Sec. 142.9  When will SBA issue a complaint?

    SBA will issue a complaint:
    (a) If the Attorney General (or designee) approves the referral of 
the allegations for adjudication; and
    (b) In a case of submission of false claims, if 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 
together as part of a single request, demand, or submission.


Sec. 142.10  What is contained in a complaint?

    (a) A complaint is a written statement giving notice to the person 
alleged to be liable under 31 U.S.C. 3802 of the specific allegations 
being referred for adjudication and of 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 seeks to impose civil 
penalties, assessments, or both, against each defendant and will 
include:
    (1) The allegations of liability against each defendant, including 
the statutory basis for liability, identification of the claims or 
statements involved, and the reasons liability allegedly arises from 
such claims or statements;
    (2) The maximum amount of penalties and assessments for which each 
defendant may be held liable;
    (3) A statement that each defendant may request a hearing by filing 
an answer and may be represented by a representative;
    (4) Instructions for filing such an answer;
    (5) A warning that failure to file an answer within 30 days of 
service of the complaint will result in imposition of the maximum 
amount of penalties and assessments.
    (d) The reviewing official must serve any 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 individual defendants directly, 
a partnership through a general partner, and on corporations or on 
unincorporated associations through an executive officer or a director, 
except that service also may be made on any person authorized by 
appointment or by law to receive process for the defendant.
    (b) The complaint may be served either by:
    (1) Registered or certified mail (return receipt requested) 
addressed to the defendant at his or her residence, usual dwelling 
place, principal office or place of business; or by
    (2) Personal delivery by anyone 18 years of age or older.
    (c) 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.
    (d) Proof of service--
    (1) When service is made by registered or certified mail, the 
return postal receipt will serve as proof of service.
    (2) When service is made by personal delivery, an affidavit of the 
individual serving the complaint, or written acknowledgment of receipt 
by the defendant or a representative, will serve as proof of service.
    (e) When served with the complaint, the defendant also should be 
served with a copy of this part 142 and 31 U.S.C. 3801-3812.

Procedures Following Service of a Complaint


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

    (a) A defendant may file 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 an oral hearing.
    (b) In the answer, a defendant--
    (1) Must admit or deny each of the allegations of liability 
contained in the 

[[Page 2694]]
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 he or she believes 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, requesting a hearing, and requesting 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 initially 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 any answer within 30 days after 
service of the complaint, the reviewing official will 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 describing the extraordinary circumstances that prevented the 
defendant from filing an answer, the initial decision will be 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 
concurrently, the complaint and the answer with the ALJ, along with a 
designation of an SBA representative.
    (b) When the ALJ receives the complaint and the answer, the ALJ 
will promptly serve a notice of oral hearing upon the defendant and the 
representative for SBA, in the same manner as the complaint, service of 
which is described in Sec. 142.11. The notice of oral hearing must be 
served within six years of the date on which the claim or statement is 
made.
    (c) The notice must 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 dispute liability.


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 role of the ALJ?

    An ALJ from OHA serves as the Presiding Officer at all hearings, 
with authority as set forth in Sec. 134.218(b) of this chapter.


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 may be 
disqualified as follows:
    (1) The motion must be supported by an affidavit containing 
specific facts establishing that personal bias or other reason for 
disqualification exists, including the time and circumstances of the 
discovery of such facts;
    (2) The motion must be filed promptly after discovery of the 
grounds for disqualification, or the objection will be deemed waived; 
and
    (3) The party, or representative of record, must certify in writing 
that the motion is made in good faith.
    (c) Once a motion has been filed to disqualify the reviewing 
official, the ALJ will halt the proceedings until resolving the matter 
of disqualification. 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?

    All applications to the ALJ for an order or ruling are made by 
motion, stating the relief sought, the authority relied upon, and the 
facts alleged. Procedures for filing motions under this section are 
governed by Sec. 134.211 of this chapter.


Sec. 142.20  How are papers served?

    Except for service of a complaint or a notice of hearing under 
Sec. 142.11 and Sec. 142.14(b) respectively, service of papers must be 
made as prescribed by Sec. 134.204 of this chapter. 

[[Page 2695]]



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 and/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) of this chapter.


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 Sec. 134.213 of 
this chapter.


Sec. 142.24  Can witnesses be subpoenaed?

    A party seeking the appearance and testimony of any individual or 
the production of documents or records at a hearing may request in 
writing that the ALJ issue a subpoena. Any such request 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 ALJ in the manner specified by Sec. 134.214 of this 
chapter.


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

    Any 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 of this chapter. Motions to limit or quash 
subpoenas are governed by Sec. 134.214(d) of this chapter.


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

    No. Such discussions are forbidden as ex parte communications with 
the ALJ as set forth in Sec. 134.220 of this chapter. This does not 
prohibit a party from communicating with other employees of OHA to 
inquire about the status of a case or to ask routine questions 
concerning administrative functions and procedures.


Sec. 142.27  Are there sanctions for misconduct?

    The ALJ may sanction a party or representative, as set forth in 
Sec. 134.219 of this chapter.


Sec. 142.28  Where is the hearing held?

    The ALJ will hold the hearing 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 concludes 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.

Decisions and Appeals


Sec. 142.30  How is the case decided?

    (a) The ALJ will issue an initial decision based only on the 
record. It will contain findings of fact, conclusions of law, and the 
amount of any penalties and assessments imposed.
    (b) The ALJ will serve the initial decision on all parties within 
90 days after close of the hearing or expiration of any allowed time 
for submission of post-hearing briefs. If the ALJ fails to meet this 
deadline, he or she shall promptly notify the parties of the reason for 
the delay and 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 be accompanied by a 
supporting brief and must describe specifically each allegedly 
erroneous decision.
    (c) Any response to a motion for reconsideration must be filed 
within 20 days of receipt of such motion. 

[[Page 2696]]

    (d) The ALJ will dispose 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, within 30 days of the ALJ's order, as set forth in 
Sec. 142.33.


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 within 30 days following issuance of the initial 
decision, serving a copy of the notice of appeal on all parties and the 
ALJ. The Administrator may extend this deadline for up to thirty 
additional days if an extension request is filed within the initial 30 
day period and shows good cause.
    (c) The defendant's appeal will not be considered until all timely 
motions for reconsideration have been resolved.
    (d) If a timely motion for reconsideration is denied, a notice of 
appeal may be filed within 30 days following such denial or issuance of 
a revised initial decision, whichever applies.
    (e) A notice of appeal must be supported by a written brief 
specifying why 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) If a defendant timely files a notice of appeal, and the time 
for filing motions for reconsideration has expired, the ALJ will 
forward 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.
    (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 may 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 Administrator serves the defendant with 
a copy of the final decision.


Sec. 142.37  What judicial review is available?

    31 U.S.C. 3805 authorizes judicial review by the appropriate United 
States District Court of any final SBA decision imposing penalties or 
assessments, and specifies the procedures for such review. To obtain 
judicial review, a defendant must file a petition in a timely fashion.


Sec. 142.38  Can the administrative complaint be settled voluntarily? 
(a)

    (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 the case from the date on which the reviewing 
official is permitted to issue a complaint until the ALJ issues an 
initial decision.
    (c) The Administrator has exclusive authority to compromise or 
settle the case from the date of the ALJ's initial decision until 
initiation of any judicial review or any action to collect the 
penalties and assessments.
    (d) The Attorney General has exclusive authority to compromise or 
settle the case while any judicial review or any action to recover 
penalties and assessments is pending.
    (e) The investigating official may recommend settlement terms to 
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 
specific actions for collection of such civil penalties and assessments 
including 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) Any investigating official may:
    (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?

    These procedures separate the functions of the investigating 
official, reviewing official, and the ALJ, each of whom report to a 
separate organizational authority in accordance with 31 U.S.C. 3801. 
Except for purposes of settlement, or as a witness or a representative 
in public proceedings, no investigating official, reviewing official, 
or SBA employee or agent who helps investigate, prepare, or present a 
case may (in such case, or a factually related case) participate in the 
initial decision or the review of the initial decision by the 
Administrator. 

[[Page 2697]]
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: January 22, 1996.
John T. Spotila,
Acting Administrator.
[FR Doc. 96-1349 Filed 1-26 -96; 8:45 am]
BILLING CODE 8025-01-P