A Lackawanna steel manufacturer has agreed to pay $1.5 million to settle federal claims that it wrongly received a Paycheck Protection Program loan during the COVID-19 pandemic, resolving a case that started not with a government audit but with a tip from a private whistleblower. The Department of Justice announced the settlement with Welded Tube USA, according to the Buffalo News, with federal officials saying the company was ineligible for the loan because of the size of its overall workforce.
The case traces back to a civil qui tam lawsuit filed in February 2026 by a private entity called Proferre LLC in the U.S. District Court for the Western District of New York, according to the Department of Justice. The federal government formally intervened in that civil action in September 2026 before the settlement was finalized. Under the deal, Proferre LLC stands to collect $150,000 from the settlement proceeds, and Welded Tube USA must pay an additional $5,447 to cover the whistleblower's legal costs, per Fingerlakes1.com.
A Loan Already Forgiven, Now Clawed Back
Welded Tube USA had already cleared one hurdle with federal regulators: the company received approximately $1.03 million in full loan forgiveness on its second-draw PPP loan back in September 2022, before prosecutors challenged its eligibility, the same outlet reports. That earlier approval did not shield the company once federal officials revisited the case, and the $1.5 million settlement figure now exceeds the original forgiven principal.
According to the Buffalo News, whose reporting on the settlement was authored by Matt Glynn, Welded Tube USA said it misunderstood the Paycheck Protection Program's eligibility rules. The company said it believed the program counted only its U.S. workforce rather than its total workforce across all affiliates — but its overall headcount exceeded the program's eligibility limit, according to the Buffalo News.
How the Affiliation Rule Tripped Up the Company
The technical issue at the heart of the case involves a federal rule most small businesses rarely had to think about before 2021. U.S. Small Business Administration regulations for Second Draw PPP loans capped eligibility at businesses with 300 or fewer employees, and explicitly required corporate applicants to aggregate employees across all domestic and foreign affiliates, per the U.S. Department of the Treasury's guidance. Welded Tube USA's parent company, Welded Tube of Canada Corp., along with its other affiliates, collectively pushed the combined workforce past that 300-employee ceiling.
It's worth noting what the settlement does not say. As is standard in civil False Claims Act resolutions, the agreement includes no admission of legal liability and no determination that Welded Tube USA intentionally broke the law — it simply resolves the dispute through payment.
Part of a Broader Western New York Enforcement Push
Welded Tube USA's case is not an isolated one in the region. In April 2026, the Western District of New York secured an identical $1.5 million False Claims Act settlement with The Buffalo Club over allegations that the private membership club improperly obtained PPP loans, according to the Department of Justice. That case centered on SBA rules barring loans to private membership clubs that restrict membership for reasons unrelated to facility capacity.
Three months later, in July 2026, Rochester's Genesee Valley Club agreed to pay $1.05 million to settle similar False Claims Act allegations tied to PPP eligibility. Taken together, the cases suggest prosecutors in the Western District are focused less on fabricated payrolls and more on technical eligibility violations tied to corporate structure or institutional rules.
Why Prosecutors Still Have Time to Pursue These Claims
Federal enforcers have years left to keep digging into pandemic-era loans. Legislation passed in August 2022, the PPP and Bank Fraud Enforcement Harmonization Act, extended the statute of limitations for civil and criminal PPP fraud enforcement actions from five years to ten, giving federal watchdogs ample runway to audit millions of pandemic relief loans issued years earlier.
That extended window has coincided with new federal infrastructure built specifically to chase down these cases. In April 2026, the Department of Justice created the National Fraud Enforcement Division to coordinate government-wide efforts to investigate and recover improperly obtained federal benefit funds, a division that supports a federal task force on fraud elimination. The U.S. Attorney's Office for the Western District of New York recovered more than $10 million in federal fiscal year 2026 alone through civil enforcement actions targeting Paycheck Protection Program fraud specifically — and in fiscal year 2025, the office's Affirmative Civil Enforcement Unit recovered more than $68 million across all False Claims Act settlements and enforcement actions, spanning healthcare fraud, commercial kickbacks, and pandemic-era program misuse.
