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Fraudulent Cases Abusing Paycheck Protection Programme (PPP) Uncovered

The Select Subcommittee on the Coronavirus Crisis, chaired by Rep. James E. Clyburn, has released a staff report detailing the poor performance of many financial technology companies (fintechs) in administering the nation’s largest pandemic relief programme, the Paycheck Protection Programme (PPP). 

The report details how the investigated companies, despite being tasked with processing PPP applications while screening out those with signs of fraud, abdicated that responsibility—in many cases recklessly—resulting in the approval of large numbers of fraudulent applications.

In May 2021, the Select Subcommittee initiated an investigation into the role of fintech companies Kabbage, Inc. and Bluevine and partner banks Cross River Bank and Celtic Bank in facilitating PPP fraud following public reports they were linked to disproportionate numbers of fraudulent loans.

The investigation was expanded in November 2021 to include fintech start-ups Blueacorn PPP, LLC, and Womply, Inc., after an analysis determined significant percentages of PPP loans facilitated by the companies had indicators of fraud.

Clyburn’s statement

Chairman Clyburn released the following statement about the report:

“As the report details, many fintechs, while promising to help disburse billions of Paycheck Protection Programme dollars to struggling small businesses efficiently and expeditiously, refused to take adequate steps to detect and prevent fraud despite their clear responsibility to safeguard taxpayer funds.

“Even as these companies failed in their administration of the programme, they nonetheless accrued massive profits from programme administration fees, much of which was pocketed by the companies’ owners and executives. On top of the windfall obtained by enabling others to engage in PPP fraud, some of these individuals may have augmented their ill-gotten gains by engaging in PPP fraud themselves.

“We must learn from this inexcusable misconduct to erect guardrails that will help ensure that federal programmes—including emergency assistance programmes in future crises—are administered more effectively, efficiently, and equitably while keeping waste, fraud, and abuse to an absolute minimum.

“Based on our initial findings, I have asked the Small Business Administration (SBA) and Small Business Administration’s Office of Inspector General  (SBA OIG_ to conduct further investigation into these companies and pursue all appropriate remedies, and I have informed DOJ that some of our findings may warrant its attention.”

Fraud findings

Summarising the findings about the fintechs:

  • Blueacorn took only minimal steps to prevent fraud in its facilitation of billions of dollars in PPP loans, while abusing the programme to enrich its owners.
  • Womply’s PPP fraud screenings failed to prevent “rampant fraud”—and were accompanied by questionable business practices—despite generating over a billion in profits.
  • Capital Plus, Harvest, and other fintech-partnered lenders conducted little oversight over Womply and Blueacorn’s activities, allowing fraud to infiltrate the PPP.
  • Kabbage’s PPP activities illustrate that the PPP lacked incentives for fintechs to implement strong fraud prevention controls or appropriate borrower servicing.
  • Bluevine initially faced significant fraud rates, but its longstanding partners intervened to improve fraud prevention over the course of the programme.
Repercussions

The programme was established during the pandemic for organisations to survive and retain employees. Distributing $800million to over nine million SMEs, the loans were designed to be fully forgiven. Though this was only the case if the proceeds were used in accordance with the programme’s rules. However, the banks and non-bank lenders abused the loose safeguards to make money.

The report makes three suggestions as a response:

  • It urges the SBA to carefully consider whether fintechs should be allowed to take part in federal lending programmes.
  • It recommends that the SBA and SBA OIG continue to investigate fraud in PPP. As a result of the findings, it requires stricter oversight during emergency programmes. Furthermore, it suggests that the SBA OIG should investigate any including potentially fraudulent loans received by Blueacorn owners and consultants detailed in the report. The Department of Justice (DOJ) should continue its work prosecuting fraud in the PPP.
  • It suggests that any expansion of SBA programmes to unregulated lenders or agents, including fintechs, should have greater oversight by the agency.

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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