The federal Coronavirus emergency is set to expire this spring, but the process of clawing back improperly gained funds from pandemic relief efforts like the Paycheck Protection Program continues.
The first lender accused of PPP fraud under the False Claims Act settled their case last fall. Prosperity Bank, a regional bank with locations in Texas and Oklahoma, agreed to pay $18,673.50 to resolve allegations it improperly processed a $213,400 PPP loan on behalf on an ineligible customer who did not disclose he was facing criminal charges.
House subcommittee identifies major source of PPP fraud
But that five-figure settlement is just a sliver of the iceberg that is PPP fraud. According to a report from the House Select Subcommittee on the Coronavirus Crisis, tens of billions of dollars in PPP funds were likely disbursed to ineligible or fraudulent applicants, often with the involvement of financial technology companies (fintechs).
Two of those fintechs, Womply and Blueacorn, were responsible for nearly one in every three PPP loans funded in 2021. The report found the unvetted and unregulated fintechs “failed to implement systems capable of consistently detecting and preventing fraudulent and otherwise ineligible PPP applications.”
In one email obtained by the Select Subcommittee, Celtic Bank’s President and Chief Operating Officer estimated in August 2020 that potential fraud losses in the PPP could have already reached “over $10 billion,” after only a few months of the program.
The Select Subcommittee report also found that “Many fintechs, largely existing outside of the regulatory structure governing traditional financial institutions and with little to no oversight from lenders, took billions in fees from taxpayers while becoming easy targets for those who sought to defraud the PPP.” Criminals specifically targeted Blueacorn, Womply, and other fintechs to commit PPP fraud, the report said, citing police recordings of drug gangs in Florida that were discussing Womply and Blueacorn.
Could fintechs face fraud consequences?
So why aren’t fintechs facing fraud allegations alongside ineligible borrowers? It starts with the administration of the PPP.
Internal emails obtained by the Select Subcommittee show that PPP lenders expressed concern that they would be held accountable if PPP fraud was exposed.
A risk manager at Kabbage, another fintech, told his team: “I do think we should not look at fraud here from a kabbage [sic] lending perspective. … a fundamental difference is the risk here is not ours – it is SBAs [sic] risk.”
Indeed, the Small Business Administration said lenders could rely on borrower documentation for these loans: “The Administrator will hold harmless any lender that relies on such borrower documents and attestation from a borrower.”
But following the release of the House report, the SBA suspended Womply and Blueacorn and said it would investigate the lenders named in the report.
So while whistleblowers are playing an important role in recovering taxpayer money, such as a relator who made PPP fraud allegations against three borrowers in California that led to a total of $530,000 in settlement payments, there is hope that lenders and fintechs who contributed to PPP fraud will also be held accountable.
At Keller Grover, we feel strongly about helping whistleblowers report fraud and reclaim taxpayer dollars. Through our confidential, free consultations, we can advise potential whistleblowers about the best path forward from the very beginning, helping minimize the impact of reporting, protect rights and achieve the best possible outcome for the situation. Our deep experience litigating both fraud and employment law makes us uniquely skilled to represent whistleblowers.