LAKE MARY, Fla.–Just how rampant was fraud in the Paycheck Protection Program (PPP)? One lender is reporting at least a dozen scammers who were turned down by his bank for PPP loans because of fraud then “followed up to taunt us they got their loan” from another lender.
That kind of “brazen glee” in cheating the hastily created and funded PPP earlier this year was shared by Chris Hurn, who runs Fountainhead Commercial Capital and who told the New York Times his company reported at least 500 suspicious loan applications to federal officials.
“Four months after the federal government’s signature coronavirus relief program for small businesses expired, investigators and lawmakers have only scratched the surface of schemes that illicitly tapped its forgivable loans,” the Times reported. “The program’s hastily drafted and frequently revised rules, its removal of normal lending guardrails and governmental pressure to swiftly approve applications created the ideal conditions for thievery to thrive.
“We couldn’t believe how many people were trying to take advantage and game the system,” said Hurn, who told the Times his firm made more than 8,000 loans. “A lot of my employees, including me, were a little frustrated with humanity.”
80 Cases to Date
The Times reported that to date the Justice Department has brought criminal charges against more than 80 people accused of stealing at least $127 million from the relief program, “but there’s far more to uncover. The House Select Subcommittee on the Coronavirus Crisis said it had identified more than $4 billion in potentially improper loans, and some bankers believe the total will be much higher,” the Times reported.
“A Small Business Administration fraud hotline that took in 742 complaints in 2019 has received more than 100,000 this year,” the report continued. “And there are hundreds of active investigations across more than a dozen government agencies, meaning a program that offered borrowers a few months of relief will spark years of court actions.”
The Times said it interviewed more than a dozen bank executives and found common fraud strategies:
- Many attempts were lazy and unsophisticated, like listing employees who all made the same salary.
- Others had many employees collecting a monthly paycheck of $8,333, reflecting a $100,000 salary, the largest that a Paycheck Protection Program loan could be used to subsidize.
- Fabricated documents were also common: doctored payroll lists, faked business tax returns and modified bank statements.
“One lender, who asked for anonymity to describe her company’s security measures, used a software tool to detect alterations on PDF files; it flagged thousands of forgeries,” the Times reported.
What 1 Analysis Found
The Times reported an analysis for one large unidentified lender on about 131,000 approved or pending loans, Clearforce found 181 applicants had recent felony convictions — a clear violation of the program’s rules. If that rate held across all of the program’s 5.2 million borrowers, that would mean about $1 billion in improper loans went to felons, Mr. Miller said.
“Some of the fraud won’t come to light until the middle or end of next year, when most borrowers will reach their deadline to seek forgiveness or start repaying the money,” the report pointed out. “Many scammers will simply default; others may be caught when they file a forgiveness application that is reviewed by both the lender and the government.”