ARLINGTON, Va. – The National Association of State Credit Union Supervisors (NASCUS) has sent a comment letter to the Small Business Administration regarding the Interim Final Rule (IFR) implementing the Paycheck Protection Program (PPP).
Separately, prosecutors have brought the second case alleging PPP fraud by an individual.
NASCUS is calling on the agency to improve the PPP to assist state regulators and credit unions administer the program.
“Of course, the PPP and its particular restrictions on the use of loan proceeds and loan forgiveness calculations are going to be unfamiliar to lenders and borrowers,” wrote NASCUS Executive Vice President and General Counsel Brian Knight. “It will be essential for the SBA to establish rules that are easy to understand and implement. Credit unions and the credit union system stakeholders have worked diligently at the retail level to implement the PPP. We urge the SBA to expeditiously publish the rules needed to move forward with successful implementation of the remainder of the program.”
Six Suggested Enhancements
The NASCUS letter recommends six significant enhancements:
- Rules governing the SBA's forgiveness of qualifying loans must be promulgated promptly and the parameters of the loan forgiveness must be easy for borrowers to understand and lenders to implement
- The SBA should recognize non-federally insured credit unions are safe, sound, and closely supervised and should be included as eligible lenders
- The SBA should require lender concurrence of the use of borrower agents as a prerequisite for payment of fees
- Safe harbors for lenders acting in good faith to implement elements of the PPP where guidance was lacking at the time of the lender's decisions should be created
- The IFR provisions should be amended to include the specific instructions, metrics and references to forms needed to administer the PPP
- The current IFR, the pending IFR on loan forgiveness, all other modifying rules, and existing PPP specific guidance should be reorganized and codified as a single regulation for ease of reference
The NASCUS comment letter is available here.
Prosecutors Bring Second Case Alleging PPP Fraud
Separately, in Beaumont, Texas, the second case in the country alleging Paycheck Protection Program fraud has been brought by the U.S. Attorney for the Eastern District of Texas.
According to the U.S. Attorney, Shashank Rai, 30, of Beaumont, Texas, allegedly sought as much as $13 million in forgivable loans guaranteed by the SBA from two different banks by claiming to have 250 employees earning wages when, in fact, no employees worked for his purported business.
In a federal criminal complaint, Rai is charged with violations of wire fraud, bank fraud, false statements to a financial institution, and false statements to the SBA.
The U.S. Attorney said Rai allegedly made two fraudulent claims to two different lenders seeking loans guaranteed by the SBA for COVID-19 relief through the PPP. In the application submitted to the first lender, Rai allegedly sought $10 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of $4 million. In the second application, Rai allegedly sought approximately $3 million in PPP loan proceeds by fraudulently claiming to have 250 employees with an average monthly payroll of approximately $1.2 million, the U.S. attorney said.
What Investigators Found
The U.S. attorney said the Texas Workforce Commission provided information to investigators of having no records of employee wages having been paid in 2020 by Rai or his purported business, Rai Family LLC. In addition, the Texas Comptroller’s Office of Public Accounts reported to investigators that Rai Family LLC reported no revenues for the fourth quarter of 2019 or the first quarter of 2020.
Court documents indicate that apparently some of the information was retrieved from the trash. “According to court documents, materials recovered from the trash outside of Rai’s residence included handwritten notes that appear to reflect an investment strategy for the $3 million, which is the amount of money that Rai allegedly sought from the second lender,” the law enforcement agency said.
The office of inspector general for the Federal Deposit Insurance Corp. (FDIC) participated in the investigation, the law enforcement agency said.