Fraud Friday – Fintechs Facilitated PPP Fraud Says Select Subcommittee in 130-Page Investigative Report

December 2, 2022

Delaney Sexton
Contributing Editor

Fraud Friday – Fintechs Facilitated PPP Fraud Says Select Subcommittee in 130-Page Investigative Report

“As today’s report details, many fintechs, while promising to help disburse billions of Paycheck Protection Program 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 program, they nonetheless accrued massive profits from program 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,” says James Clyburn, Chairman of the Select Subcommittee on the Coronavirus Crisis.

The Select Subcommittee on the Coronavirus Crisis released a 130-page report detailing their investigations into fintech companies that were associated with significant percentages of PPP loans with indicators of fraud, including Kabbage, Bluevine, Blueacorn, and Womply. Their findings are based on over 83,000 pages of internal documents from fintechs and fintech PPP lending partners.

Findings on Blueacorn:
• Blueacorn spent less than 1% of the $1,000,000,000 they earned in fees on fraud prevention and eligibility verification. On the other hand, Blueacorn’s owners received $300,000,000 in profits.
• A loan reviewer at Blueacorn told the Subcommittee that loan reviewers received no formal or informal training on loan underwriting or reporting fake government identification. The reviewers were told to spend less than 30 seconds reviewing each loan application.
• The fintech’s founders attempted to charge some PPP applicants a 10% fee against SBA rules. In addition, they received almost $300,000 in PPP loans that showed signs of potential fraud
• Blueacorn’s primary eligibility verification and compliance consultants received PPP loans for themselves, family members, and their businesses through Blueacorn’s lending partners.

Findings on Womply:
• Womply’s CEO, who was permanently barred from participating in the securities industry after being convicted of insider trading, was leading the fintech’s fraud prevention efforts.
• When federal investigators requested information to conduct investigations on fraudulent PPP loans, Womply refused to cooperate. One of their lending partners had to file a restraining order against Womply so PPP loan documents could not be destroyed.
• Womply itself received over $5 million in PPP loans that it was ineligible to receive from one of its partners. The CEO and President of Womply each obtained a PPP loan.

Findings on Kabbage:
• The head of policy at Kabbage wrote in an email from 2020: “At the end of the day, it’s the SBA’s shitty rules that created fraud, not [Kabbage].”
• Because there was minimal risk for lenders, Kabbage approved loans with fraud indicators.
• Kabbage reduced its fraud prevention staff despite all the PPP fraud until eventually there was only one full-time anti-fraud employee. Before this, employees expressed discomfort with Kabbage’s loan review procedures.

Findings on Bluevine:
• While there were significant fraud rates, Bluevine’s federally regulated bank partners prompted the fintech to improve their fraud prevention.
• Due to the excess of PPP fraud, Bluevine delayed banking partners from submitting Suspicious Activity Reports (SARs) on time, violating banking regulations.

“We must learn from this inexcusable misconduct to erect guardrails that will help ensure that federal programs—including emergency assistance programs 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 SBA and 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,” continues Clyburn.

Source:
Select Subcommittee on the Coronavirus Crisis Press Release
“’We Are Not the Fraud Police’: How Fintechs Facilitated Fraud in the Paycheck Protection Program” Full Report