July 15, 2022
Fraud Friday – Kabbage is Under Investigation in Texas and Massachusetts for PPP Lending Practices
Due to a filing in a Florida PPP fraud case, it was revealed that Kabbage has been under investigation by U.S. attorneys in multiple states for over a year, and the investigations are being coordinated by the Department of Justice’s Civil Division. “Any time you have two U.S. Attorneys’ offices that have separately drawn the same inferences based on evidence that reached them from independent sources it’s not a really good sign,” says Ben Curtis, former assistant chief of the Criminal Division Fraud Section at the DOJ.
Boston’s U.S. Attorney’s Office is investigating Kabbage for “improperly approved PPP loans that were either obviously fraudulent or not within [SBA] parameters”. In addition, Houston’s U.S. Attorney’s Office is investigating “the adequacy of Kabbage’s fraud and anti-money laundering controls in the same time”. Kabbage is also being investigated by the House Oversight Committee’s Subcommittee on the Coronavirus Crisis for its involvement in PPP fraud.
Jim Richards, a former top financial risk officer at Wells Fargo and Bank of America and former prosecutor, found that Kabbage is linked to nearly one in five federal PPP fraud prosecutions to date.
There are further qualms because Kabbage or KServicing has the lowest forgiveness rate (54%) of any major lender during the first year of PPP, and many of its borrowers are struggling to obtain forgiveness. In correlation, KServicing is facing a class-action lawsuit by borrowers stating that the forgiveness process is an “abject and ongoing failure”.
“Because we don’t have a banker on our side, we’re the ones who have to deal with all the garbage,” says Vicki LeMaster, a Miami hairdresser with a PPP loan of just over $3,000 that is involved in the class action lawsuit.
In yet another case of legal action, Kabbage filed suit against Customers Bank, one of its partner banks, because the bank owes Kabbage tens of millions in PPP fees allegedly. This is in addition to the hundreds of millions of dollars in fees that Kabbage already obtained through its vast number of PPP loans.
McClatchy DC Article