Kabbage Agrees to Pay $120 Million to Resolve PPP Fraud Allegations
May 14, 2024
Delaney Sexton
Contributing Editor
Kabbage Agrees to Pay $120 Million to Resolve PPP Fraud Allegations
“When the nation was facing a pandemic-induced crisis, Kabbage received tens of millions of dollars through the PPP to help lend taxpayer funds to businesses in need. Instead of safeguarding those funds, Kabbage doled out inflated and fraudulent loans, in an effort to maximize its profits,” says Acting United States Attorney Joshua S. Levy for the District of Massachusetts. “Then, Kabbage sold its assets and left the remaining company so low on cash that it ultimately went bankrupt, leaving taxpayers exposed to the risk of loss caused by Kabbage’s conduct. This office will continue pursuing any company or individual, like Kabbage, that took advantage of the PPP.”
The first settlement of $63.2 million resolves allegations that Kabbage inflated tens of thousands of PPP loans so the SBA would guarantee and forgive loans in amounts that far exceeded what the borrowers were eligible for. Kabbage was aware of the errors in April 2020, but they failed to address the situation and continued approving incorrect loans. Specifically, KServicing Wind Down Corp admitted that Kabbage:
- Double-counted state and local taxes paid by employees in the calculation of gross wages,
- Failed to exclude annual compensation in excess of $100,000 per employee, and
- Improperly calculated payments may be employers for leave and severance.
The second settlement of $56.7 million resolves allegations that the company knowingly failed to implement adequate fraud controls. It is alleged that they removed underwriting steps from pre-PPP procedures in order to maximize the number of loans approved and subsequent processing fees. They are also accused of:
- Knowingly setting substandard fraud check thresholds despite SBA concerns,
- Relying on automated tools that were inadequate in identifying fraud,
- Devoting insufficient personnel to conduct fraud reviews,
- Discouraged fraud reviewers from requesting information from borrows to substantiate their loan requests, and
- Submitting thousands of PPP applications that were fraudulent or highly suspicious for fraud to the SBA.
Kabbage filed for Chapter 11 bankruptcy in October 2022. They are winding down operations as KServicing Wind Down Corp. The two settlements provide the US with an allowed, unsubordinated, general unsecured bankruptcy claim for recovery of up to $120 million. The amount the government will be able to recover is dependent on the amount of assets available to the bankruptcy estate.
The civil settlement includes the resolution of claims brought under the qui tam whistleblower provisions of the False Claims Act. One was an accountant who submitted PPP applications to Kabbage and other lenders, and the other was a former legal analyst in Kabbage’s collections department. They will receive a portion of any recovery related to their claims.