Fraud and big business bites out of S.M.B. relief spur federal investigation
Big businesses drained loans before many in need could apply, compelling a D.O.J. investigation. And hackers are trying to get funds too.
Large publicly-traded companies faced a deadline to return money intended to serve as a lifeline for small businesses during the coronavirus pandemic.
Now, the U.S. Justice Department has sent grand jury subpoenas to big banks seeking records as part of a broader investigation into potential abuse of the $660 billion emergency loan program to help small businesses.
How big businesses got small business loans
Under the Paycheck Protection Program, companies with fewer than 500 employees are eligible to receive forgivable loans.
But the CARES Act, which created the program, does not rule out large publicly-traded companies with fewer than 500 employees per location: Many larger companies such as Shake Shack and Ruth’s Chris Steak House were quick to secure hundreds of millions of dollars from the fund.
More than 407 publicly-traded companies applied for at least $1.3 billion in coronavirus relief loans, according to data analytics firm FactSquared; 61 publicly-traded companies have returned roughly $411 million in loans to the Small Business Administration that were not taken out in good faith.
A group of news outlets is joining forces to compel the S.B.A. to reveal the names of all the companies approved to receive that money and how much they were granted.
President Donald Trump has indicated a willingness to release a full list of businesses that have received P.P.P. loans. In the past, the S.B.A. has published information on loan recipients, including the names of businesses, the sizes of loans and which banks processed them. They have yet to do so for the P.P.P. loans.
Why subpoena banks for company information?
Due to their critical role in processing the loans, banks have reams of information that could point to other fraud. Grand jury subpoenas allow prosecutors to get their hands on a range of private financial and personal records — and to hear witness testimony as part of a criminal investigation.
Big banks are not likely to be targets; they’ll likely be turned to for evidence in allegations of fraud for some of these loans. However, if it is found that the loan officers of the banks facilitated fraud or willfully ignored it, then the banks would be facing some significant legal trouble.
Weaknesses in S.B.A. program allow for fraud
Two New England businessmen were the first to be charged with conspiring to seek loans amounting to $544,000 fraudulently. They claimed to have a handful of employees: They had none.
And a swath of email and phishing scams have broken out amid the crisis as well, targeting small businesses to capture information and use it to drain funds — or apply to P.P.P. loans in bad faith themselves.
At least 645 potentially misleading domain names related to the P.P.P. were registered between March 30 and April 20, 2020, which could be used to attack S.M.B.s for financial information, Business Insider reported. Hackers have posed as government programs seeking updates to a small business owner’s application.
Authorities expect more to come. Fraud cases rose in the aftermath of Hurricane Katrina in 2005 and the financial crisis in 2008, when billions in federal money flowed to assist in the recoveries.
Given the amount of money being pumped into coronavirus relief coupled with weaknesses in the S.B.A.’s application, experts expect fraud to be at an all-time high.
Questions? Ask us at contact@govsight.co.
Like what you read but prefer to learn with your ears? Listen to The Insight Podcast by GovSight on Apple Podcasts, Spotify or PodBean every Monday.
Follow GovSight on Twitter @GovSight1, Instagram @govsight and Facebook @GovSight. Go to govsight.com to see how GovSight is making “Citizenship. Simplified.”
