A financial technology lending company will pay up to $120 million for knowingly submitting or causing to be submitted false claims relating to Paycheck Protection Program (PPP) loans to the Small Business Administration (SBA). As a participating PPP lender, Kabbage, Inc. d/b/a KServicing and now represented as KServicing Wind Down Corp., a lender that filed for Chapter 11 bankruptcy, approved PPP loans, authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act to assist small businesses facing financial hardships due to the COVID-19 pandemic. The settlement in this case concludes two separate actions brought by two separate whistleblowers, who received awards for their efforts.
The first settlement resolves allegations that Kabbage systematically exaggerated the amounts of tens of thousands of PPP loans, resulting in the SBA guaranteeing and forgiving loan amounts substantially more than what borrowers were entitled to receive according to program regulations. KServicing Wind Down Corp. admitted that Kabbage tampered with wage calculations, counting state and local taxes paid by employees multiple times in their calculation of wages and improperly included wages that exceeded $100,000. Kabbage also deliberately manipulated the calculations of payments made by employers for leave and severance. Kabbage allegedly knew of these errors since April 2020 but did not make any corrections on the loans dispersed. For this conduct, Kabbage will owe up to $63.2 million, but received a $12.5 million credit for returning payments to the SBA during the investigation of these claims.
The second settlement resolves claims that Kabbage knowingly skirted obligations to implement and oversee fraud controls in compliance with PPP guidelines and eliminated underwriting measures from its pre-PPP procedures to fast-track a larger volume of PPP loan applications and increase processing fees. The United States further alleged that Kabbage’s fraud checks were knowing weak despite being aware of the SBA’s concerns regarding the potential for borrowers exploiting the PPP. They did not designate proper amounts of personnel to examine potential fraud, instead using automated tools that could not properly identify fraud. The personnel that were assigned to review loan requests were discouraged from requesting more information from potential borrowers to verify their loan requests, resulting in thousands of suspicious or fraudulent PPP loan applications. This settlement allows the government to recover up to $56.7 million. --->READ MORE HERE
On Wednesday, May 29, a former Seattle man was sentenced to 42 months in prison for three counts of bank fraud in connection with the COVID-19 Pandemic Paycheck Protection Program (PPP), Tessa M. Gorman, U.S. Attorney said.
30-year-old Donte McClellon was a resident of Seattle at the time of the crime.
In May and June of 2020, McClellon falsified documents and received $500,948 that he used to spend on himself and investments.
“The negative effects of McClellon’s crime go beyond the financial loss. His fraudulent applications clogged an overtaxed application system and stole valuable resources from lending institutions working tirelessly to distribute money,” U.S. Attorney Gorman said. “McClellon even attempted to cut the line in front of actual small businesses. His fraud was not a one-time error in judgment, but rather a calculated attempt to take advantage of the relief systems set up for businesses struggling because of the COVID-19 pandemic.”
According to court documents, McClellon used three inactive Limited Liability Companies (LLCs) he previously registered in Washington State when he applied for the PPP loans. --->READ MORE HEREFollow links below to relevant/related stories and resources:
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