SBA has granted over $ 80 billion in potentially fraudulent loans


WASHINGTON – Days after the Small Business Administration’s new pandemic loan programs launched, the agency’s inspector general began receiving calls from banks trying to report fraud.

“We have spoken to the SBA leadership to say that we have a problem,” Hannibal Ware, the SBA inspector general, told the US House of Representatives Thursday.

Almost a year later, Ware and his team identified $ 78.1 billion in potentially fraudulent economic disaster loans and $ 3.6 billion in Paycheck Protection Program loans to potential beneficiaries. Ineligible. Ware said the fraud identified in the EIDL program in particular was “endemic”.

Law enforcement has launched at least 98 publicly announced investigations into EIDL and PPP loan fraud, Justice Department Inspector General Michael Horowitz said Thursday.

The Ministry of Justice loaded Atlanta reality TV star victim of bank fraud after obtaining $ 3.7 million PPP loan and allegedly using the proceeds to purchase $ 85,000 worth of jewelry, including a Rolex presidential watch, bracelet diamond and a 5.73-carat diamond ring for
himself, to lease a 2019 Rolls Royce Wraith, to make loan payments, and to pay $ 40,000 for child support.

In September, Florida National Football League player Joshua Bellamy was accused for his alleged participation in a scheme to file fraudulent loan applications soliciting more than $ 24 million in repayable PPP loans. Last month, a man and woman from Texas were indicted by the DOJ, accused of filing hundreds of fraudulent EIDL requests.

Non-partisan government watchdogs have told Congress this is likely the tip of the iceberg. The SBA Inspector General’s office has received more than 150,000 complaints about potential loan fraud from these taxpayer-funded programs – 150 times more complaints than they usually receive in one. an, Ware said. They had to start using new data analytics technology just to look at complaints.

“It will take us months and years to get there,” said Horowitz.

In 2020 and 2021, the SBA has administered more than 8 million PPP loans to date totaling $ 718 billion, including more than 206,000 in New York. PPP is the popular small business forgive loan program created to help struggling businesses weather the pandemic.

The SBA moved quickly to get that money out, approving millions of loans within weeks of Congress approving the money. These funds are widely believed to have boosted the economy and kept unemployment from reaching even worse levels.

The program was so popular that Congress repeatedly voted to give more money and more time to accept loan applications to the SBA. On Thursday, the Senate voted 92-7 to allow the SBA two more months to accept P3 loans. The program will now expire on May 31.

But watchdogs, including William Shear, director of financial markets and community investments at the Government Accountability Office, have testified that the SBA has repeatedly ignored their warnings that PPP and EIDL programs are extremely vulnerable to fraud.

Ware testified that the SBA cut its standard fraud mitigation procedures before launching the programs to speed up the agency’s ability to distribute the money. Ware said his office offered the SBA “dozens” of recommendations to reduce the risk of program fraud and improve their internal controls, without compromising speed, and those recommendations have not been implemented.

Fraud checks were particularly weak for EIDL loans, Ware said. The SBA has approved more than 3.7 million EIDL loans totaling more than $ 200 billion, including more than 313,000 loans in New York. These loans are low-interest business loans that businesses will have to repay over time.

“It wasn’t taken that seriously,” Ware said of why the EIDL program had more fraud than PPP. The Inspector General found that the SBA under President Donald Trump had lowered normal anti-fraud guardrails and removed some procedures before launching this program.

The Treasury Department under Trump said any program of this size and launched with such speed would run into problems and work quickly to uncover them.

Representative Jim Clyburn, DS.C., chairman of the House Special Committee on the Coronavirus Crisis, berated the Trump administration for its lack of oversight on Thursday. Rep. Jim Jordan, R-Ohio, defended the PPP program as being very effective, said the fraud should be prosecuted, but spent much of his time highlighting what he considered to be another wrongdoing, including calling for Congressional hearings on Governor Andrew M. Cuomo’s nursing care. ordering from home and criticizing his decision to shut down businesses in the state.

During the hearing, Ware said identity theft is “possibly the most common underlying cause of fraud we’ve found in the EIDL program,” adding that they are now identifying other cases of theft. identity in the PPP program as well.

Rep. Jamie Raskin, D-Md., Told the committee that several voters received letters from the SBA about EIDL loans they never requested, only to later find their identities had been stolen.

Ware also described how people on the dark web contacted unwitting individuals, told them the government was giving them “free money,” encouraged them to apply, and then took some of the funds.

The SBA Inspector General also found that many cases of multiple EIDL loans made to “businesses” had the same email addresses, IP addresses, or physical addresses. They found loans that were sent to different bank accounts than those listed on the loan applications.

The inspector general said he also found that thousands of borrowers wrongly received more than one PPP loan payment from lenders.

Ware said he couldn’t rule out that the fraudulent borrowers were coordinating their activities with SBA employees or that the EIDL loans were obtained by foreign actors or minors.

Congress has allocated millions of dollars to help government inspectors general and the Government Accountability Office continue to monitor and investigate these pandemic and other programs.

President Joe Biden said in February he would step up oversight of the PPP loan program.

“I call on any inspector general of this program, with jurisdiction over this program, to closely examine these loans and report – publicly report on any problems they discover,” he said. “We will make sure every dollar is well spent.”

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