Financial technology companies that provided mutual aid to facilitate emergency loans in the early stages of the coronavirus pandemic defrauded the federal government of large sums of money, according to a report.
Congress report Cited by The Washington Post names at least three companies – Blueacorn, Womply and Kabbage – that have been pushing the government to keep the economy afloat when the COVID lockdowns begin in the spring of 2020.
The companies initially tasked PPP loan applicants with helping financial institutions with paperwork and handling emergency cash requests.
But firms are allegedly taking advantage of the lack of government oversight to squeeze more money out of the $800 billion Paycheck Protection Program (PPP).
Blueacorn, an Arizona-based fintech firm that “connects technology and financial expertise to help small businesses, independent contractors, sole proprietors and gig workers with their financial needs,” is alleged to have pressured credit checkers to “pass” on PPP loans . even if they seem dubious in nature.
According to The Washington Post, the company favored “VIPPP” clients who applied for the highest amount because it allowed them to collect larger brokerage fees at the expense of smaller businesses with greater needs.
The Post asked Blueacorn for comment.
According to The Washington Post, fintech company Kabbage, which was acquired by American Express, brushed off concerns raised by its employees that raised several red flags about potentially fraudulent loans.
One Kabbage employee told his boss in the early days of the pandemic that he was concerned that “the level of fraud we’re looking at is greatly underestimated.”
Senior officials at Kabbage allegedly ignored obvious signs of fraud, including false tax documents, inconsistent names and addresses on filings, stolen identities and grossly inflated profit margins.
Congressional investigators said they had received internal communications from senior Kabbage officials acknowledging the problematic nature of what they were doing, saying “the risk here is not ours — it’s the SBAs.” [sic] danger.”
The “SBA” stands for the Small Business Administration, which alleged that $4 billion in PPP loans were fraudulent.
The Post has reached out to Kabbage’s corporate parent, American Express, for comment.
KServicing, which oversaw Kabbag’s PPP loan portfolio following the acquisition of American Express, released a statement: “Kabbage [doing business as] KServicing is proud of the role it has played in supporting American businesses during the COVID-19 pandemic, which has resulted in nearly 300,000 small businesses receiving critical funding to keep their doors open and pay employees.
“Kabbage’s existing online lending platform has been able to process payday loan applications in a timely manner, in the midst of a national crisis and in light of ever-changing federal lending regulations,” the statement said.
“Karam conscientiously followed the applicable rules and regulations. Two and a half years later, Kabbage Paycheck Protection Program (PPP) remains committed to borrowers who used our services during that difficult time to obtain their loans.
The company added: “Kabbage has worked diligently with the Subcommittee to provide timely and transparent information while conducting this investigation.”
“Unfortunately, the report does a disservice to the American people by taking information out of context to reach a predetermined conclusion,” the company said.
“Given the turbulent times of the COVID-19 pandemic, the fintech community has played an important role in strengthening the US small business community, and we are proud to be a part of this initiative.”
Womply, another fintech firm that made nearly $2 billion in fees during the PPP, pocketed the money despite ignoring “widespread fraud,” according to congressional investigators.
Benworth, a Florida-based lender, alleged that Womply “put our company in a very bad position because of the high probability of fraud” on the loans it referred.
Another lender said Womply’s efforts to prevent fraud were “put together with duct tape and gum.”
Womply is also said to have wrongfully received $7 million in PPP loans in 2020 and 2021.
The Post asked Womply for comment.
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