Financial tech companies that were acting as go-betweens to facilitate the issuance of emergency loans during the early stages of the coronavirus pandemic defrauded the federal government out of large sums of money, according to a report.
A congressional report cited by The Washington Post names at least three companies — Blueacorn, Womply and Kabbage — that are alleged to have bilked the government as it frantically sought to keep the economy afloat at the start of the COVID lockdowns in the spring of 2020.
The companies were initially tasked with helping PPP loan applicants file paperwork with financial institutions and process requests for emergency cash.
But the firms are alleged to have taken advantage of the lack of governmental oversight to squeeze more money out of the $800 billion Paycheck Protection Program (PPP).
Blueacorn, the Arizona-based fintech firm that “connects technology and financial expertise to help small businesses, independent contractors, self-employed individuals and gig workers with their financial needs,” is alleged to have pressured loan reviewers to “push through” PPP loans even if they seemed dubious in nature.
The company is alleged to have preferred “VIPPP” clients who submitted applications for the highest amounts because it allowed them to collect bigger brokerage fees at the expense of smaller businesses who were in greater need, according to The Washington Post.
The Post has sought comment from Blueacorn.
Kabbage, a fintech company that was bought by American Express, allegedly brushed off concerns voiced by its own employees who raised several red flags about potentially fraudulent loans, according to The Washington Post.
One Kabbage employee told their supervisor in the early days of the pandemic that they were concerned that the “level of fraud we’re reviewing is wildly underestimated.”
The higher-ups at Kabbage are alleged to have ignored obvious signs of fraud including incorrect tax documents, names and addresses that didn’t match on applications, stolen identities, and wildly exaggerated profit margins.
Congressional investigators said they obtained internal messages in which senior Kabbage officials acknowledged the problematic nature of what they were doing, adding that “the risk here is not ours — it is SBAs [sic] risk.”
“SBA” stands for the Small Business Administration, which estimated that as much as $4 billion worth of PPP loans were fraudulent.
The Post has sought comment from Kabbage’s corporate parent, American Express.
KServicing, which oversaw Kabbag’s PPP loan portfolio after the American Express acquisition, released a statement which read: “Kabbage [doing business as] KServicing is proud of the role it played in supporting American businesses during the COVID-19 pandemic, which resulted in almost 300,000 small businesses receiving critical financing to keep their doors open and employees paid.”
“Kabbage’s existing online lending platform was able to process the sudden flood of loan applications, in a timely manner, in the midst of a national crisis and in light of ever-changing federal lending rules,” the statement read.
“Kabbage adhered to the applicable rules and regulations in good faith. Two and half years later, Kabbage remains committed to the borrowers who used our services during that difficult time to access Paycheck Protection Program (PPP) loans.”
The company added: “Kabbage worked diligently with the Subcommittee to provide timely and transparent information as they engaged in this investigation.”
“Unfortunately, the report does the American people a disservice by parsing bits of information out of context to reach a predetermined conclusion,” the company said.
“Looking back on the tumultuous time of the height of the COVID-19 pandemic, the fintech community played a vital role in helping bolster the US small business community and we are proud to have been part of that endeavor.”
Another fintech firm, Womply, which earned some $2 billion in fees during the course of PPP, pocketed the money despite ignoring “rampant fraud,” according to congressional investigators.
A Florida-based lender, Benworth, alleged that Womply had “placed our company in a very bad predicament due to the high likelihood of fraud” in the loans that it referred.
Another lender said Womply’s attempts to prevent fraud amounted to efforts that were “put together with duct tape and gum.”
Womply is also alleged to have improperly received $7 million in PPP loans in 2020 and 2021.
The Post has sought comment from Womply.
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