Small Business Loan Program Was Full Of Frauders, And We Need Another

With Mitch McConnell still devoted to blocking any new economic stimulus deal because he wants to make COVID-19 lawsuits impossible, the New York Times examines some of the ways bad actors glommed on to the last big stimulus, because that's what fraudsters do. The CARES Act's small business loans, aka the Paycheck Protection Program, made $523 billion available to companies so they could avoid layoffs, and that's one of the reasons that, bad as the pandemic downturn was, it hasn't yet turned into an outright depression. But wherever there's government spending, there's fraud, because as bank robber Willy Sutton said, "that's where the money is."

The Times article isn't even about the great big corporations that benefited from PPP's very loose definition of "small business," although roughly half of the funds ended up going to big, publicly traded companies. That may have been sleazy, but it appears to have been legal. Instead, the Times focuses on cases of outright fraud, noting that months after the program expired,

investigators and lawmakers have only scratched the surface of schemes that illicitly tapped its forgivable loans. The program's hastily drafted and frequently revised rules, its removal of normal lending guardrails and governmental pressure to swiftly approve applications created the ideal conditions for thievery to thrive.

The House Select Subcommittee on the Coronavirus Crisis, the piece notes, has identified iffy loans that amount to over $4 billion dollars, and bankers told the Times they thought the total was even higher. Yes, that's a heck of a lot of money, but in the big picture, it's also less than one percent of the $523 billion lent out through PPP. It reflects a basic fact: Whenever the US government offers a big pot of money to help people, bad actors will try to scam the system for all they can get. There are literally hundreds of investigations into fraud being conducted by a whole bunch of federal agencies, which means that "a program that offered borrowers a few months of relief will spark years of court actions."

On the other hand, for all its problems, the PPP program, coupled with those $1,200 stimmy checks and emergency unemployment payments, kept the economy from falling off a cliff altogether. (Wonkette's parent company, Commie Girl Industries, received a PPP loan and, Rebecca reports, "liked it very much, thank you, and did not fraud anyone.") So you can definitely argue we need more stimmy ASAP, and that some fraud is basically the price of saving the economy. But damn, it's annoying what scammers tried to get away with:

In more than a dozen interviews, bank executives described the fraudsters' methods. Many attempts were lazy and unsophisticated, like listing employees who all made the same salary. Others had many employees collecting a monthly paycheck of $8,333, reflecting a $100,000 salary, the largest that a Paycheck Protection Program loan could be used to subsidize.

Fabricated documents were also common: doctored payroll lists, faked business tax returns and modified bank statements. One lender, who asked for anonymity to describe her company's security measures, used a software tool to detect alterations on PDF files; it flagged thousands of forgeries.

And, in what might just as well be a profile of Scammer-in-Chief Donald Trump, the piece notes that when bankers followed up with questions about dubious information, "the applicants who were angriest about being questioned were the ones most likely to be scammers," at least according to the bank execs.

For our money (earned honestly, goddamn it), the best insight on the whole mess comes from Tom Miller, chief executive of a risk-management tech outfit called Clearforce:

Any time the government is pushing out that magnitude of government assistance, in such a short period of time, at such large scale, it's going to invite criminals and fraudsters and bad guys who are trying to get their hands on it[.]

Part of the problem is that the central goal of PPP was to get money out to small businesses quickly, to prevent them from going belly-up. That meant the loans were, by design, fairly easy to apply for, requiring borrowers to pinky-swear that "current economic uncertainty makes this loan request necessary." Applicants didn't have to demonstrate they'd actually lost business, and banks processing the loans, backed by the Small Business Administration, didn't have to require the careful eligibility checking companies would need for regular business loans.

The point was to inject money into the economy, and to look for fraud later, because emergency, which makes a kind of sense, although for future rounds of stimmy we really would prefer some kind of guarantee that government money not go to big corporations that already have access to credit. Fraud is bad, but the far greater scandal with PPP was that so much of the money was hoovered up by big, generally sound companies that already had done business with banks, leaving a lot of smaller and minority-owned businesses out of the running. Guaranteeing access for lending-disadvantaged communities, we'll add, was yet another feature of the House Democrats' HEROES Act, which passed in GODDAMN MAY and never got a hearing in the Senate. Let's do more PPP and make sure more of it gets to actually small businesses, not local branches of giant companies.

As for the frauders, the investigations are ongoing, and more are likely to be caught next year when it's time for businesses to either apply for loan forgiveness or start paying back the loans, the Times notes: "Many scammers will simply default; others may be caught when they file a forgiveness application that is reviewed by both the lender and the government."

Not too surprisingly, despite the fraud, some of which banks may be stuck with, most bankers want to see another round of PPP, as Ira Robins, CEO of Valley National Bank, told the Times:

There's more fraud associated with unemployment payments, and no one is talking about closing the unemployment program. [...] There's a huge need for more stimulus, and over all, I think the government did a really good job in the speed with which they got this aid out.

It's pretty classic utilitarianism: You have to put up with some assholes to keep the system operating.

All we could think of while reading the article was the opening scene of "The Wire," in which a witness to a murder explains to Baltimore PD Detective Jimmy McNulty that players in a weekly craps game tolerated the deceased, a guy nicknamed Snot Boogie, even though he almost always made a grab for the pot.

It was a pain in the ass, but absolutely nothing worth killing Snot Boogie over:

McNulty: If Snot Boogie always stole the money, why'd you let him play?

Witness: Got to. This America, man.

[NYT / Inc]

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Doktor Zoom

Doktor Zoom's real name is Marty Kelley, and he lives in the wilds of Boise, Idaho. He is not a medical doctor, but does have a real PhD in Rhetoric. You should definitely donate some money to this little mommyblog where he has finally found acceptance and cat pictures. He is on maternity leave until 2033. Here is his Twitter, also. His quest to avoid prolixity is not going so great.


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