Lending platform Kabbage issued PPP loans worth $7 million to fake recipients: report
Over 75% of all PPP applications approved by Kabbage in August were processed without human intervention or manual review
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About 378 small business loans from the Paycheck Protection Program totaling $7 million were given to fake entities, the majority of which were posing as farms, according to a new report by ProPublica.
ProPublica says the loans were disbursed through a fintech lending platform launched in 2009 called Kabbage, which processed nearly 300,000 Paycheck Protection Program loans before the first round of funds ran out in August 2020, second only to Bank of America.
The Atlanta-based company said in August that its PPP loan average was $23,546, with 50% of all loans under $12,775. In addition, Kabbage said that over 75% of all approved applications and more than 90% of self-employed applications were processed without human intervention or manual review.
Some of the fake names that obtained loans through Kabbage include supposed New Jersey sites, "Ritter Wheat Club," which claims to be a wheat farm in Barnegat, and "Deely Nuts," which claims to be a tree nut farm in Beach Haven. The entities each reportedly received $20,833, the maximum amount available for sole proprietorships. Meanwhile, "Tomato Cramber" in Brielle received $12,739 from the PPP program, while a company called "Seaweed Bleiman" in Manahawkin received $19,957, and a cattle ranch called "Beefy King," falsely registered in PPP records under the address of Long Beach Township Mayor Joe Mancini, got $20,567.
Other fake businesses used addresses of individuals who legitimately applied for PPP loans, such as Hartington, Nebraska, anesthesiologist Bruce Reifenrath, who received a loan for his practice in nearby Yankton, South Dakota, and the president of the Bank of Hartington, J. Scott Schrempp. Their addresses were used to obtain loans for a fake potato farm and fake strawberry farm, which received $20,254 and $19,829, respectively. Schrempp told ProPublica he had noticed the fake loan and reported it to the SBA.
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The SBA’s inspector general estimated in January that the agency approved about 55,000 loans totaling approximately $7 billion that were given to potentially ineligible businesses.
The report noted that lenders approved more than $402 million in PPP loans to approximately 5,000 potentially ineligible businesses. Approximately 2,900 of the 5,000 approved loan recipients had registered their taxpayer identification numbers after the enactment of the CARES Act. The agency said multiple borrowers of the 5,000 identified loans have since been arrested or are under active investigation.
Meanwhile, more than 43,000 PPP loans totaling $11.7 billion were found to have exceeded the per-employee maximum loan amount by approximately $3.7 billion.
"Our analysis showed more than 6,000 additional loans initially exceeded the maximum loan amount per employee," the inspector general's office said. "Lenders reduced, or canceled, approximately $1.7 billion of these loans because of potentially erroneous initial approval amounts."
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Shortly after the loan application period for the first round of the PPP closed on Aug. 8, American Express announced that it had entered into an agreement to acquire Kabbage.
However, an American Express spokesperson told FOX Business that the transaction did not include the business that managed Kabbage Inc.'s PPP loan portfolio. Instead, the PPP loans are managed under a new separate entity known as K Servicing, which has no affiliation to the bank.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| AXP | AMERICAN EXPRESS CO. | 301.35 | +8.44 | +2.88% |
Reuters reported earlier this month that the U.S. Department of Justice had launched a probe into Kabbage and other fintech leaders, investigating whether the companies miscalculated how much aid borrowers were entitled to under the PPP program due to "confusion over how to account for payroll taxes," citing sources familiar with the matter.
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The DOJ has named Kabbage at least twice in cases of fraudulent PPP applications, including one case involving two loans worth $1.8 million to businesses that submitted forged information, and another involving a business that had inflated its payroll numbers and submitted a similar application to U.S. Bank, which notified authorities.
Kabbage also faces a lawsuit filed in August by South Carolina accounting firm Ratliff CPA, which alleges the company refused to pay agents at the firm who helped process PPP loan applications. The SBA notes that lenders processing PPP loans would receive a 5% fee on loans of $350,000 and under, 3% for loans of more than $350,000 and less than $2 million, and 1% for loans of at least $2 million, though they were prohibited from collecting fees directly from PPP applicants.
In addition, a counterclaim has been filed by JPMorgan Chase against Kabbage and a Florida woman, Loyota Clark, after Clark received more than $1 million in in PPP loans to three businesses. Clark had sued JPMorgan after the bank froze her accounts when they discovered that her businesses were not incorporated before the Feb. 15, 2020, cutoff date for the PPP program. According to ProPublica, Kabbage said in a response that it had not yet completed its investigation of the incident.
Representatives for K Servicing, the Small Business Administration, and the Department of Justice did not immediately return FOX Business' requests for comment on ProPublica's report.