As pandemic rushes to Main Street, criminals seized PPP, EIDL

Korena Keys’ small business was hit hard when the pandemic first took hold last year.

Its digital media industry, KeyMedia Solutions in Sioux Falls, South Dakota, saw sales drop by 60% in May from the previous year. She was able to borrow $ 115,000 from the Small Business Administration’s Paycheck Protection Program to keep workers employed until things stabilized.

When Keys received paperwork from the SBA in January that an extra $ 150,000 loan had been taken out in the name of her business under the economic loan disaster program, she thought it might be a mistake.

“We have consciously decided not to apply for other assistance,” Keys said. “We thought these funds should be left behind for businesses that are not doing so well.”

Although she says she did not receive the funds, the loan is very regular and payments will start at nearly $ 800 a month in November. Keys said the loan was approved even though the application contained inaccurate details about her business, including an incorrect phone number, email address and financial information.

“The shock of it really turned to frustration and anger,” Keys said, adding that several other businesses in her community had similar stories of identity theft in these utilities.

She filed claims at the SBA’s office of Inspector General and his fraud department, but her responsibility has not yet been released, although she hopes things will be resolved before the loan is due. Hours were spent, harming her business, trying to get the loan right.

“It definitely caused sleepless nights,” she said. “Until it’s in writing, I’m always worried. It’s just going to hang over me until it’s finished.”

While the U.S. government and SBA rushed to get loans at the door of the pandemic last year, criminals took advantage of these tools and in some cases stole the identities of business owners to use the information to fraudulently lend. for profit. A recent analysis of SBA’s OIG project fraud within the Covid-19 small business programs could amount to $ 84 billion.

In all, the U.S. government has allocated more than $ 1 trillion in Main Street assistance through the Paycheck Protection Program and the Economic Loan Disaster Program. The PPP enables small businesses to borrow loans that can be forgiven if the borrower uses most of the capital on the payroll, while the Covid-19 EIDL program provides lenders with access to loans based on temporary loss of income if due to the pandemic. There was also an advance available under the EIDL.

OIG assesses both programs by the possibility of criminal exploitation due to the rapidly moving nature of the deployment and an unprecedented demand for assistance, and a recent memo from the House Select subcommittee on the Coronavirus crisis contains how widespread it can be . Up to $ 79 billion in potentially fraudulent EIDL loans and advances were made and up to $ 4.6 billion in potentially fraudulent PPP loans, the memo said.

1.34 million EIDL loans and grants from the SBA were sent to the OIG, including nearly 750,000 referrals for alleged identity theft and more than 585,000 referrals for other potentially fraudulent activities. Nearly 150,000 calls have been made to the SBA OIG about tips and complaints regarding possible fraud – an increase of 19,500% over previous years, according to the memorandum.

The Justice Department has raised $ 626 million in funds seized or forfeited as a result of civil and criminal investigations into the EIDL and PPP, the subcommittee’s March analysis said. The group’s report points its finger at the Trump administration for refusing to introduce “basic controls” in earlier reruns of the aid programs last year.

In a statement to CNBC, the SBA says the Biden government is taking its responsibility seriously to protect taxpayers’ dollars and prevent fraud, waste and abuse in federal programs.

“In recent months, new improved checks have been introduced to mitigate the validation of the system used to prevent fraud in the Disaster Relief and Wage Protection Program,” he said. “In the case of suspected fraud, SBA now coordinates with the office of the Inspector General, the Department of Justice and other law enforcement agencies to share information and support criminal investigations.”

“While the agency does not comment on individual lenders, the lessons learned from these coordinated efforts with federal partners help inform and strengthen internal controls,” he added.

Some victims of fraud under the program did not even have small businesses last year.

Max Hebert is a Marine Corps Reserve veteran and is currently in the National Guard. He also does grocery deliveries for Walmart. Last summer, at home in Eau Claire, Wisconsin, he received a notice by mail after being deployed to the National Guard in Ukraine. In the letter, his name was misspelled as “Max Herbert”, who informed him that an EIDL had been taken out in his name for $ 45,000 – more money than he earned in a year.

Hebert, who more than a decade ago owned a state-owned LLC business that he never used for a business, says he called the SBA and spoke to a customer service representative who let him know the bill would be marked. He also went to IdentityTheft.gov to submit a report that his identity had been stolen and also issued to the SBA OIG.

“When I spoke to the SBA agent by telephone, he confirmed that they had my social security number, they had my address, they had enough information about me to fill out all this paperwork,” Hebert said, adding that he was caught. in many phone loops to get to the right person to report the crime.

Hebert said he also sought advice on Reddit from other victims. After completing the report about five months ago, he recently followed up on the SBA and was told that his loan had been suspended and identified as potentially fraudulent – progress, but no solution.

But Hebert received a letter saying he would have to start paying $ 220 a month from July.

“There’s no good way I’m going to pay for it,” he said. “I’m worried about what it’s going to do if I do not get it resolved. For example, are they going to try to seize my tax return by the next tax season? Are they going to decorate my salary if I do not?” resolve the situation in time? ‘

Richard Clarke, a police detective in Lauderhill, Florida, told CNBC his department recently arrested 32-year-old Xavier Taylor. While officers responded to a call, they realized that Taylor had a warrant for his arrest from August because he allegedly defrauded the SBA by stealing the identity of a business owner.

According to the warrant, Taylor was able to gain access to $ 81,100 per PPP. He is accused of taking the information from a business owner, requesting the loan and transmitting the owner’s email address to his own. Taylor declined to comment, but pleaded not guilty to charges of fraud.

“It seems ridiculously easy. Based on my experience, many people, especially since Covid and the PPP loans, have taken advantage of the lapses in the system to personally benefit from loan applications – misleading or by using information from other people. “I hope there will be proper care in certifying, checking and qualifying to be recipients of this business loan,” Clarke said. “

Back in Wisconsin, Hebert said he is confident his situation will be resolved, though it may take time and work. But beyond his concerns about his personal information, he is simply disappointed that the program was used in this way.

“The biggest thing for me is that in a time when all Americans are struggling, someone would benefit and do all this dishonest thing to take money needed to go to small businesses that are really struggling right now,” he said. .