While pandemic relief was rushed to Main Street, criminals seized PPP, EIDL

Korena Keys’ small business was badly hit when the pandemic first broke out last year.

Its digital media company KeyMedia Solutions in Sioux Falls, South Dakota saw its revenue drop 60% in May from the previous year. She was able to get a loan from the Small Business Administration’s Paycheck Protection Program of $ 115,000 to keep employees in work until business stabilized.

So when Keys received paperwork from the SBA in January that an additional $ 150,000 loan had been taken out in the name of her company under the Economic Injury Disaster Loan program, she thought it might be a mistake.

“We had made a conscious decision not to request any other assistance,” Keys said. “We thought that those funds should be left to companies that were not doing very well.”

Although she says she did not receive the money, the loan is very real and payments of nearly $ 800 a month will begin in November. The loan was approved, Keys said, even though the application contained inaccurate details about her business, including a wrong phone number, email address, and financial details.

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

She has filed claims with the SBA’s Office of Inspector General and her fraud department, but her responsibility has not yet been cleared, although she hopes things will be resolved before the loan expires. Hours have been spent, which detracted from her business, trying to pay off the loan.

“It must have caused sleepless nights,” she said. Until it’s put in writing, I always worry. It will just hang over me until it is completed. ‘

While the U.S. government and SBA rushed to get loans out of the door for businesses ravaged by the pandemic last year, criminals took advantage of these tools, in some cases stealing the identities of business owners to use that information to make money. fraudulently obtain loans for profit. A recent analysis of the OIG projects of SBA’s fraud within the Covid-19 small business programs could amount to $ 84 billion.

In total, the U.S. government has allocated more than $ 1 trillion in Main Street aid through the Paycheck Protection Program and the Economic Injury Disaster Loan Program. The PPP allows 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 gives borrowers access to loans based on temporary loss of income due to the pandemic. An advance was also available under the EIDL.

Reviews of both programs by the OIG warned of the potential for criminal exploitation due to the fast-moving nature of the rollout and unprecedented demand for help, and a recent memo from the House Select Subcommittee on Coronavirus Crisis shows how widespread this can be. As much as $ 79 billion in potentially fraudulent EIDL loans and advances were provided and up to $ 4.6 billion in potentially fraudulent PPP loans were provided, the memo said.

1.34 million EIDL loans and grants have been sent from the SBA to the OIG, including nearly 750,000 referrals for suspected identity theft and more than 585,000 referrals for other potentially fraudulent activity. There have been nearly 150,000 hotline calls to the SBA OIG about tips and complaints about potential fraud – that’s a 19,500% increase from previous years, the memo said.

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

In a statement to CNBC, the SBA said the Biden administration takes its responsibility seriously to protect taxpayers’ money and prevent fraud, waste and abuse in federal programs.

“In recent months, new, improved controls have been introduced to intensify the system validations used to reduce the occurrence of fraud in the disaster loan and paycheck economic damage programs,” he said. “In cases of suspected fraud, SBA works closely 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 borrowers, the lessons learned from these coordinated efforts with federal partners help inform and strengthen internal controls,” it added.

Some fraud victims under last year’s program don’t even own a small business.

Max Hebert is a veteran of the Marine Corps Reserve and is currently in the National Guard. He also provides grocery delivery services for Walmart. Last summer, he received a message in the mail at home in Eau Claire, Wisconsin, after serving with the National Guard in Ukraine. In the letter, his name was misspelled as “Max Herbert,” alerting him to an EIDL in his name for $ 45,000 – more money than he makes in a year.

Hebert, who has a state-registered LLC from more than a decade ago that he never used for a business, says he called the SBA and spoke to a customer service representative who informed him that the account would are highlighted. He also went to IdentityTheft.gov to file a report that his identity was stolen and also contacted the SBA OIG.

“When I spoke to the SBA agent on the phone, 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 had been caught . in many phone loops trying to find the right person to report the crime.

Hebert said he also took advice on Reddit from other victims. After filling out the report some five months ago, he recently contacted the SBA and was told his loan was on hold and flagged as potentially fraudulent – progress, but no resolution.

But Hebert has received a letter saying that he will have to start paying a loan of $ 220 a month from July.

“There’s no right way I’m going to pay for that,” he said. “I’m worried about what that will do if I don’t get it resolved. For example, will they try to seize my tax return by next tax season? Will they decorate my pay slip if I don’t? Fix the situation in time?”

Richard Clarke, a police detective in Lauderhill, Florida, told CNBC that his department had recently arrested 32-year-old Xavier Taylor. While agents responded to a call, agents realized that Taylor had issued an arrest warrant as of August for alleged plans to defraud the SBA by stealing the identity of a business owner.

According to the warrant, Taylor was able to access $ 81,100 through the PPP. He is accused of taking a business owner’s information, applying for the loan, and transferring the owner’s mailing address to his own address. Taylor declined to comment through his attorney but has pleaded not guilty to multiple felony fraud charges.

“It seems ridiculously simple. Based on my experience, many people, especially since Covid and the PPP loans, have taken advantage of the flaws in the system to personally take advantage of applying for loans – either in a deceptive way or by leveraging the information of others, “Clarke said.” I hope due diligence will be taken in certifying, auditing and qualifying individuals to receive these business loans.

Back in Wisconsin, Hebert said he is confident his situation will be resolved, although it may take time and work. But aside from his concerns about his personal information being compromised, he’s just disappointed that the program was used in this way.

“The biggest thing for me is that at a time when all Americans are struggling, someone would take advantage and do all these unfair things to try and attract money to go to small businesses that are really struggling right now,” he said.