Aid brought out scam artists
Government’s virus relief made grifters creative and, in some cases, successful
Chris Hurn wasn’t surprised scammers were trying to get government money. An enormous relief effort like the $523 billion Paycheck Protection Program is bound to attract grifters.
As thousands of applications for government-backed loans flooded into his firm, Fountainhead Commercial Capital, it reported at least 500 suspicious cases to federal officials, Hurn said. But what shocked him was the brazen glee of the scammers who got money anyway.
At least a dozen times, “someone tried to defraud us, got turned down and then followed up to taunt us that they got their loan,” said Hurn, Fountainhead’s chief executive.
Four months after the federal government’s signature coronavirus relief program for small businesses 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.
“We couldn’t believe how many people were trying to take advantage and game the system,” said Hurn, whose firm made more than 8,000 loans. “A lot of my employees, including me, were a little frustrated with humanity.”
The Justice Department has brought criminal charges against more than 80 people accused of stealing at least $127 million from the relief program, but there’s far more to uncover. The House Select Subcommittee on the Coronavirus Crisis said it had identified more than $4 billion in potentially improper loans, and some bankers believe the total will be much higher.
A Small Business Administration fraud hotline that took in 742 complaints in 2019 has received more than 100,000 this year. And there are hundreds of active investigations across more than a dozen government agencies, meaning a program that offered borrowers a few months of relief will spark years of court actions.
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.
Some fraud was inevitable, experts said.
The Treasury Department, which gave banks crucial technical guidance about the program just hours before lending began in early April, urged banks to turn loans around within hours.
To entice lenders to participate, the government allowed them to rely on borrowers’ certifications that they were eligible for a loan and had provided accurate information. So the kind of deep vetting that normally accompanies business loans, including otherwise routine eligibility checks, is being done only now.