Brown on Business
September 28 - October 4, 2020
Billions of dollars in Paycheck Protection Program funds appear to have found dirty hands
By Wesley Brown
wesley@dailydata.com
Even as the U.S. Treasury and Small Business Administrator have spent the last few months boasting about the efficiency and efficacy of the Paycheck Protection Program (PPP), there were already whispers in early April that the centerpiece relief program for the Trump administration’s $2.2 trillion COVID-19 relief effort was at high risk for fraud, waste, and abuse.
In the surreal time warp that makes months seem like years, Congress first established PPP within the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to provide $349 billion in forgivable loans to eligible small businesses and nonprofits to cover payroll, rent, and utility payments to help them survive the pandemic.
In April 2020, nearly two weeks after the first round of PPP funds were gobbled up by preferred corporate clients, dozens of public traded firms and companies that stretched the definition of small businesses, Congress expanded the program by an additional $321 billion.
By June, the Select Subcommittee held by the Democratic-controlled House of Representative launched an investigation into the Trump Administration’s implementation of the $670 billion program following reports that the program favored large, well-funded companies over struggling small businesses in underserved communities.
In response, the Treasury Department and SBA has produced detailed data on all 5.2 million loans approved by SBA as of Aug. 8, the last day of the program. What was found is not a pretty picture, considering that the pandemic is still ongoing, and many small businesses and nonprofits are still at risk of bankruptcy. Recent data also shows that some companies received the forgivable loans to keep workers on payrolls in the spring may still eventually have to lay off those workers before Christmas.
Among the many flags found by the Select Subcommittee staff, 10,856 loans were identified where the borrower received multiple PPP loans that totaled over $1 billion in outstanding loans. Of that total, only 65 were subject to additional scrutiny based on the administration’s stated plans to audit loans over $2 million, although CARES Act rules prohibited any companies from receiving more than one loan.
Congressional staff, among other things, also found 613 PPP loans, amounting to $96.3 million, provided to borrowers that were ineligible to receive PPP funds because they have been debarred or suspended from doing business with the federal government. Those same analysts found that SBA approved 353 PPP loans, amounting to approximately $195 million, to federal contractors previously flagged for performance or integrity issues.
At the same, another report by the SBA’s inspector general shows that thousands of mom-and-pop smalls businesses that received small PPP loans or were turned down are still struggling to stay afloat, particularly sole proprietors, entrepreneurs, gig employers, and businesses owned by minorities.
According to one recent study, more than 40% of Black business owners reported they were not working in April, compared to only 17% of White small business owners. Almost half of Black and Hispanic-owned small businesses still operating expect to close within six months if conditions do not improve, according to a recent survey released by the Global Strategy Group for Color of Change and Unidos.
Black and Hispanic-owned businesses also appear to be benefiting less from federal stimulus programs. In the same survey, only 12% of Black and Hispanic business owners said they received the full funding they had requested, while 26% said they received a fraction of the funding they had requested.
Instead, illegitimate businesses, publicly traded companies, foreign conglomerates and other dubious entities in Arkansas and across the U.S. appear to have found a federal cash jackpot, including $10 billion in PPP-related fees collected by SBA-backed banks and lenders that participated in the program.
Already, two Arkansans have been charged and arrested for fraudulently seeking to obtain millions of dollars and forgivable loans even before the program ended in early August. In one instance, a 32-old Northwest Arkansas man, who federal prosecutors described as a “project manager employed by a major retailer,” pleaded guilty to bank fraud charges for filing fraudulent PPP loan applications seeking more than $8 million.
As part of his guilty plea before U.S. District Judge Claire Eagan of the Northern District of Oklahoma, Benjamin of Centerton, Ark., admitted that he sought millions of dollars in forgivable PPP loans from multiple banks by claiming fictitious payroll expenses.
To support his applications, Hayford provided lenders with fraudulent payroll documents purporting to establish payroll expenses that were, in fact, non-existent. In addition, Hayford admitted to making false representations to a financial institution concerning the date that a limited liability partnership for which he applied for relief was established. Sentencing has been scheduled for Nov. 4 before Judge Eagan.
“Stopping COVID-related fraud is a priority for the Department of Justice. Fraudsters like Benjamin Hayford greedily stole money that should be going to America’s small business owners who are struggling during this public health crisis,” said U.S. Attorney Trent Shores for the Northern District of Oklahoma. “From coast to coast, U.S. Attorneys and our federal investigative partners will continue to pursue those who would defraud the government by engaging in schemes to steal millions of dollars in forgivable PPP loans by claiming fictitious payroll expenses.”
About a month after Hayford was charged by the federal grand jury in Tulsa, Okla., a Little Rock woman was arrested by federal officials who alleged she fraudulently obtained nearly $2 million in PPP loans. Cody Hiland, U.S. District Attorney for the Eastern District of Arkansas, and Diane Upchurch, Special Agent in Charge of the FBI Little Rock Field Office, indicted 41-year old Ganell Tubbs on allegations that she purported to own two businesses: The Little Piglet Soap Company, LLC, and Suga Girl Customs, LLC.
According to the Arkansas Secretary of State, neither business is in good standing with the state, and Tubbs’ residence and personal phone number listed as the business contact information. According to the federal indictment, Tubbs on April 30 submitted a PPP application representing that Suga Girl Customs had paid $1,385,903 in wages and compensation during the first quarter of 2020.
Amazingly, she was approved for a PPP loan of $1,518,887 and received the funds a week later. Two days later, federal filings show, she used the proceeds to make an $8,000 payment on her personal student loan. The following week, the indictment states, Tubbs spent nearly $6,000 in online purchases at retailers including Apple, Michael Kors, Sephora, Northface, Nike, and others.
Similarly, Tubbs submitted another PPP application on May 5, this time regarding The Little Piglet Soap Company. Based on the representations she made in the loan application, which the indictment alleges are not true, The Little Piglet Soap Company received a PPP loan for $414,375.
“These loans are meant to help small business owners who have suffered economically due to COVID-19 shutdowns,” said Hiland, “Hardworking Arkansans are at their best when they are free to keep their businesses open during this challenging time, and we will be diligent in investigating and prosecuting those who take advantage of these critical funds.”
The indictment, which was returned by a grand jury on July 7, charges Tubbs with two counts of bank fraud, two counts of making a false statement on a loan application, and one count of engaging in a monetary transaction with proceeds of unlawful activity.
“Numerous businesses across Arkansas are struggling to remain open during this COVID-19 pandemic, so our office has zero tolerance for anyone who fraudulently misuses federal funds intended to help companies weather this tough time,” said FBI SAC Upchurch.
As noted by federal prosecutors, Tubbs is presumed innocent unless and until proven guilty. Still, given the mountain of evidence in the House Select subcommittee report and other such prosecutions across the U.S, there are plenty other bad players in Arkansas and across the U.S. who thought the federal government was giving away free money.
Time will tell but let us just hope that is not the case.
