A financial technology lending company will pay up to $120 million for knowingly submitting or causing to be submitted false claims relating to Paycheck Protection Program (PPP) loans to the Small Business Administration (SBA). As a participating PPP lender, Kabbage, Inc. d/b/a KServicing and now represented as KServicing Wind Down Corp., a lender that filed for Chapter 11 bankruptcy, approved PPP loans, authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act to assist small businesses facing financial hardships due to the COVID-19 pandemic. The settlement in this case concludes two separate actions brought by two separate whistleblowers, who received awards for their efforts.
The first settlement resolves allegations that Kabbage systematically exaggerated the amounts of tens of thousands of PPP loans, resulting in the SBA guaranteeing and forgiving loan amounts substantially more than what borrowers were entitled to receive according to program regulations. KServicing Wind Down Corp. admitted that Kabbage tampered with wage calculations, counting state and local taxes paid by employees multiple times in their calculation of wages and improperly included wages that exceeded $100,000. Kabbage also deliberately manipulated the calculations of payments made by employers for leave and severance. Kabbage allegedly knew of these errors since April 2020 but did not make any corrections on the loans dispersed. For this conduct, Kabbage will owe up to $63.2 million, but received a $12.5 million credit for returning payments to the SBA during the investigation of these claims.
The second settlement resolves claims that Kabbage knowingly skirted obligations to implement and oversee fraud controls in compliance with PPP guidelines and eliminated underwriting measures from its pre-PPP procedures to fast-track a larger volume of PPP loan applications and increase processing fees. The United States further alleged that Kabbage’s fraud checks were knowing weak despite being aware of the SBA’s concerns regarding the potential for borrowers exploiting the PPP. They did not designate proper amounts of personnel to examine potential fraud, instead using automated tools that could not properly identify fraud. The personnel that were assigned to review loan requests were discouraged from requesting more information from potential borrowers to verify their loan requests, resulting in thousands of suspicious or fraudulent PPP loan applications. This settlement allows the government to recover up to $56.7 million.
The United States Attorney for the Eastern District of Texas remarked:
Lenders who participated in PPP were trusted on their word that they would comply with PPP requirements and do their part in safeguarding taxpayer funds from fraudsters … PPP lenders who broke that trust should be held accountable, as they ignored signs of fraud, and chose profit at the expense of taxpayers and struggling small businesses badly hit by the COVID-19 pandemic.
The qui tam suits were brought by two separate whistleblowers, one by an accountant who submitted PPP loan applications to Kabbage, and the other by a former Kabbage legal analyst. The relators were rewarded $250,000 and $2,243,750 respectively for their important work in helping to hold Kabbage accountable and recouping taxpayer dollars. The COVID-19 pandemic deeply impacted millions of taxpayers and businesses in America. Whistleblowers are the body politic’s only defense against the virus of fraud.
If you would like to report CARES Act or other government programs fraud, you can contact attorneys at Tycko & Zavareei LLP. Eva Gunasekera and Renée Brooker are former officials of the United States Department of Justice and prosecuted whistleblower cases under the False Claims Act. Renée served as Assistant Director at the United States Department of Justice, the office that supervises False Claims Act cases in all 94 United States District Courts. Eva was the Senior Counsel for Health Care Fraud. Eva and Renée now represent whistleblowers. For a free consultation, you can contact Renée at [email protected] (tel.: 202-417-3664) or contact Eva Gunasekera at [email protected]. You can also go to Tycko & Zavareei LLP’s website for whistleblowers to learn more at www.fraudfighters.net.