The United States claimed that Kabbage was informed of these mistakes as far back as April 2020, but failed to rectify all inaccurate loans that were already issued and proceeded to authorize more loans with errors.
The Justice Department has reported that the now-insolvent financial technology firm Kabbage Inc., operating as KServicing, has agreed to settle accusations of violating the False Claims Act (FCA) by intentionally submitting numerous false claims for loan forgiveness, loan guarantees, and processing fees to the U.S. Small Business Administration (SBA) while participating in the Paycheck Protection Program (PPP).
Kabbage is currently in the process of winding down its operations under the name KServicing Wind Down Corp. following its Chapter 11 bankruptcy filing in the District of Delaware in October 2022. As part of the settlement disclosed, the United States will be entitled to a general unsecured claim in the bankruptcy case.
The resolution disclosed addressed two distinct violations reportedly carried out by Kabbage which led to the submission and payment of fraudulent claims. Initially, it was claimed by the United States that Kabbage systematically exaggerated tens of thousands of PPP loans, leading to the SBA guaranteeing and forgiving loans in excess of what borrowers were entitled to receive according to program regulations.
The settlement revealed dealt with two separate infractions purportedly committed by Kabbage that led to the submission and payment of inaccurate claims. Initially, the United States alleged that Kabbage systematically inflated tens of thousands of PPP loans, causing the SBA to guarantee and forgive loans in amounts that exceeded what borrowers were eligible to receive under program rules.
In the settlement agreement, KServicing Wind Down Corp. has accepted responsibility for the following:
(1) including state and local taxes paid by employees twice in the gross wages calculation;
(2) not excluding yearly compensation exceeding $100,000 per employee
(3) inaccurately computing employer payments for leave and severance.
The United States claimed that Kabbage was informed of these mistakes as far back as April 2020, but failed to rectify all inaccurate loans that were already issued and proceeded to authorize more loans with errors.
“Today we are sending a clear message that compliance with program rules is non-negotiable, especially when supporting the nation’s small businesses during the pandemic,” said Assistant Inspector General for Investigations Shafee Carnegie of the SBA Office of Inspector General. “This settlement highlights our dedication to preserving the integrity of the PPP and holding entities accountable for misusing taxpayer-funded programs. I want to thank the Justice Department and our law enforcement partners for their support and commitment to pursuing justice in this case."
Furthermore, the United States has accused Kabbage of deliberately disregarding its obligations under the PPP and BSA/AML regulations by failing to implement effective fraud controls. Specifically, it is alleged that Kabbage intentionally eliminated certain underwriting procedures in order to expedite the processing of a larger volume of PPP loan applications and increase processing fees. The government also claims that Kabbage knowingly established inadequate fraud check thresholds, despite being aware of the SBA's concerns regarding potential fraudulent borrowers taking advantage of the PPP.
Additionally, Kabbage is said to have relied on insufficient automated tools for fraud detection, allocated insufficient personnel for fraud reviews, discouraged its fraud reviewers from requesting necessary information from borrowers to verify their loan requests, and submitted thousands of PPP loan applications to the SBA that were either fraudulent or highly suspicious for fraud.
According to the press release, as a component of the government's settlement of these assertions, the government shall be entitled to a maximum allowed, unsubordinated, general unsecured claim in the bankruptcy case, amounting to $120 million. The government's recovery on this claim will be contingent upon the final sum of assets accessible to the bankruptcy estate for allocation to unsecured creditors. Additionally, the settlement includes a provision granting Kabbage Inc. a credit of $12.5 million for reimbursements previously refunded to the SBA during the department's inquiry into the alleged wrongdoing.
“It is imperative that entities like Kabbage, which cause harm to federal programs for their own profit, face the consequences of their actions,” said Executive Assistant Director Timothy Langan of the FBI’s Criminal, Cyber, Response and Services Branch. “The FBI and our partners will continue to relentlessly pursue companies that are unwilling to comply with requirements in accordance with the law.”
The resolution addressed claims that were raised under the qui tam or whistleblower provisions of the False Claims Act in two separate cases. One case involved an accountant who submitted PPP loan applications to Kabbage and other lenders, while the other case involved a former analyst in Kabbage's collections department.
According to the Act, a private individual has the right to bring a lawsuit on behalf of the United States and is entitled to a percentage of any funds recovered.” The qui tam cases are captioned U.S. ex rel. Berteletti v. Kabbage, Inc., et al., No. 1:20-cv-12114 (D. Mass.), and U.S. ex rel. Pietschner v. Kabbage, Inc., et al., No. 4:21-cv-110-SDJ (E.D. Tex.).”
The Small Business Administration (SBA) administers the Paycheck Protection Program (PPP), which was established by Congress in March 2020 as a component of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its purpose was to offer federally guaranteed loans to small businesses that have been adversely affected by the COVID-19 pandemic. Under the CARES Act, private lenders were given the authority to approve PPP loans for eligible borrowers. These borrowers potentially had their loans forgiven if they utilize the funds for eligible expenses, including employee payroll.
“The PPP was intended to provide critical assistance to businesses to alleviate the economic challenges imposed by the pandemic,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division. “The department is committed to holding accountable lenders that knowingly contributed to the misuse of such funds by approving PPP loans for ineligible borrowers or otherwise failing to comply with applicable program requirements.”
PPP lenders had to verify borrowers' payroll expenses and comply with BSA/AML regulations. If lenders followed PPP requirements, SBA guaranteed loans that were not forgiven or defaulted. Lenders were compensated with a fee based on a percentage of the loan amount.
“When the nation was facing a pandemic-induced crisis, Kabbage received tens of millions of dollars through the PPP to help lend taxpayer funds to businesses in need. Instead of safeguarding those funds, Kabbage doled out inflated and fraudulent loans, in an effort to maximize its profits,” said Acting U.S. Attorney Joshua S. Levy for the District of Massachusetts.
“Then, Kabbage sold its assets and left the remaining company so low on cash that it ultimately went bankrupt, leaving taxpayers to take the loss for Kabbage’s conduct. This office will continue pursuing any company or individual, like Kabbage, that took advantage of the PPP.”
THANK YOU FOR YOUR TIME
DISCLAIMER
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of The Steven Wick Blog. Any content provided by our bloggers or authors are of their opinion and are not intended to malign any religion, ethnic group, club, organization, company, individual or anyone or anything.
If you decide to purchase any item using our authorized referral/affiliate links, be aware, we may receive a portion of the sales as commission, i.e. if you purchase a product/service.
To shop, select or click buttons, links or images, you will be redirected to product pages. Please, carefully research before you purchase. Feel free to share and leave a comment, we would love to hear from you. Your feedback is very important to us.
For more like this, music, literature, news, fashion, savvy political commentary, and fascinating features, sign up for the Steven Wick News Letter.
We here at the Steven Wick Blog are so proud of our work, we’d like to thank you for being a part of our community. However, our mission to share so much from music, literature, lifestyle to fashion is a 24/7 undertaking! We need your help to continue our work. Your financial donation will help us not only keep the lights on, but enable us run many more stories in the future to come. DONATE HERE
Message Of Gratitude
We deeply appreciate your contribution in making our blog the top brand among customers.
Without you as our readers, we wouldn't have achieved this level of success. Your satisfaction is our utmost priority, and we assure you that we will always be a reliable source for your entertainment needs.
Your trust in us is invaluable, and we are grateful for your generous donations as our readers.
A number of you took an extra effort and opted to contribute as monthly donors. By doing so, your generous contribution is multiplied by twelve throughout the year, thereby amplifying the impact you have on our work. Your dedication truly makes a significant change, and we sincerely appreciate your valuable support.
Your support has been instrumental in our brand's success.
Thank you for being with us throughout the past year.
As we continue to grow and enhance our business, we pledge to prioritize your needs and interests.
Best Regards
The Steven Wick Team
Comments