A Department of Justice case against a New York lender for Payroll Protection Program fraud is being seen as the first wave of new federal indictments against both bank and non-bank PPP lenders.
Established in early 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act, the PPP program was designed to help small businesses meet their monthly payroll costs as they weathered the economic impact of the pandemic.
Administered by the Small Business Administration, the program initially helped more than 4.5 million businesses with nearly $800 billion in support.
But from the start, the PPP was plagued by fraudulent claims eventually totaling more than $100 billion, according to government records. Both investigations and prosecution have for the most part focused on businesses and individuals receiving PPP support who ended being not qualified for such funds.
But the federal case against a company called MBE Capital of New York is being seen as the beginning of a different attack on PPP fraud via the prosecution of a lender.
The Department of Justice indictment of MBE Capital, notes the publication National Law Review, “likely presages increased government scrutiny of bank and non-bank PPP lenders.”
The Department of Justice action specifically charges MBE Capital with earning nearly $71 million in lender fees as a result of obtaining $300,000 in PPP loan funding.
In announcing the Justice Department’s action, Internal Revenue Service agent Thomas Fattorusso said MBE Capital is “alleged to have fraudulently obtained funds through this program as both a recipient and lender.”
Legal experts believe that future DOJ actions regarding the fraudulent use of PPP loans will likely see more attention paid to financial institutions that have originated both many fraudulent loans as well as high-risk loans.
It is clear, asserts the publication Consumer Finance Monitor, that the federal government is now “aggressively examining lender behavior in the PPP,” adding that Justice Department is likely to ramp up its efforts to “determine whether those lenders fully met all applicable obligations.”
By Garry Boulard
