PPP Loan Fraud Grows More Complex

by | Nov 8, 2022 | avoid arrest, Fugitive, New Identity, PPP Loan Fraud

The PPP Loan Program: A Fraud-Plagued Initiative

The Paycheck Protection Program: An Overview


The Paycheck Protection Program (PPP), introduced early in the COVID-19 pandemic, aimed to support small businesses. This program offered loans of up to $10 million, promising forgiveness if the funds were used for payroll and other approved expenses.

The Extent of PPP Loan Fraud

However, the program faced widespread fraud. Over $117 billion of the $780 billion in loans went to businesses that didn’t qualify. In this blog, we explore the PPP fraud scandal, focusing on lenders’ roles, legal repercussions, and broader implications for financial oversight.

Understanding the Scope of PPP Fraud

Rapid Deployment and Oversight Lapses

Due to its rapid deployment, the PPP was prone to loan fraud. It relied on banks and private lenders to process applications. Consequently, this decentralized approach led to significant oversight lapses, and a substantial portion of the $117 billion in fraudulent loans went unchecked.

High-Profile PPP Fraud Case in South Florida

Kabbage Under Scrutiny

A recent filing in South Florida brought renewed attention to the issue. Kabbage, one of the largest lenders in the program’s first year, is under scrutiny. Federal prosecutors in Massachusetts and the Eastern District of Texas are investigating Kabbage’s PPP lending practices. The U.S. Department of Justice (DOJ) Civil Division coordinates the investigation. These revelations surfaced as Kabbage sought to avoid testifying in a PPP loan fraud case in Florida.

Unusual Public Disclosure

Interestingly, Ben Curtis, a partner at McDermott Will & Emery, noted the unusual public disclosure of this investigation. Civil investigations usually remain confidential. Therefore, this case is particularly noteworthy.

Kabbage’s Role and the Broader Financial Technology Sector

Processing of PPP Loans

Kabbage, an online lender based in Georgia, processed $7 billion in PPP loans in 2020. The company’s rapid growth and reliance on algorithms raised questions about its application vetting processes.

Acquisition by American Express

Heavily backed by Japanese investment firm SoftBank, Kabbage made hundreds of millions of dollars in fees from these loans. This success attracted American Express, which acquired Kabbage in October 2020 for $850 million. However, American Express did not assume responsibility for Kabbage’s loan portfolio. Instead, PPP loans were placed into a holding company called KServicing. This separation allowed American Express to distance itself from Kabbage’s PPP performance. Nonetheless, the ongoing investigations may bring unavoidable scrutiny.

Legal and Financial Repercussions

Investigations into Violations

The investigations into Kabbage are significant. The U.S. Attorney’s Office in Massachusetts is examining potential violations of the False Claims Act. Meanwhile, the Eastern District of Texas investigates Kabbage’s fraud and anti-money laundering controls. Consequently, these inquiries highlight the importance of robust compliance measures in financial technology companies, especially those handling substantial government funds.

Importance of Compliance Measures

Jim Richards, a former prosecutor and senior financial risk officer, emphasized the critical nature of the Texas investigation. The PPP program required lenders to establish effective anti-money laundering programs and conduct due diligence on borrowers. Richards noted that Kabbage is linked to nearly one in five federal PPP loan fraud prosecutions. Therefore, the lender’s central role in the scandal is evident.

The Challenge of Loan Forgiveness

Issues with Forgiveness Rates

Many small business owners find it challenging to get their PPP loans forgiven. According to the program’s rules, loans should be forgiven if used for payroll and other approved costs. However, KServicing, managing Kabbage’s loan portfolio, has the lowest forgiveness rate among significant lenders from the program’s first year.

Class Action Lawsuit

Several debtors filed a class action lawsuit against KServicing. They allege that the company’s loan forgiveness process has been a “total and continuing failure.” They accuse KServicing of being one of the most opportunistic profiteers of the pandemic. KServicing argues that the CARES Act, which established the PPP, does not allow private parties to sue. They are seeking to dismiss the lawsuit.

Broader Implications and the Need for Oversight

Need for Rigorous Oversight

The PPP loan fraud scandal, especially the scrutiny of lenders like Kabbage, underscores the need for rigorous oversight. Accountability in financial aid programs is crucial. The decentralized nature of the PPP and reliance on private lenders created opportunities for fraud. These were not adequately addressed. Moving forward, more stringent checks and balances are crucial to prevent similar issues in future aid programs.

Lessons for Future Programs

The PPP loan program was a well-intentioned effort to support small businesses during an unprecedented crisis. However, significant fraud marred its execution, with billions of dollars going to ineligible companies. As investigations into lenders like Kabbage unfold, it is clear that more robust oversight and accountability measures are needed. These measures protect public funds and ensure that aid reaches the needy.

Case Studies of PPP Fraud

Case Study 1: The Celebrity Chef Scandal

A high-profile case involved a celebrity chef who received millions in PPP loans. Despite owning multiple restaurants and having significant personal wealth, the chef’s businesses were approved for the maximum loan amounts. Investigations revealed that the funds were not used for payroll or approved expenses, leading to a major scandal and the chef being charged with fraud.

Case Study 2: The Fake Business Empire

Another notorious case involved an individual who created a series of fake businesses to apply for multiple PPP loans. The individual secured over $20 million in loans using false tax documents and employee lists. This elaborate scheme was uncovered when discrepancies were noticed in the loan applications. This led to federal charges and a lengthy prison sentence for the perpetrator.

Case Study 3: The Tech Startup Controversy

A tech startup in Silicon Valley secured $10 million in PPP loans by falsely claiming many employees and inflated payroll expenses. Investigations revealed that the company had significantly fewer employees than reported. The funds were used for executive bonuses and luxury expenses. The scandal resulted in significant legal repercussions for the startup’s executives. This highlighted the need for more stringent vetting processes.

Case Studies of Fugitives Involved in PPP Fraud

Case Study 1: The Disappearing Restaurateur

A restaurateur from California received over $5 million in PPP loans for a chain of restaurants. These restaurants were struggling before the pandemic. Instead of using the funds for payroll, the owner funnelled the money into offshore accounts and disappeared. Authorities discovered the fraud during a routine audit. By then, the restaurateur had vanished, leaving unpaid employees and creditors behind.

Case Study 2: The Elusive Tech Mogul

A tech mogul from Florida obtained $10 million in PPP loans by creating fake employee records and forging financial statements. Once the fraud was uncovered, the mogul fled the country. He evaded capture by moving between countries without extradition treaties with the United States. The international manhunt continues. The mogul’s assets are frozen, and significant efforts are underway to bring him to justice.

Case Study 3: The Runaway Real Estate Developer

A real estate developer from New York secured $15 million in PPP loans by inflating the payroll for several shell companies. When authorities detected the fraud, the developer liquidated his assets and disappeared. The developer was last seen in South America, living under an assumed identity. Efforts to locate and extradite him have so far been unsuccessful. The case remains open.


The PPP loan program aimed to support small businesses during a global crisis. However, significant fraud plagued its implementation. The decentralized approach and reliance on private lenders created opportunities for abuse. This resulted in billions of dollars going to ineligible recipients. High-profile cases like Kabbage and various fugitives highlight the need for more stringent oversight and robust compliance measures.

Moving forward, financial aid programs must incorporate rigorous checks and balances to prevent fraud. These measures ensure that aid reaches those who genuinely need it. The lessons learned from the PPP program can help shape future initiatives. This fosters greater accountability and protects public funds.

Contact Amicus International for Assistance

At Amicus International Consulting, we understand the complexities of financial oversight and compliance. If you need expert guidance on navigating the intricacies of financial regulations or require assistance with identity services, contact us today. Our professional team is here to help you transition to a life of freedom. We ensure you remain compliant with all relevant laws and regulations.

For more information on our services and how we can assist you, please visit our website at amicusint.ca. If you would like to work with a professional team that can help make your transition to a life of freedom, contact Amicus International for New Identity services today.

If you would like to work with a professional team that can help make your transition to a life of freedom, contact Amicus Int. for New Identity services today.