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  • Writer's pictureJames A. Gustino

Fraud against the Paycheck Protection Program is widespread. Here the Government obtained an entitlement to a $120M claim in the defrauding company's bankruptcy. The whistleblowers received $2.5M

for bringing the fraudulent scheme to light. 

//The resolution announced today addresses two different violations allegedly committed by Kabbage that resulted in the submission and payment of false claims. First, the United States alleged that Kabbage systemically 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. As part of the settlement, KServicing Wind Down Corp. admitted and acknowledged that Kabbage: (1) double-counted state and local taxes paid by employees in the calculation of gross wages; (2) failed to exclude annual compensation in excess of $100,000 per employee and (3) improperly calculated payments made by employers for leave and severance. The United States alleged that Kabbage was aware of these errors as early as April 2020, yet Kabbage failed to remedy all incorrect loans that had already been disbursed and continued to approve additional loans with miscalculations.

Second, United States alleged that Kabbage knowingly failed to implement appropriate fraud controls to comply with its PPP and BSA/AML obligations. In particular, the United States alleged that Kabbage removed underwriting steps from its pre-PPP procedures to process a greater number of PPP loan applications and maximize processing fees. The government further alleged that Kabbage knowingly set substandard fraud check thresholds despite knowledge of SBA’s concerns that fraudulent borrowers might seek to benefit from the PPP, relied on automated tools that were inadequate in identifying fraud, devoted insufficient personnel to conduct fraud reviews, discouraged its fraud reviewers from requesting information from borrowers to substantiate their loan requests and submitted to the SBA thousands of PPP loan applications that were fraudulent or highly suspicious for fraud.//

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