Introduction

The Grinch(es) Who Stole PPP Money

The Grinch(es) Who Stole PPP Money

According the Federal Reserve Bank of St Louis, 90% of all PPP loans had been forgiven by June 20, 2022.

Yet, at September 30, 2023, more than a year later, over 1,400 U.S. banks are still reporting some amount of PPP on their books.

Those with more than $9 million still outstanding are listed on page 5 of this week's Jumbo Rate News.

The Grinch(es) Who Stole PPP Money

The Paycheck Protection Program (PPP) was an enormous effort designed specifically to keep workers on the payrolls of small businesses. Implemented in a rush  (to say the least) and in the midst of a pandemic, of course there was fraud involved. How much fraud is still a matter of debate. The Small Business Administration (SBA) puts the amount lost to fraud at about $36 billion, other estimates  range into hundreds of billions.

A study published in the Journal of Economic Perspectives (by David Autor and others) estimates that 94% of U.S. employers with fewer than 500 employees, took advantage of PPP loans. It further estimated that roughly 3 million jobs per week were preserved in the second quarter of 2020 alone.

Nearly $800 billion in emergency cash was made available to (mostly) small businesses. As long as the funds were used according to the terms dictated (such as payroll expenses) and forgiveness was requested in a timely manner with all of the documentation needed (to verify the number of employees and pay rates, etc.), most legitimate PPP loans were eligible for forgiveness.

Recipients whose loans were not fully forgiven had a favorable 1% fixed interest rate. Loans issued prior to June 5, 2020 had a 2-year maturity; those issued after that date matured in 5-years.

According the Federal Reserve Bank of St Louis, 90% of all PPP loans had been forgiven by June 20, 2022. Yet, at September 30, 2023, more than a year later, over 1,400 U.S. banks are still reporting some amount of PPP on their books. A total of  $3.8 billion in PPP loans was reported outstanding to over 81,600 borrowers. That’s an average loan of about $47,000.

The majority of these banks have just a handful of PPP loans still winding down. But not all. Those with more than $9 million still outstanding are listed on page 5.

4-Star Cross River Bank, Fort Lee, NJ, which was a huge PPP lender from the start, still leads the pack with over 27,000 PPP loans outstanding totaling nearly $800 million. At its peak, June 30, 2021, Cross River Bank had 554,708 PPP loans totaling $11.234 billion. Cross River was surpassed only by two Big Banks: 5-Star JPMorgan Chase and 4-Star Bank of America (which are now #2 and #4 behind it).

Out of $785.8 billion loaned, $755.7 billion had been forgiven by last September (2022). As a government program, especially one thrown together in haste, we consider PPP to be a rousing success and the bankers who worked tirelessly to help their neighbors, heroes.

But, when money is on the line, there will always be bad actors trying to game the system.

The Department of Justice is actively pursuing these grinches. We’ve reported on some of them in the past but the list keeps getting longer. For more details, Arnold & Porter keeps an ongoing tab of fraud charges  involving PPP and the rest of the CARES Act.

A couple of the standouts from 2023 include:

John Michael Felts, Springfield, MO

Mr. Felts had several small businesses in Western Missouri that were eligible for PPP loans, but he and an unnamed co-conspirator from Texas also created fake businesses to get more of these forgivable loans. In July 2023, Felts pled guilty to his role in the nearly $14 million worth of wire fraud that took advantage of both PPP and Economic Injury Disaster Loans (EIDL) programs.

Where did the money go? Real Estate, a yacht, six vehicles, Rolex watches and other pieces of valuable jewelry, a corporate suite with the Kansas City Chiefs and an array of sports memorabilia. All of which, except the corporate suite, is now owned by Uncle Sam.

In addition to paying back millions in restitution, Felts could spend up to 40 years in prison to think about whether or not it was worth it, or to hone his forging skills.

Abdul Fatani, Richmond, TX

In the largest fraud case to date, Mr. Fatani and his co-conspirators sought more than $35 million via more than 80 fraudulent PPP loans. In this case the companies were real, but the size of their payrolls was not.

The number of employees as well as the average monthly payroll expenses were falsified. Bogus payroll checks were used to distribute over $500,000 worth of these ill gotten loans. Mr. Fatani et. al., added another twist to their plot: money laundering.

Convicted of one count of conspiracy to commit wire fraud, one count of wire fraud and one count of money laundering, Fatani was sentenced to just three years in prison. In conjunction with Fatani and his co-conspirators, federal agents executed 45 seizure warrants. Seized items include a residence, a Porsche and a Lamborghini. That should help pay for the governments’ trouble.

“As our thousands of COVID-19 fraud investigations demonstrate, our message to those who seek to line their own pockets and benefit from the suffering of so many Americans is: your crimes are not and will not be forgotten,” -Deputy Attorney General Lisa O. Monaco.

Well said, Lisa, please tell your friends in Texas.

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