Reported by: Stacy Cowley

Top executives from two small start-ups that reaped billions of dollars in fees for facilitating Paycheck Protection Program loans turned a blind eye to extensive fraud among their applicants and appear to have themselves collected large relief loans for which they were ineligible, according to a report released Thursday by Democratic lawmakers.

The 130-page report, the product of an 18-month investigation by the House Select Subcommittee on the Coronavirus Crisis, is packed with startling details about how negligible government oversight and a rush to get cash out the door to help devastated businesses created conditions ripe for fraud. Some non-bank financial technology companies, known as fintechs, exploited those gaps to collect outsize profits — which they maximized by ignoring typical lending safeguards and at times by outright flouting the government aid program’s rules, the report said.

The report is particularly critical of two companies: Womply, a San Francisco marketing software maker, and Blueacorn, a Scottsdale, Ariz., venture created in a hurry specifically to help companies obtain P.PP. loans. Both set up systems to help lenders process applications from tiny companies at a huge scale, and spent lavishly on marketing. For their work, Womply collected fees exceeding $2 billion and Blueacorn took in $1 billion.

The Paycheck Protection Program, which operated at various times from March 2020 to May 2021, distributed $800 billion in government-backed loans to nine million small businesses to help them retain workers and survive the pandemic’s economic disruptions. The loans, made by banks and certain non-bank lenders, were designed to be fully forgiven if the proceeds were used in accordance with the program’s rules.

But the program’s loose safeguards enabled what is likely to add up to tens of billions of dollars in fraud. Federal prosecutors are investigating thousands of cases and have charged hundreds of people with falsifying documents and skirting the rules to collect loans — sometimes dozens of them — for hundreds of thousands or even millions of dollars each.

Thanks to their marketing bonanza and emphasis on high volume, Womply and Blueacorn together facilitated one in every three P.P.P. loans in 2021. A New York Times investigation last year spotlighted the small companies’ outsize role in the program — and the disputes that developed between Womply and some of its lending partners about the company’s fee structure and business practices.

The House report paints a portrait of Blueacorn and Womply as tiny companies operating with scant staffing, lax internal controls and little interest in separating legitimate loan applications from fraudulent ones.

Read full report: https://www.nytimes.com/2022/12/01/business/ppp-loans-covid-fintech-fraud.html