When the pandemic support was dropped at Important Avenue, criminals seized PPP, EIDL

Korena Keys’ small business was hit hard when the pandemic first started last year.

KeyMedia Solutions, a digital media company of Sioux Falls, South Dakota, posted a 60% year-over-year revenue decline in May. She was able to secure a $ 115,000 loan from the Small Business Administration’s paycheck protection program to keep the workers busy until things stabilized.

When Keys received filing from the SBA in January that an additional $ 150,000 loan had been taken out on behalf of her company under the Disaster Loan for Economic Injury program, she believed it was a mistake.

Korena Keys runs a digital marketing company in Sioux Falls, South Dakota. She received help from the Small Business Administration’s Paycheck Protection Program, but found that her identity was stolen in order to obtain a fraudulent loan under the Economic Injury Disaster Loan Program for $ 150,000.

Alex Herrera | CNBC

“We made a conscious decision not to seek any other assistance,” said Keys. “We thought these funds had to be left for companies that are not doing so well.”

Although she says she didn’t receive the money, the loan is very real and payments of nearly $ 800 a month are slated to start in November. The loan was approved, Keys said, despite the fact that the application contained inaccurate information about their company, including an incorrect phone number, email address, and financial details.

“The shock of that really turned into frustration and anger,” Keys said, adding that several other companies in their community had similar stories of identity theft in these aid programs.

She has filed claims with the Inspectorate General of the SBA and his fraud department, but she has not yet been released from responsibility, although she is hopeful that things will be cleared up before the loan falls due. Hours were spent damaging their business and trying to pay off the loan.

“It definitely caused some sleepless nights,” she said. “Until it’s in writing, I always worry. It’ll just hang over me until it’s done.”

Get help out the door

When the U.S. government and the SBA rushed out of the door last year for companies hit by the pandemic, criminals took advantage of these assistance programs and in some cases stole the identities of business owners to use this information to fraudulently Obtain credits for profits. A recent analysis of SBA’s OBA project fraud under Covid-19 small business programs could reach $ 84 billion.

In total, the U.S. government has provided more than $ 1 trillion in aid to Main Street through the Paycheck Protection Program and the Economic Injury Disaster Loan Program. The PPP allows small businesses to take out loans that can be extended if the borrower spends most of the capital on payroll, while the Covid-19 EIDL program gives borrowers access to loans based on temporary loss of revenue due to the pandemic. There was also an advance payment under the EIDL.

The OIG’s review of both programs warned of the potential for criminal exploitation due to the rapid progress of implementation and unprecedented demand for help. A recent memo from the House Select subcommittee on the coronavirus crisis describes how widespread it could be. The memo granted potentially fraudulent EIDL loans and prepayments of $ 79 billion and potentially fraudulent PPP loans of up to $ 4.6 billion.

1.34 million EIDL loans and grants have been sent to the OIG by the SBA, including nearly 750,000 referrals for suspected identity theft and more than 585,000 referrals for other potentially fraudulent activity. There have been nearly 150,000 hotline calls to SBA OIG for tips and complaints about potential fraud – an increase of 19,500% over previous years, the memo says.

The Justice Department has raised $ 626 million in funds that were confiscated or forfeited as a result of civil and criminal investigations by the EIDL and the PPP, the subcommittee’s analysis said in March. The group’s report points to the Trump administration for refusing to “perform basic controls” in previous iterations of the assistance programs over the past year.

In a statement to CNBC, the SBA said the Biden administration takes its responsibilities seriously to protect tax dollars and prevent fraud, waste and abuse in federal programs.

“New advanced controls have been introduced in recent months to intensify system validations designed to reduce the incidence of fraud in Disaster Loan Protection and Paycheck Protection programs,” it said. “When fraud is suspected, the SBA coordinates closely with the Inspector General’s Office, the Department of Justice and other law enforcement agencies to share information and assist with criminal investigations.”

“While the agency does not comment on individual borrowers, the lessons of these coordinated efforts with federal partners help inform and strengthen internal controls,” she added.

“Ridiculously easy” for criminals

Some fraud victims under the program last year don’t even have small businesses.

Max Hebert is a Marine Corps Reserve veteran and is currently in the National Guard. He also fulfills grocery deliveries for Walmart. Last summer he received a message in the mail at home in Eau Claire, Wisconsin, after serving in the National Guard in Ukraine. In the letter, his name was misspelled as “Max Herbert”, informing him that an EIDL had been taken out on his behalf for $ 45,000 – more than he made in a year.

Hebert, who has a state-registered LLC that he has never used for a business over a decade ago, said he called the SBA and spoke to a customer service rep who told him the account would be flagged. He also went to IdentityTheft.gov to file a report that his identity was stolen and also reached out to SBA OIG.

Max Hebert says a fraudulent loan was raised on his behalf under the Economic Injury Disaster Loan program for $ 45,000, more money than he made in a year.

David Grogan | CNBC

“When I called the SBA agent, he confirmed that they had my social security number, address, and enough information about me to fill out all of these papers,” Hebert said, adding that he was caught in many phone loops trying to Find the right person to report the crime.

Hebert said he sought advice on Reddit from other victims as well. After completing the report about five months ago, he recently contacted the SBA and learned that his loan had been deferred and classified as potentially fraudulent – progress but no resolution.

But Hebert has received a letter saying he will have to start loan payments of $ 220 per month from July.

“There’s no good way to pay for this,” he said. “I’m worried about what this will do if I can’t resolve it. For example, will they try to confiscate my tax return until next tax season? Will they garnish my paycheck if I don’t?” resolve the situation in a timely manner? “

Richard Clarke, a Lauderhill, Florida police officer told CNBC that his department recently arrested 32-year-old Xavier Taylor. When officers responded to a call, they found that Taylor had an arrest warrant against him as of August for allegedly planning to defraud the SBA by stealing a business owner’s identity.

Detective Richard Clarke of the Lauderhill, Florida Police Department said it was “ridiculously easy” for criminals to access help from Covid-19 small business aid programs over the past year.

Roger Prehoda CNBC

The warrant said Taylor had access to $ 81,100 through the PPP. He is accused of taking a business owner’s information, applying for the loan, and transferring the owner’s mailing address to his own. Through his attorney, Taylor declined to comment but pleaded guilty to multiple fraud charges.

“It seems ridiculously easy. In my experience, many people, especially since Covid and the PPP loans, have exploited loopholes in the system to personally benefit from applying for credit – either deceptively or using other people’s information.” Said Clarke. “I hope that due diligence will be exercised in the certification, verification and qualification of individuals to receive these business loans.”

Back in Wisconsin, Hebert said he was confident his situation would be resolved, although it could take time and labor. Aside from worrying that his personal information will be compromised, he is simply disappointed that the program was used this way.

“The biggest thing for me is that at a time when all Americans are struggling, someone is taking advantage and doing all these dishonest things to try and take money that is needed for small businesses that are really struggling . ” he said.