Two fintechs fuelled extensive pandemic relief fraud, House report finds

The PPP, which operated at various times from March 2020 to May 2021, distributed $800 billion in government-backed loans to 9 million small businesses to help them retain workers and survive the pandemic’s economic disruptions. The loans, made by banks and certain nonbank 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 PPP 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.

Although the loan program was supposed to operate on a first-come, first-served basis, Blueacorn gave a priority — and less scrutiny — to high-dollar loans, which generated larger fees for the company and its partners, and to loans marked as “VIPPP” by Stephanie Hockridge, a company founder.

“Closing these monster loans will get everyone paid,” Hockridge wrote to a contractor in a message that the House report quotes.

In another message, she urged a contractor to approve a VIPPP loan without a full review. “The file is good,” she wrote in a note quoted in the House report. “Just needs approval from someone other than me.”

Hockridge also asked some loan applicants to pay her directly for Blueacorn’s assistance, according to the report — a violation of the program’s rules.

Representatives of Blueacorn and Womply did not respond to requests for comment.

Rep. James Clyburn, D-S.C., the subcommittee chair, was blistering about the report’s findings.

“Even as these companies failed in their administration of the program, they nonetheless accrued massive profits from program administration fees, much of which was pocketed by the companies’ owners and executives,” he said. “On top of the windfall obtained by enabling others to engage in PPP fraud, some of these individuals may have augmented their ill-gotten gains by engaging in PPP fraud themselves.”

Blueacorn transferred $300 million of its profits to its owners and spent $666 million with a marketing firm controlled by members of its senior leadership, the House report said.

Hockridge and other Blueacorn insiders collectively received at least $650,000 in PPP loans for a variety of companies they owned or controlled. Some of those loans were later flagged as potentially improper by Capital Plus Financial, one of the two lenders that funded loans for Blueacorn. At Capital Plus’ request, Hockridge and her husband, Nathan Reis, also a Blueacorn founder, repaid loans totalling more than $100,000. Six other loans that the pair received, totalling $165,124, were forgiven and paid off by the government.

Womply received $5 million in loans from its largest lending partner, Harvest Small Business Finance, and sought to have those loans forgiven. But after reviewing Womply’s application, the Small Business Administration — which oversaw the PPP — determined that Womply was ineligible for the loans that Harvest had approved, and it required Womply to repay them, according to the report.

Womply’s fraud-detection systems seem to have been “put together with duct tape and gum,” Chris Hurn, CEO of one of Womply’s lending partners, told House investigators.

When federal investigators asked Hurn’s company, Fountainhead Commercial Capital, for information held by Womply about Fountainhead’s loans, Hurn had to get a restraining order to prevent Womply from destroying the loan records, according to the report.

In May, Womply notified its customers that it was giving itself the right to transfer millions of tax documents and bank account details from loan applicants to a newly created company, Solo Global, run by Womply executives. Womply refused to tell the House subcommittee whether it had actually transferred that data and how it might use it, according to the report.

Clyburn said he had informed the Justice Department that “some of our findings may warrant its attention.”

The report includes 11 specific recommendations for various governmental bodies — including the SBA and Congress — to better safeguard future aid programs. It specifically urges the SBA to analyse the role of nonbank companies such as fintechs — which face fewer regulatory constraints than banks — in its lending programs.

Those companies “were given extraordinary responsibility in administering the nation’s largest pandemic relief program — a responsibility that some of the fintechs that facilitated the highest volumes of loans were either unable or unwilling to fulfil,” the report said. “A balance between speed and internal controls is achievable and necessary to ensure timely governmental assistance to disaster victims,” the SBA inspector general’s office wrote in a statement. “The report shines light on a significant aspect of the emerging fraud landscape in the PPP, which is an OIG oversight priority.”

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