Kabbage Inc. Settles Allegations of PPP Fraud

Kabbage Inc., now operating as KServicing, has agreed to settle allegations that it defrauded the Paycheck Protection Program (PPP). The company, currently in bankruptcy proceedings, will resolve claims of submitting false loan forgiveness, guarantees, and processing fee claims to the Small Business Administration (SBA).
The Justice Department announced that Kabbage submitted thousands of false claims to the SBA , violating the False Claims Act (FCA). Kabbage, now known as KServicing Wind Down Corp., filed for Chapter 11 bankruptcy in October 2022. The U.S. will receive a general unsecured claim in the bankruptcy proceedings as part of the settlement.
The PPP was created in March 2020 under the CARES Act to help small businesses survive the economic impact of the COVID-19 pandemic. The SBA administered the program, which allowed private lenders to approve loans for eligible businesses. These loans could be forgiven if used for payroll and other approved expenses. Lenders like Kabbage were required to verify payroll costs and comply with Bank Secrecy Act/Anti-Money Laundering (BSA/AML) requirements.
Kabbage is accused of inflating PPP loan amounts, causing the SBA to guarantee and forgive loans beyond eligible amounts. KServicing Wind Down Corp. admitted to several misconducts, including:

Double-counting state and local taxes.
Failing to exclude compensation over $100,000 per employee.
Miscalculating employer payments for leave and severance.

Despite knowing about these errors since April 2020, Kabbage continued to disburse incorrect loans.
Kabbage allegedly removed underwriting steps from its procedures to process more PPP loan applications and maximize fees. The company purportedly set substandard fraud check thresholds and relied on inadequate automated tools. Kabbage also allegedly discouraged fraud reviewers from requesting borrower information and submitted thousands of fraudulent or suspicious loan applications.
The government will receive an unsubordinated, general unsecured claim of up to $120 million. The exact recovery amount depends on the assets available in the bankruptcy estate. Kabbage will also receive a $12.5 million credit for payments returned to the SBA during the investigation.
Principal Deputy Assistant Attorney General Brian M. Boynton emphasized the commitment to holding lenders accountable for PPP misuse. Acting U.S. Attorney Joshua S. Levy criticized Kabbage for prioritizing profit over safeguarding taxpayer funds. U.S. Attorney Damien M. Diggs underscored the importance of compliance with PPP requirements.
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This article, " Kabbage Inc. Settles Allegations of PPP Fraud " was first published on Small Business Trends