PPP fraud allegations spark SBA probe of lenders, applicant screeners

The U.S. Small Business Administration, responding to a congressional investigation into fraudulent Paycheck Protection Program loans, has stopped working with two companies that were supposed to help prevent fraud in the pandemic relief program and is investigating eight lenders, officials said.

SBA, whose oversight of the PPP was criticized by the House Select Subcommittee on the Coronavirus Crisis, “has immediately suspended non-lenders Blueacorn and Womply… from working with the SBA in any capacity,” said agency administrator Isabella Casillas Guzman.

“SBA will be investigating appropriate action against their management, owners and successor companies,” she said.

Representatives of Blueacorn and Womply, both financial technology firms, did not respond to requests for comment. Womply’s successor, Solo Global, also didn’t respond.

Guzman said the SBA is examining the practices of eight PPP lenders who hired fintech companies to screen loan applications to combat fraud.

Two of the lenders used Blueacorn: Capital Plus Financial and Prestamos Community Development Financial Institution. Three used Womply: Benworth Capital Partners, Fountainhead Commercial Capital and Harvest Small Business Finance. Three — Celtic Bank, Cross River Bank and Customers Bank — used fintech firms Bluevine and Kabbage, both of which the House committee said didn't do enough to stop PPP fraud.

Bluevine spokeswoman Hailey Bayliss said on Wednesday that "it adapted to the ongoing threats [of fraud] better than some of the other fintech companies examined in the [committee's] inquiry." A Kabbage representative didn't respond to a request for comment.

Together, the eight lenders made more than 23,945 PPP loans on Long Island, totaling nearly $604 million. That’s 29% of all loans and 5.8% of the funding received by Island businesses, based on a Newsday analysis of SBA data.

The lenders and fintech companies now being probed were hailed last year for ensuring that the federal government’s marquee pandemic-relief program reached the smallest businesses and those owned by women, members of minority groups and veterans.

'Porous' loan screening

However, the House committee found Phoenix-based Blueacorn used the program for its executives’ personal gain and collected more than $1 billion in loan processing fees paid with government funds.

Womply, based in Wilmington, Delaware, introduced a porous loan screening system that enabled fraud but still received more than $2 billion in processing fees, the committee said in a 130-page report published this month.

Womply “placed [Benworth Capital] in a very bad predicament due to the high likelihood of fraud involved in many of the referred loans from your company,” wrote Benworth Captial CEO and founder Bernie Navarro in a May 10, 2021 email to Womply executives cited by the committee.

Benworth Capital in Coral Gables, Florida hired Womply between March and May 2021 “because of the amount of [loan] requests that we were getting,” Navarro told Newsday.

“We needed help with the background checks. But we weren’t happy with [Womply’s] work. We were seeing a lot of fraud and we called them on it,” he said.

Another lender that used Womply’s screening system, Fountainhead in Lake Mary, Florida, said through a spokeswoman that it had “always strived to conduct itself honorably and carry out the objectives of the PPP.”

Use 'every tool'

At Cross River Bank in Fort Lee, New Jersey, executives said they “were quite surprised” to be in the SBA’s crosshairs after years of working together amicably.

“Cross River answered the call of Congress to help the smallest businesses survive the pandemic, and now we count on the SBA to do the right thing and differentiate between those who truly helped during the pandemic and those who didn’t do enough to deter fraud,” said senior vice president Phil Goldfeder in an interview.

Officials at Customers Bank and Celtic Bank said they would cooperate with the SBA probe. Capital Plus didn’t respond to a request for comment and neither Harvest nor Prestamos could be reached for comment.

Asked by Newsday if other fintech companies and lenders were being examined, SBA spokeswoman Christalyn Solomon said on Tuesday the agency “has launched a full investigation of all companies, related entities – including the lenders with which they worked – named in the House Select Subcommittee report. If the allegations of wrongdoing are true, we will use every tool at our disposal to hold them accountable.”

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.