Spotting $62 Million in Alleged P.P.P. Fraud Was the Easy Part

The owners of a Pilates studio in Manhattan told employees that some instructors — who have been running virtual classes since the city shut down gyms — would be paid extra for a few weeks out of the studio’s loan but that their wages would be garnished after in-person classes resumed. Two instructors shared emails with The Times describing the plan, including an all-staff note from the owners that described the payments as “an advance on future work.”

An employee at a speech therapy clinic in Minnesota described how the owner told employees in May that she would use the clinic’s loan to pay them for a 40-hour week — but that if they didn’t have enough client bookings or other projects to fill the time, she would expect them to repay those hours with uncompensated labor later in the year. The boss backed down, the employee said, after the employee consulted a lawyer and told the boss that the plan appeared to be illegal.

And a worker at a dermatology clinic in North Carolina said her boss had used a paycheck program loan to increase the worker’s monthly pay to $7,200 in May — more than she usually made — but then, without warning, began garnishing the worker’s pay the next month. In July, she was asked to sign a document (which she shared with The Times) retroactively agreeing that the money she received had been a loan. To keep her job, she agreed to pay back $250 a month out of her earnings.

Those are among the “more complicated schemes at play,” said Mr. Ware, the inspector general. “We do know that that’s happening,” he said. He declined to discuss it in detail to avoid imperiling active investigations.

One reason those investigations will be more complicated: Congress relaxed some of the rules partway through the program, effectively penalizing borrowers who used up the money quickly to comply with the original rules.

The relief program was intended to quickly disburse billions of dollars in loans of up to $10 million. Virtually every small business in the country qualified, but the government deliberately eliminated many of the hurdles that normally accompany business loans, like a thorough lender verification of the applicant’s tax records and payroll documentation. Treasury Secretary Steven Mnuchin pushed banks to approve and fund loans in as little as a day.

That made the program an irresistible target for thieves.

“Any time you have large amounts of federal aid available, it’s going to bring out all the bad guys,” said Kathryn Petralia, a co-founder and the president of Kabbage, an online lender that handled 297,000 loans for the program.

Source Article