How Did PPP Scammers Steal $100+ Billion?
As millions of American businesses faced bankruptcy in the face of the Coronavirus crisis, the federal government opened up billions of dollars in aid through the Paycheck Protection Program (PPP).
But what was a lifeline for legitimate business quickly became a hot target for scammers.
In one case, Izzat Freitekh and his son Tarik with sentenced to 4 and 7 years of jail time respectively for claiming $1.7 million in fraudulent PPP loans [*].
But this is only the tip of the PPP loan fraud iceberg that federal investigators are still trying to understand.
It’s estimated that shady business owners and foreign crime rings submitted PPP loan applications for nearly $100 billion in funds [*].
By many accounts, PPP loan fraud could be the largest fraud of all time. But what is PPP loan fraud, exactly? And could it put you in danger?
In this guide, we’ll explain what PPP fraud is, how it happens, and what’s happening to scammers caught with misusing the program. We'll also cover how identity thieves could use your identity to commit PPP loan fraud in your name and put you on the DOJ’s list.
What Is the Paycheck Protection Program?
The federal Paycheck Protection Program (PPP) was created under the Coronavirus Aid, Relief, and Economic Security Act (more commonly known as the CARES act). The goal was to help businesses keep their workforce employed by providing forgivable loans to cover wages and expenses.
The PPP, which ran intermittently from April 2020 to May 2021, was a lifeline for business owners worried about having to lay off their hardworking employees, taking away their wages and health care in the middle of a pandemic.
Businesses were able to apply for PPP loans from the federal government through commercial banks, up to a maximum amount of $10 million.
Applicants were supposed to meet specific criteria for eligibility and follow strict requirements and limits on how they spend PPP funds (such as for payroll expenses). Any spending beyond those constraints and the FBI, IRS, or DOJ could get involved.
However, the sheer volume of applicants made it nearly impossible to track who got PPP loans and how they were being used.
To make matters worse, in their rush to get money into the hands of legitimate business owners, congress voted to allow smaller financial technology (or fintech) companies to issue PPP loans. It’s now becoming clear that a large portion of the 1.4 million fraudulent PPP loans came from these fintechs.
How Does Paycheck Protection Program Fraud Work?
PPP fraud is the abuse of a loan program meant to cushion the blow for millions of Americans.
More specifically, PPP loan fraud is when an individual or business submits false information when filling out a PPP loan application or when attempting to certify PPP loan forgiveness.
Because PPP loans are forgivable, many are tempted to lie through their teeth to obtain money from the government they would not have to pay back.
There are other ways to commit PPP fraud beyond making false statements:
- Scammers commit “loan stacking” by applying for PPP loan money from multiple lenders.
- Using PPP loan proceeds for improper or unapproved purposes.
- Providing false statements during PPP loan audits or fraud investigations.
Scams on social media promote these methods as easy ways to get money from relief programs.
Lying or omitting pertinent information as part of the PPP loan process can result in criminal charges. This includes bank fraud, wire fraud, and making false statements to a financial institution.
Is PPP Loan Fraud Really That Bad?
At first, PPP loan fraud might not seem like a big issue. The program was developed to help businesses stay afloat during the pandemic. And so what if some of the funds didn’t go exactly where they were supposed to?
PPP loans from banks and lenders were designed to be forgiven. But committing fraud does not mean anyone can simply siphon coronavirus aid money into their bank accounts.
The awful truth is that billions of dollars of U.S. taxpayer money meant to help hard-working Americans went to scammers who wanted to make a quick buck. Sometimes, the scammers were even foreign hackers and scammers using stolen identities [*].
Here are just a few facts about the massive scale of PPP fraud:
- More than 15% of PPP loans had at least one indication of potential fraud. Around 1.8 million of the PPP's 11.8 million loans showed signs of fraud, according to an academic working paper cited by The New York Times.
- Researchers estimate that $76 billion in PPP loan money was taken illicitly. That’s almost 10% of the program’s nearly $800 billion budget.
- Fintech lenders had the highest rate of suspicious PPP loans. Financial lenders — or fintechs — made around 29% of all PPP loans but accounted for more than half of its suspicious loans to borrowers.
These numbers are ultimately just estimates for how much money borrowers should not have received. The true amount of PPP fraud is likely to never be determined.
What Happens to PPP Loan Scammers?
By taking a fraudulent PPP loan, you’re defrauding the federal government and the treasury department. And you can be sure they aren’t taking these offenses lightly.
The U.S. federal government has cracked down hard on multiple pandemic fraud cases targeting relief programs like the PPP and Unemployment Insurance (UI) programs.
As of March 26, 2021, the Department of Justice has publicly:
- Charged 474 defendants with criminal offenses based on fraud schemes attempting to obtain over $569 million from the U.S. government and unsuspecting individuals [*].
- Charged an additional 22 individuals in connection with a $11 million PPP fraud scheme [*].
- Sentenced a 46-year-old man to two years in prison for a COVID-19 relief fraud scheme [*].
- Reported that a Texas man pled guilty to obtaining over $1.6 million in government-guaranteed loans [*].
Even celebrities have been called out and sometimes charged for fraudulent PPP loan frauds [*]. This list includes celebrities from Kanye West (for his clothing and sneaker brand, Yeezy) to Reese Witherspoon (for her clothing brand, Draper James).
Those celebrities have not been found to be using their PPP loans fraudulently, but others have.
Rapper and former Love & Hip Hop: Atlanta star Mo Fayne was sentenced to 17.5 years in prison and given a $4.4 million restitution bill [*]. The NFL's Josh Bellamy was arrested for participating in a PPP fraud scheme in which people applied for more than $24 million in loans [*].
The scale of PPP loan fraud is staggering. But here’s what Nicholas L. McQuaid, Acting Assistant U.S. Attorney General of the Justice Department's Criminal Division, had to say:
"To anyone thinking of using the global pandemic as an opportunity to scam and steal from hard working Americans, my advice is simple – don't. No matter where you are or who you are, we will find you and prosecute you to the fullest extent of the law."
Can Criminals Use Your Identity To Commit PPP Loan Fraud?
One of the scariest aspects of PPP fraud is that scammers use stolen identities to cover their tracks when applying for fraudulent loans.
Scammers from Russia, China, and Nigeria have used stolen identities to apply for billions in fraudulent benefits [*]. And the Small Business Administration (SBA) Office of Inspector General has received nearly 750,000 referrals of suspected identity theft related to the PPP program [*].
Here’s how hackers take advantage of benefit programs:
- Criminals purchase large amounts of personal data, such as names, addresses, birthdays, and Social Security numbers off the Dark Web. Or, they steal them from recent data breaches.
- Then, they take advantage of already weak online systems to apply for fake loans or unemployment benefits.
- Some hacker groups would flood online systems with a brute-force attack of fake online claims and siphon out millions.
- Other hackers took advantage of programs for contractors, which allowed for retroactive relief. In these cases, a single stolen identity could steal up to $20,000 in fraudulent relief funds.
- Many hackers used online payment services like Cash App or Venmo to transfer money to Bitcoin and out of the country.
Some experts believe that tens of billions of dollars were sent out of the country due to pandemic-based fraud.
What To Do if You’re the Victim of Criminal Identity Theft
Criminal identity theft can happen to anyone. If a scammer gets access to enough of your information online — either through a data breach, buying it on the Dark Web, phishing attacks, or other scams — they can use it to commit PPP loan fraud.
Here’s what to do if you think someone might have stolen your identity:
- Look for the warning signs of identity theft. This includes unfamiliar charges, missing mail, strange messages, and being locked out of your accounts.
- File a report with the FTC at IdentityTheft.gov. This will help you dispute fraudulent loans or charges. You’ll also get a recovery plan to help you regain your identity.
- File a police report with local law enforcement. If a criminal has committed crimes using your name, you’ll need to notify the police.
- Notify your bank and cancel compromised accounts. Identity thieves often have access to your financial accounts. Notify your bank of the fraud and work with them to secure or close your accounts. In the case of PPP fraud, make sure to contact the impacted lender and report the fraud to them.
- Change all your passwords. Preventing future identity theft starts with securing your online accounts. Use strong, unique passwords that combine letters, numbers, symbols, and cases.
- Enable 2FA or MFA on your accounts (but not SMS). Two-factor authentication is an added layer of protection for your accounts. But skip SMS as it can be hacked. Instead, use an authenticator app like Google or Okta.
- Set up a password manager. This is a tool that will store and remember all your passwords so you can use stronger ones without fear that you’ll forget them.
- Freeze your credit and set up fraud alerts. Alert the credit bureaus of the fraud and set up credit monitoring to alert you of any further suspicious activity and prevent fraud.
- Use antivirus software. Hackers often install malware on your device to steal your information. Use antivirus and a virtual private network (VPN) to keep your devices and networks safe.
- Get identity theft protection. Aura can handle many of the steps above proactively. Plus, in case you fall victim to family identity theft, you are covered by a $1,000,000 insurance policy for eligible losses.
How To Report Paycheck Protection Program Fraud
PPP loan and government benefit fraud hurts us all. If someone takes out fraudulent loans in your name, it makes it much more difficult to get the financial help you truly need.
If you’ve been the target of identity theft that led to PPP fraud or know someone who abused the program, you can contact the SBA by calling the Office of the Inspector General (OIG) at 800-767-0385 [*].
Even though the Paycheck Protection Program has concluded, more cases of PPP fraud are bound to be discovered. Some could even be in your name if a criminal has committed identity theft.
Be vigilant with protecting your sensitive information. If you see warning signs of identity theft, act fast before scammers can do too much damage. And for added protection for you and your family, consider identity theft protection from Aura.