Justice Dept Subpoenas Banks for SBA Loan Info; Fraud Inquiry Deepens

By: Jared Evan

The Justice Department has sent grand jury subpoenas to big banks seeking records of small business loans, as part of a wide investigation into fraud, Reuter’s exclusively reported.

Small business hit by the financial repercussions of the pandemic lockdown are able to take advantage of these SBA loans, which can be forgivable provided the money goes 75% to payroll, The NY Post reported.

Policymakers worry that the huge pot of cash has been a magnet for fraudsters, and U.S. Treasury Secretary Steven Mnuchin has warned that companies found to have lied to secure loans could face prosecution, Reuters reported.

Banks have large swaths of information pertaining to the applicants of the loans, therefor it makes sense for the US Justice Department to go after the large banks with subpoenas.

“Right now, we don’t think banks are 100% the target,” said one of the sources told Reuters but added: “There are concerns that there will be a boomerang effect six months down the road on banks that they didn’t do enough.”

Reuter’s reported:  The previously unreported subpoenas issued by the department’s Washington fraud division do not necessarily indicate wrongdoing on the part of the banks, but will compound growing worries among lenders that they risk being swept up in a federal crackdown on Paycheck Protection Program fraud.

The agency (SBA) has said it will largely focus its audits on companies that received loans valued at more than $2 million – and other loans “as appropriate”, Fox News reported.

SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans,” the agency stated. “This approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher returns”, Fox News reported.

“Whenever there’s a trillion dollars out on the street that quickly, the fraudsters are going to come out of the woodwork in an attempt to get access to that money,” said Benczkowski, a former partner at Kirkland & Ellis LLP in Washington who has been running the criminal division for almost two years, Bloomberg quoted.

He went on: “There are unfortunately businesses that are sending in loan applications for large amounts of money that are overstating their payroll costs, overstating the number of employees they’ve had, overstating the nature of their business.”

The Justice’s Department’s interest in the coronavirus stimulus funds comes as criticism mounts over the loan program, which was intended to help small businesses but has also sent multimillion-dollar checks to large corporations, Bloomberg reported.

Jeff Grant, a former business entrepreneur, who is serving time in jail for abusing SBA loans taken out after 9/11 recently wrote an op-ed warning business owner to be smart when using these loans. He served 14 months in jail for loan fraud.

Grant wrote:  Don’t use magical thinking This is a tough one because entrepreneurs are inherently optimistic. We believe that things will always be better tomorrow than they are today. It drives us, makes us successful, informs our risk-taking. But in times of trauma, that voice can be an entrepreneur’s worst enemy. Does this sound familiar? We have learned the hard way that there is no shortcut, and yet we desperately want there to be one right now