Pandemic Relief Program Pays Out Nearly $700 Million in Duplicate Loans

(Noted News) — During pandemic relief operations, $692 million worth of small business loans were mistakenly paid out by the US Small Business Administration (SBA), according to a report from Reuters

An internal watchdog from the organization said that a series of technical errors and mistakes led to the cash being paid out to 4,260 borrowers who had already received their funding. According to the watchdog, the SBA’s computer systems were unable to process the large volume of all the loans and thus became overwhelmed and succumbed to glitches.

Under the Paycheck Protection Program (PPP), approved lenders are giving out loans to small business owners that are backed by the government for repayment. As long as the business owner uses the money for appropriate expenses like paying staff or buying inventory, they are excused from paying it back and the government subsequently reimburses the loan to the lender with interest. 

The government originally said it would only secure one loan per borrower for lenders, worrying some lenders who fear they may be on the hook for the second loan that was accidentally distributed. 

The glitch is not the first hiccup the program has experienced. In April, thousands of borrowers ended up applying for loans under multiple names to increase their chance of getting approved.

The SBA program was not able to detect many of the duplicate loans, leading to unknown amounts of lost money. One of the fraudsters, a 48-year tech-executive from Washington named Mukund Mohan pleaded guilty to defrauding the PPP of $5.5 million. Department of Justice officials said Mohan went to great lengths in his scheme. 

“In support of the fraudulent loan applications, Mohan submitted fake and altered documents, including fake federal tax filings and altered incorporation documents. For example, Mohan misrepresented to a lender that, in 2019, his company Mahenjo Inc. had dozens of employees and paid millions of dollars in employee wages and payroll taxes. In support of Mahenjo’s loan application, Mohan submitted incorporation documents showing that he incorporated the company in 2018 and filed federal unemployment tax forms for 2019. In truth, Mohan purchased Mahenjo on the Internet in May 2020 and, at the time he purchased the company, it had no employees and no business activity. The incorporation documents he submitted to the lender were altered and the federal tax filings he submitted were fake.” 

According to the DOJ, federal prosecutors were able to withdraw the entire amount of owed money from Mohan’s account. His trial is on July 20 and he faces up to 20 years in prison.

In October, a rapper from the music group Pretty Ricky was charged by the Feds for defrauding the government of $1.2 million and then buying a Ferrari with his COVID-19 loan. According to the FBI, Diamond Blue Smith fabricated documents to get undeserved loans for two of his “businesses,” one for $426,717, and one for $708,064.

The rapper had also turned his scheme into a side hustle, helping others defraud the system and taking commissions. One of his customers was former NFL player Josh Bellamy who received $24 million in PPP loans which he allegedly spent on luxury goods and casino trips. There were reportedly 11 others that Smith had helped to defraud the PPP program.

NBC reported that an estimated $63 billion was has been stolen via pandemic relief fraud: 

“When investigators raided a strip mall store in Garden Grove, California, in December, they found a line of customers snaking around the parking lot and huge stacks of cash inside the store. Orange County prosecutors say Nguyen Social Services was charging up to $700…to file false unemployment claims for people who did not qualify to receive COVID-19 relief money.”

“This isn’t just an Orange County problem. It isn’t just a California problem,” said Orange County District Attorney Todd Spitzer. “This is a breakdown of catastrophic proportions that has failed the American taxpayer.”

Senior-level federal investigators are saying that the fraud has been so large scale and elaborate that it will likely take months to fully investigate and unravel.

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