Recent Report of Record-Setting Complaints Re: Pandemic Loan Fraud

June 24, 2021

By Andrea L. Moseley

Inspector General Hannibal “Mike” Ware sent a Spring message that we can hear loud and clear. The Small Business Association’s (SBA’s) tremendous role in the nation’s pandemic response was “without precedent” according to the SBA’s Semiannual Report to Congress for the first half of fiscal year 2021. What was once a cautious warning about plans for oversight has become a story of oversight coming home to roost.

The SBA reports that is has expended more than a trillion dollars in lending authority and entrepreneurial assistance in the wake of the pandemic. As we all knew, and IG Ware confirmed, the speed and reduced controls surrounding this lending authority brought with it substantially increased risk of abuse. Since the SBA’s oversight plan from April 2020, hundreds of individuals have been prosecuted and $600 million has been seized for the benefit of taxpayers.

The SBA claims that more than 200 “fraudsters” have been brought to justice. Frankly, that just does not seem like a lot of people to me given the numbers of complaints that have been reported (see hotline numbers below). As I have pointed out previously, prosecutions thus far still universally consist of garden variety fraud cases involving overt schemes to deceive. White collar defense attorneys are closely watching and waiting for the trend of prosecution to shift toward grey area levels of alleged fraud. This is fraud that requires subjective interpretations and assumptions about the intent of individuals in the context of looking backwards. This type of fraud allegation is much more likely to touch our corporate clients and small businesses who were unwitting in their errors.

The most notable set of numbers in the SBA Report is the fact that 150,000 hotline complaints about waste, fraud and abuse came in between March 2020 and April 2021. The SBA stated that this was more than 150 years worth of complaints prior to the pandemic. Contrast that figure against the 742 complaints received in all of 2019.

Take note, this insane surge of hotline calls is significant. If there have only been 200 “fraudsters” brought to justice and there have been now been 150,000 new hotline complaints, then there are staggering numbers of investigations and prosecutions to come. The report states that the SBA has been overwhelmed by this volume. As white collar practitioners we need to brace ourselves and our clients for the fact that delayed or even stale complaints may become an issue. The SBA report tallies up 119 indictments and 32 convictions for this last six month period. If there have been 61,000 hotline complaints in just the last six months imagine how many ongoing investigations and prosecutions are lying in wait.

IG Ware’s big bottom line was that investigations and audit work achieved monetary recoveries and savings of $85.4 million during this period. With monetary results like these, there will be no pulling punches as these hotline reports trickle down into the court system.

Published by Kropf Moseley

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