Derek Willis

They promised quick and easy PPP loans. They only delivered hassle and heartache

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Series: The Pandemic Economy

Fiscal Responses to COVID-19

In May 2021, Terry Kilcrease thought he saw a lifeline. He was out of work, living in a hotel in Lewisville, Texas, when he ran across a promising ad on Facebook. People who worked for themselves, it said, could still get loans from the government’s then-13-month-old pandemic Paycheck Protection Program.

Kilcrease had just started selling credit card processing systems to small businesses in early 2020 before the pandemic killed much of the need for cash registers. He hadn’t thought he was eligible for the $800 billion program. But the ad, posted by a company called Blueacorn, convinced him it was worth a try.

“We’ve created a 60-second quiz that can tell you if you qualify and how much you can get,” one ad promised. So Kilcrease registered on the Blueacorn site and answered a few basic questions about his business.

“With a few clicks of a mouse, I had applied,” Kilcrease said. It was so quick, he doesn’t recall many details. Blueacorn checked for all required documents before passing along Kilcrease’s approved application to a lender, Prestamos.

Soon after, Kilcrease received loan documents from the Small Business Administration saying he'd been approved for a $4,790 forgivable loan, which he signed electronically and returned. The money would arrive in his bank account within ten business days, Blueacorn estimated.

Kilcrease was relieved.

“It was everything I needed to get going,” he said. “Just that little bitty bit.”

But the money never made it to Kilcrease. And it never appeared for hundreds of thousands of other applicants, either.

ProPublica has been tracking PPP loans since the government first posted millions of them in July 2020. We kept updating our interactive database as the SBA disclosed more loan information. When the last round of the PPP closed, in May 2021, we noticed something strange: The number of loans the government said it had made kept shrinking with every new release.

By the time the SBA posted its latest update in late November, about 575,000 loans had disappeared, subtracted from an original total of 11.8 million. Most of them came through non-bank online lenders or banks that worked with web platforms such as Blueacorn, which solicited and processed huge volumes of applications for small-dollar loans in the final months of the program.

When we checked with the SBA, they told us the total number of cancelled loans actually topped 1 million. A sizeable number of those were likely applied for by people who were attempting to defraud the program and didn’t make it through additional screening — it’s unclear how many, since the lenders we talked to declined to specify.

But plenty of would-be borrowers were acting in good faith. Scores of them wrote in to our tip lines, perplexed that they had been listed as loan recipients, since they had applied but never received any money.

Their situations sounded a lot like Kilcrease’s: a quick approval in spring 2021, followed by some kind of snafu, and then a monthslong runaround from companies like Blueacorn, eventually resulting in no money after the lender the companies worked with withdrew its initial approval.

The phenomenon prompted the law firm Bailey Glasser to file a pair of lawsuits late last year against Prestamos and another Blueacorn client called Capital Plus Financial on behalf of people who had similar experiences. Prestamos has denied wrongdoing, and Capital Plus Financial declined to comment on pending litigation except to say that the plaintiff was ineligible for a loan.

This game of pingpong was maddening for prospective borrowers who had been told money was on the way, whether they were eligible for the program or not. It was also a hassle for lenders, who never got paid for hundreds of thousands of loans they sent to the SBA (though they reaped billions for those that did get funded). And it likely could have been prevented if the SBA had required more screening on the front end, before approving loans in the first place.

SBA spokesperson Christalyn Solomon said that the agency delegated that responsibility to lenders, which acted as “agents of the government to approve and disburse loans.” The SBA then assigned each loan a number, which confirmed that the government would guarantee it.

“Loans were removed for the FOIA Public Data Set because they were canceled by the lender,” Solomon wrote in an email. Several hundred thousand loans were also approved and then canceled before the SBA started publishing data on loans worth less than $150,000 in December 2020.

Blueacorn said it worked hard to reach as many self-employed people as possible, but wasn’t able to quickly obtain some information that would have been helpful in filtering out ineligible applicants. Prestamos, the lender to which Blueacorn submitted Kilcrease’s application, declined to comment on individual borrowers, citing confidentiality guidelines. But Prestamos said that a majority of its approximately 50,000 canceled loans resulted from borrowers not signing their loan documents.

Kilcrease’s bank rejected his PPP loan deposit in early June, yet Blueacorn continued to assure him the money was coming. “Don’t worry, your funds are secure and you will be funded soon,” a Blueacorn support worker wrote in a July message. “Both management and engineering are working on a solution as we speak.”

For weeks, not much happened. In August, Kilcrease got through to someone at Prestamos, the lender Blueacorn was working for. She asked for his 2020 tax return, which documented $5,600 in gross income. Then, e-mails show, she told Kilcrease he had provided conflicting numbers to Blueacorn and to the IRS, and his application would be formally denied.

Kilcrease said that he might have been confused about what information Blueacorn was initially asking for when he clicked a few buttons to apply back in May. But then why would they have approved him in the first place, and put him through months of hope, frustration and disappointment?

“They saw a whole lot of profit in people like me, sole proprietors,” said Kilcrease, citing the fee that lenders received for successfully funding small PPP loans. “They were given a hope, and it was just dashed, with no remorse and no recourse for anybody.”

The first round of the PPP, which kicked off in April 2020, mostly went to the largest small businesses. Clogged by applications from companies big enough to have bankers and accountants, the $349 billion fund was exhausted within weeks.

Realizing the need among actual mom-and-pops, Congress authorized another $320 billion in June 2020. That round reached millions more main-street-type companies: coffee shops, hair salons, restaurants, real estate agents.

By winter, the coronavirus recession was still hammering people who’d missed out on earlier rounds. Congress authorized the lending of unused funds and added more, while the incoming Biden administration tailored the rules to help sole proprietorships and independent contractors.

That’s when financial technology companies — user-friendly websites with automated application platforms that often partner with lenders to supply loans — saw a big opportunity.

In the earlier stages of the PPP, banks mostly served existing customers that already had documents on file, making it easy to process their government-backed loans. But as Congress pushed to include businesses on the fringes of the financial system, lenders had to deal with huge numbers of applicants they’d never assessed before.

They often outsourced that task to websites — we’ll call them loan processors — that marketed PPP loans to the self-employed and other small businesses and performed the basic checks required by the SBA. The SBA paid a fee for each funded loan to the lender, which in turn gave a cut to the processor for finding and vetting a borrower.

December’s stimulus package boosted fees up to $2,500 or 50% of small loans, whichever was less. Loan processors, which utilized aggressive social media outreach to people who had had any kind of self-employment income before Feb. 15, 2020, churned through millions of loan applications quickly.

In an effort to keep barriers to entry low, the SBA required very little verification on the front end. Once an application was approved and assigned an SBA loan number, borrowers were forbidden from applying elsewhere. So loan processors had every reason to lock them in quickly, with few anti-fraud measures, said independent fintech analyst Jason Mikula — even if it meant dealing with verification questions later on.

“At the end of the day, if they end up rejecting someone for being suspicious, they’re actually losing money,” said Mikula, noting that building automated fraud models takes time and money, even under normal circumstances. “There were no incentives in place to encourage these companies to be particularly careful about how they went about funding these things.”

An arms race followed. Fintechs competed for the self-employed, advertising their easy routes to quick, forgivable cash; some said they employed rigorous verification tools following SBA approval. But Blueacorn was the one that got really lucky.

By May 2021, the Biden administration had changed the rules again to prioritize loans made by community development financial institutions, which have access to special funding from the Treasury Department to support underserved populations. Blueacorn, which launched in Phoenix in 2020, happened to partner with two of them: Prestamos CDFI, an arm of the nonprofit service group Chicanos Por La Causa, and Capital Plus Financial, the CDFI subsidiary of a larger holding company called Crossroads Systems.

Those relationships allowed Blueacorn to keep lending through the end of the PPP on May 31, while other lenders were locked out.

By the end, the two CDFIs appeared to have processed more than $15 billion in loans to 955,000 small businesses, nearly all with Blueacorn. Blueacorn declined to detail its fee split arrangement with banks and other vendors. But Crossroads Systems said in an earnings report that it had made approximately $930 million on the program, $606 million of which went to its loan processors. (Crossroads also paid out a $40 per share special dividend as a result of what it called the “windfall” fee income, while keeping $120 million to reinvest in lower-income communities.)

Fintechs have positioned themselves as champions of the little guy, reaching truck drivers and dog walkers, especially people of color, who’d been overlooked by the big banks.

The companies’ promises to get money to thousands of independent workers from underserved communities is broadlytrue — but also somewhat overblown.

In May, June, and July, about 285,000 loans disappeared from the SBA’s loan database. The companies that originally processed the loans told ProPublica there were a number of reasons why so many ended up canceled after having been approved by the SBA. Some appear to have been held up by borrower errors and second thoughts, but many cancellations were the result of the SBA’s loose requirements for pre-approval screening.

One of the largest sources of canceled loans was Biz2Credit, an online lender founded in 2007, which withdrew about 115,000 loans after approving an original total of more than 300,000. A representative of the company, crisis communications consultant Michael Sitrick, said that the company employed “detailed underwriting protocols” after submitting the loans to the SBA. Canceled loans, he said, resulted from a combination of applications determined to be fraudulent after further checks, people who didn’t respond to additional requests for documentation and people who voluntarily withdrew their applications.

“Lenders were required to stop fraud whenever they found it,” Sitrick wrote in an email. “Given the sophistication of widely available document forgeries and other enterprise fraud, it was virtually impossible to detect fraud only by reviewing select documents prior to submission to the SBA.”

The pile of canceled loans also included about 30,000 made by an entity newly created by the lender Fountainhead, which prior to the pandemic had specialized in SBA-backed loans. Still, they had thousands of borrowers who didn’t sign their loan documents and inexplicable cancellations by the SBA itself after the agency had approved loans and banks had paid out the money.

“On occasion it would say ‘duplicate tax ID discovered,’” said Fountainhead’s chief operating officer, Michael Bland, referring to the SBA. “OK, well, what was your screening on the front end for? You went through your process and approved it, we closed it, I don’t know why that might be an issue now.”

Last month, Blueacorn lending partner Crossroads Systems agreed to purchase Fountainhead for an undisclosed amount.

When the SBA posted its most recent database update the day before Thanksgiving, it had dropped another 294,000 loans. About 140,000 of them belonged to the two CDFIs that had primarily worked with Blueacorn, Prestamos and Capital Plus, which accelerated their business in the three weeks after the program closed to regular lenders. In May alone, they approved at least 458,300 loans.

At the peak of the program, Blueacorn said, it had 300 people in the Phoenix area reviewing a deluge of loan applications. A quick scan of each one would usually lead to a quick signoff by the SBA.

But sometimes, between approval and funding, Blueacorn would find flags of fraudulent activity like an improbable concentration of applicants with very similar paperwork in a small geographic area — hairdressers making more than $100,000 a year on the south side of Chicago, for example. The processor would ask those borrowers for more documentation, and if they failed to provide it, cancel the loans.

Blueacorn said that thousands of loans it had approved and attempted to fund, meanwhile, were rejected by banks where applicants had savings accounts. Some of the banks had run their own know-your-customer checks on the accounts and sent them back to the processor for additional verification. Others cut off fintech processors entirely if they seemed to be vectors for fraud, causing problems for those who were genuine.

“Towards the end of the program, the willingness of recipient banks to work with PPP lenders got worse by theminute,” said Barry Calhoun, Blueacorn’s CEO.

Eric Kinney is the senior vice president for risk at Oxygen, a banking platform for small businesses. He said he saw so many people attempting to move PPP money into offshore accounts or into cryptocurrency assets that he blocked loan proceeds from “four main PPP lenders.”

“There are a couple lenders who we’ve said no to, we’re not going to accept any more payments,” Kinney said, declining to name the companies. “A referral channel that has a high fraud rate on it, it’s our job as a company to monitor that and block certain situations.”

Loan processors would try to work with borrowers and their banks to provide the requested information. If that didn’t succeed, they had the option of putting the money on a debit card, but that required even more documentation from borrowers, resulting in an outpouring of angry posts on internet message boards like Trustpilot, the Better Business Bureau, Reddit and Facebook.

Now, borrowers who were approved but never received their money are plaintiffs in two lawsuits filed against Prestamos CDFI and Capital Plus Financial last October and December, saying that the failure to fund the loans constitutes a breach of contract. In a motion to dismiss, Prestamos said that the loan document created no obligation to actually fund the loan, and a spokesperson declined to comment further on the case. Capital Plus Financial hasn’t yet filed any responses, but told ProPublica that the sole named plaintiff had provided an “illegible” tax return that wasn’t signed, which is why the company decided to revoke his loan.

Blueacorn’s Calhoun said much of the hassle could have been avoided from the beginning had the SBA allowed lenders to access more documents that would ensure the borrower was legitimate. Creating a quick way for certified, regulated loan processors to pull an applicant’s tax records, for example, would have provided a hard check on who was eligible.

“A few adjustments would’ve gotten rid of a lot of the lazy fraud,” said Calhoun. “Because there was so much ambiguity, it encouraged a lot of people.”

This happened more smoothly in other countries where companies file federal taxes quarterly or even monthly, allowing the government to know their exact income without the need for lenders to request documentation that was sometimes difficult to verify. Instead, the SBA allowed applicants to file draft tax returns, which can easily be manipulated.

The whole experience left Terry Kilcrease feeling cynical.

“The big companies made out like fat cats, the lenders made out like fat cats, all these companies that already had plenty of money,” Kilcrease said. “The people like me who are struggling to get there were just completely forgotten about.”

'Deely Nuts' and 'Beefy King': Hundreds of PPP loans worth $7 million went to fake farms in absurd places

Hundreds of PPP Loans Went to Fake Farms in Absurd Places

by Derek Willis and Lydia DePillis

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

The shoreline communities of Ocean County, New Jersey, are a summertime getaway for throngs of urbanites, lined with vacation homes and ice cream parlors. Not exactly pastoral — which is odd, considering dozens of Paycheck Protection Program loans to supposed farms that flowed into the beach towns last year.

As the first round of the federal government's relief program for small businesses wound down last summer, “Ritter Wheat Club" and “Deely Nuts," ostensibly a wheat farm and a tree nut farm, each got $20,833, the maximum amount available for sole proprietorships. “Tomato Cramber," up the coast in Brielle, got $12,739, while “Seaweed Bleiman" in Manahawkin got $19,957.

None of these entities exist in New Jersey's business records, and the owners of the homes at which they are purportedly located expressed surprise when contacted by ProPublica. One entity categorized as a cattle ranch, “Beefy King," was registered in PPP records to the home address of Joe Mancini, the mayor of Long Beach Township.

“There's no farming here: We're a sandbar, for Christ's sake," said Mancini, reached by telephone. Mancini said that he had no cows at his home, just three dogs.

All of these loans to nonexistent businesses came through Kabbage, an online lending platform that processed nearly 300,000 PPP loans before the first round of funds ran out in August 2020, second only to Bank of America. In total, ProPublica found 378 small loans totaling $7 million to fake business entities, all of which were structured as single-person operations and received close to the largest loan for which such micro-businesses were eligible. The overwhelming majority of them are categorized as farms, even in the unlikeliest of locales, from potato fields in Palm Beach to orange groves in Minnesota.

The Kabbage pattern is only one slice of a sprawling fraud problem that has suffused the Paycheck Protection Program from its creation in March 2020 as an attempt to keep small businesses on life support while they were forced to shut down. With speed as its strongest imperative, the effort run by the federal Small Business Administration initially lacked even the most basic safeguards to prevent opportunists from submitting fabricated documentation, government watchdogs have said.

While that may have allowed millions of businesses to keep their doors open, it has also required a massive cleanup operation on the backend. The SBA's inspector general estimated in January that the agency approved loans for 55,000 potentially ineligible businesses, and that 43,000 obtained more money than their reported payrolls would justify. The Department of Justice, relying on special agents from across the government to investigate, has brought charges against hundreds of individuals accused of gaming pandemic response programs.

Drawn by generous fees for each loan processed, Kabbage was among a band of online lenders that joined enthusiastically in originating loans through their automated platforms. That helped millions of borrowers who'd been turned down by traditional banks, but it also created more opportunities for cheating. ProPublica examined SBA loans processed by several of the most prolific online lenders and found that Kabbage appears to have originated the most loans to businesses that don't appear to exist and the only concentration of loans to phantom farms.

In some cases, these problems would've been easy to spot with just a little more upfront diligence — which the program's structure did not encourage.

“Pushing this through financial institutions created some pretty bad incentives," said Naftali Harris, the CEO of Sentilink, which helps lenders detect potential identity theft. “This is definitely a case where companies that decided they wanted to be more careful in terms of giving out loans were penalized for doing so."

Presented with ProPublica's findings, SBA inspector general spokeswoman Farrah Saint-Surin said that her office had hundreds of investigations underway, but that she did “not have any information to share or available for public reporting at this time." Reuters reported that federal investigators were probing whether Kabbage and other fintech lenders miscalculated PPP loan amounts, and the DOJ declined to confirm or deny the existence of any investigation to ProPublica.

Kabbage, which was acquired by American Express last fall, did not have an explanation for ProPublica's specific findings, but it said it adhered to required fraud protocols. “At any point in the loan process, if fraudulent activity was suspected or confirmed, it was reported to FinCEN, the SBA's Office of the Inspector General and other federal investigators, with Kabbage providing its full cooperation," spokesman Paul Bernardini said in an emailed statement.

As soon as the pandemic swept across America, Kabbage was in trouble.

The online lending platform had launched in 2009 as part of a generation of financial technology companies known as “non-banks," “alternative lenders" or simply “fintechs" that act as an intermediary between investors and small businesses that might not have relationships with traditional banks. Based in Atlanta, it had become a buzzy standout in the city's tech scene, offering employees Silicon Valley perks like free catered lunches and beer on tap. It advertised its mission as helping small businesses “acquire funds they need for their big breaks," as a recruiting video parody of Michael Jackson's “Thriller" put it in 2016.

The basic innovation behind the burgeoning fintech industry is automating underwriting and incorporating more data sources into risk evaluation, using statistical models to determine whether an applicant will repay a loan. That lower barrier to credit comes with a price: Kabbage would lend to borrowers with thin or checkered credit histories, in exchange for steep fees. The original partner for most of its loans, Celtic Bank, is based in Utah, which has no cap on interest rate, allowing Kabbage to charge more in states with stricter regulations.

With backing from the powerhouse venture capital firm SoftBank, Kabbage had been planning an IPO. Its model foundered, however, when Kabbage's largest customer base — small businesses like coffee shops, hair salons and yoga studios — was forced to shut down last March. Kabbage stopped writing loans, even for businesses that weren't harmed by the pandemic. Days later, it furloughed more than half of its nearly 600-person staff and faced an uncertain future.

The Paycheck Protection Program, which was signed into law as part of the CARES Act on March 27, 2020, with an initial $349 billion in funding, was a lifeline not just to small businesses, but fintechs as well. Lenders would get a fee of 5% on loans worth less than $350,000, which would account for the vast majority of transactions. The loans were government guaranteed, and processors bore almost no liability, as long as they made sure that applications were complete.

At first, encouraged by the Treasury Department, traditional banks prioritized their own customers — an efficient way to process applications with little fraud risk, since the borrowers' information was already on file. But that left millions of the smallest businesses, including independent contractors, out to dry. They turned instead to a collection of online lenders that have sprung up offering short-term loans to businesses: Kabbage, Lendio, Bluevine, FundBox, Square Capital and others would process applications automatically, with little human review required.

For the platforms, this was also easy money. In the first funding round that ran out last August, Kabbage completed 297,587 loans totaling $7 billion. It received 5% of each loan it made directly and an undisclosed cut of the proceeds for those it processed for banks; its total revenue was likely in the hundreds of millions of dollars. A lawsuit filed by a South Carolina accounting firm alleges that Kabbage was among several lenders that refused to pay fees to agents who helped put together applications, even though the CARES Act had said they could charge up to 1% of the smaller loans (a provision that was later reversed). For Kabbage, that revenue kept the company alive while it sought a buyer.

“For all of these guys, it was like shooting fish in a barrel. If you could do the minimum amount of due diligence required, you could fill up the pipeline with these applications," said a former Kabbage executive, one of four former employees interviewed by ProPublica. They spoke on the condition of anonymity to avoid retaliation at their current jobs or from industry giant American Express.

To handle the volume, Kabbage brought back laid-off workers starting at $15 an hour. When that failed to attract enough people, they increased the hourly rate to $35, and then $40, and awarded gift cards for reaching certain benchmarks, according to a former employee with visibility into the loan processing. “At a certain point, they were like, 'Yes, get more applications out and you'll get this reward if you do,'" the former employee said. (Bernardini said the company did not offer incentive compensation.)

In a report on its PPP participation through last August, Kabbage boasted that 75% of all approved applications were processed without human review. For every 790 employees at major U.S. banks, the report said, Kabbage had one. That's in part because traditional banks, which also take deposits, are much more heavily regulated than fintech institutions that just process loans. To participate in the PPP, fintechs had to quickly set up systems that could comply with anti-money laundering laws. The human review that did happen, according to two people involved in it, was perfunctory.

“They weren't saying, 'Is this legitimate?' They were just saying, 'Are all the fields filled out?'" said another former employee. As acquisition talks proceeded, the employee noted, Kabbage managers who held the most company stock had a built-in incentive to process as many loans as possible. “If there's anything suspicious, you can pass it along to account review, but account review was full of people who stood to make a lot of money from the acquisition."

One situation in which Kabbage approved a suspicious loan became public in a Florida lawsuit filed by a woman, Latoya Clark, who received more than $1 million in PPP loans to three businesses. When the funds were deposited into accounts at JPMorgan Chase, the bank discovered that Clark's businesses hadn't been incorporated before the PPP program's cutoff and froze the accounts. Clark sued Chase, and Chase then filed a counterclaim against the borrower and Kabbage, which had originated the loan despite its questionable documentation. In its response, Kabbage said it had not yet completed its investigation of the incident.

Although the Justice Department rarely names lenders that processed fraudulent PPP applications, Kabbage has been named at least twice. One case involved two loans worth $1.8 million to businesses that submitted forged information, and the other involved a business that had inflated its payroll numbers and submitted a similar application to U.S. Bank, which flagged authorities. Kabbage had simply approved the $940,000 loan. American Express' Bernardini declined to comment further on pending litigation.

Shortly after the application period for PPP's first round closed on Aug. 8, American Express announced the Kabbage purchase. But the transaction included none of Kabbage's loan portfolios, either from the PPP or its pre-pandemic conventional loans. The PPP loans had either been sold to SBA-approved banks or bought by the Federal Reserve. Bernardini wouldn't say which banks now own the loans, however, and said that no potentially fraudulent loans had been pledged to the Fed.

In April, an Ocean County, New Jersey, resident contacted ProPublica after seeing his name attached to a Kabbage loan for a nonexistent “melon farm." To see whether it was an isolated incident, ProPublica took basic information the government released after a Freedom of Information Act lawsuit by ProPublica and others and compared it with state business entity registries. Although registries don't pick up all sole proprietorships and independent contractors, the absence of a name is an indication that the business might not exist.

As it turned out, Kabbage had made more than 60 loans in New Jersey to unlisted businesses. Fake farms also showed up repeatedly in the SBA's Economic Injury Disaster Loan Program, according to reports from localnewsoutlets.

A common tie became apparent when the resident of the home to which one nonexistent business was registered said that he was a client of the certified public accountants at Ciccone, Koseff & Company. In March 2020, the firm notified its clients of what it called an “ultimately unsuccessful ransomware attack" that occurred the previous month. According to information filed with Maine's attorney general, the attackers acquired Social Security numbers and financial information.

Several other clients of the accounting firm, including Mancini, the Long Beach mayor, also had loans registered to their addresses. Reached by phone, firm founder Ray Ciccone declined to comment.

But that CPA's data breach didn't account for all of the suspicious loans ProPublica found across the country. Searches for PPP applicants that didn't show up in state registration records yielded hundreds in 28 more states, with dense clusters in Florida, Nebraska and Virginia. Other lenders had nonexistent businesses as well, but fake farms only showed up in Kabbage loans. Most followed a distinctive naming convention, with part of the name of a resident or former resident of the home to which the business is registered, plus a random agricultural term.

Some of the fake loans listed addresses of people who'd also legitimately applied for their businesses. Hartington, Nebraska, anesthesiologist Bruce Reifenrath received a PPP loan for his practice in nearby Yankton, South Dakota. That's why the idea of one being approved for a “potato farm" was so strange. “We did a PPP loan last spring and it's pretty extensive, the documentation," Reifenrath said.

Reifenrath was part of a cluster of dubious Kabbage loans in Hartington that also included the home of J. Scott Schrempp, the president of the Bank of Hartington, who confirmed that he did not own a strawberry farm. Schrempp said he had noticed the fake loan, and reported it to the SBA.

The SBA data only reflects approved applications received from lenders, some of which are then caught and not funded. The SBA also periodically updates its dataset to remove loans canceled by lenders. But none of the suspicious loans pulled by ProPublica show undisbursed funds, and they all have remained in the dataset for more than eight months.

One possible mechanism for the invented businesses is a technique known as synthetic identity theft, in which a criminal obtains pieces of personally identifiable information — such as a home address, a Social Security number and a birthdate — and combines it with fake information to build a credit profile. The associated bank account then routes to the fraudster, not the owner of the original information.

None of the residents of the phony farms ProPublica contacted were getting notices that they needed to repay the loans they didn't apply for, because they didn't get any money. But that doesn't mean they're not at risk, according to James Lee, chief operating officer at the Identity Theft Resource Center.

“Just having an address linked to your name on a fraudulent loan can impact your credit," Lee said. It can also pose problems for pre-employment background checks, insurance applications or new identification documents like passports and driver's licenses.

Meanwhile, if not corrected, the fabricated identities will stay in circulation and become better at fooling other financial institutions. “Those records get built into the credit and authentication systems used by government and commercial entities," Lee said. “Each next time they are used and authenticated, the more 'real' they become. That's what makes synthetic identity fraud so insidious."

This, however, is largely not Kabbage's problem anymore.

After its huge blitz of PPP loans last summer, Kabbage had hundreds of thousands of borrowers whose loans would need to be serviced until they were closed out. The loans could either be forgiven, if the borrower demonstrated that they spent most of the money on payroll, or paid back with interest. To finish the job, American Express spun off a separate entity called K Servicing, which would also take applications for a second PPP draw that Congress funded in December. The new entity is led by former Kabbage employees and its website looks very similar to Kabbage's, but American Express says it has no affiliation.

If Kabbage was understaffed for the volume of PPP loans it took on before the acquisition, the situation has apparently worsened since then. Reddit, Yelp, Consumer Affairs, Trustpilot, Facebook and Better Business Bureau threads are replete with complaints from customers whose applications were denied or who received no communication from the company. When the SBA changed the rules in February to make the program more generous to independent contractors, K Servicing couldn't incorporate the new forms into its processing system. So it told all new applicants to apply through another company, SmartBiz, which had operated as a mostly online processor of SBA loans even before the pandemic.

K Servicing is run by Kabbage's former head of program management, Laquisha Milner, who also runs her own consulting firm. “Due to extenuating circumstances beyond our control, currently, our processing function is delayed," Milner emailed in response to detailed questions from ProPublica. “We are relentlessly exploring all available options to ensure our existing customers are able to maximize their loan forgiveness."

Jennifer Dienst is a freelance travel and events writer who received her first-draw loan from Kabbage and wants to apply for forgiveness before her window for doing so closes in the fall, but she has been stymied by K Servicing's failure to make the forms available. “Please be patient with us as we prepare for the new forms," a message on the loan portal reads.

Meanwhile, Dienst's account has started accruing interest, which Milner said will not be charged if the loan is forgiven. But it's making Dienst nervous.

“It's always the same response from K Servicing — we're updating our forgiveness forms and they'll be made available soon," Dienst said. “They've been saying that for months."

How Josh Hawley and Marjorie Taylor Greene juiced their fundraising numbers

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

Two of the leading Republican firebrands in Congress touted big fundraising hauls as a show of grassroots support for their high-profile stands against accepting the 2020 election results.

But new financial disclosures show that Sen. Josh Hawley, R-Mo., and Rep. Marjorie Taylor Greene, R-Ga., relied on an email marketing vendor that takes as much as 80 cents on the dollar. That means their headline-grabbing numbers were more the product of expensively soliciting hardcore Republicans than an organic groundswell of far-reaching support.

Hawley and Greene each reported raising more than $3 million in the first three months of the year, an unusually large sum for freshman lawmakers, according to new filings with the Federal Election Commission. That's more than the average House member raises in an entire two-year cycle, according to data compiled by the Center for Responsive Politics. The tallies generated favorable press coverage for Hawley and Greene, and they both seized on the numbers to claim a popular mandate.

Politico called Greene's result “eye-popping" and “staggering," a sign that she “appears to have actually benefited from all the controversies that have consumed her first few months in office." The House voted in February to remove Greene from her committee assignments because of her social media posts that promoted far-right conspiracy theories; racist, anti-Semitic and anti-Muslim rhetoric; and violence against Democratic leaders.

“I am humbled, overjoyed and so excited to announce what happened over the past few months as I have been the most attacked freshman member of Congress in history," Greene said in an emailed statement on April 7. “Accumulating $3.2 million with small dollar donations is the absolute BEST support I could possibly ask for!"

As for Hawley, who was the first senator to say he'd object to certifying the Electoral College results on Jan. 6, Politico proclaimed that his massive increase showed “how anti-establishment Republicans are parlaying controversy into small-dollar fundraising success." Hawley's pollster, Wes Anderson with the political consulting firm OnMessage, said in a memo distributed to supporters that the “fundraising surge" made “crystal clear that a strong majority of Missouri voters and donors stand firmly with Senator Hawley, in spite of the continued false attacks coming from the radical left."

It wasn't until later, when the campaigns disclosed their spending details in last week's FEC reports, that it became clearer how they raised so much money: by paying to borrow another organization's mailing list.

“List rental" was the No. 1 expense for both campaigns, totaling almost $600,000 for each of them. It's common for campaigns to rent lists from outside groups or other candidates to broaden their reach. But for Hawley and Greene, the cost was unusually high, amounting to almost 20% of all the money they raised in January, February and March.

The actual return on renting the lists was likely even lower, since it's probable that not all their donations came from emailing those lists. It's not possible to tell from the FEC filings which contributions resulted from which solicitations. Firms that sell lists sometimes demand huge cuts: The top vendor for Hawley and Greene, LGM Consulting Group, charges as much as 80%, according to a contract disclosed in Florida court records as part of a dispute involving Lacy Johnson's long-shot bid to unseat Rep. Ilhan Omar, D-Minn.

The Hawley and Greene campaigns did not respond to requests for comment. LGM Consulting Group's principal, Bryan G. Rudnick, also did not respond to phone messages or an email.

Far beyond these two campaigns or this one company, small-dollar fundraising has exploded thanks to easy online payments, which are rewriting the playbook for campaign finance in both parties. At the same time, the rise of email fundraising has spawned some aggressive or even deceptive marketing tactics and made plenty of room for consultants and vendors to profit. A move by then-President Donald Trump's 2020 campaign to sign up supporters for recurring payments by default led to as much as 3% of all credit card fraud claims filed with major banks, according to The New York Times. In some long-shot congressional races, consultants could walk away with almost half of all the money raised, The Washington Post reported.

Hawley's and Greene's list rentals show how politicians can pad their fundraising figures — if they're willing to pay for it. There's scant evidence that fundraising success represents broad popular support for a politician outside the narrow slice of Americans who make political contributions, and many of the people on the rented mailing lists may not have been constituents of Hawley's or Greene's. Still, the money is real, and the perception of fundraising star power is its own kind of success in Washington.

“They're juicing their numbers, but their return on investment is still a net gain," said Jessica Baldwin-Philippi, a professor at Fordham University who researches how political campaigns use digital communications. “The money matters, the articles about the money matter and convey power, and it adds to their clout."

The cost to rent a list can be a flat fee, a percentage cut of money raised, or even all money raised after a campaign clears a certain threshold. Donors have limited visibility into where their money goes and may not realize how much is being diverted from the candidate they mean to support.

Renting lists can pay dividends for campaigns because people who respond by donating then enter the candidates' own databases of supporters, and past contributors are much more likely to give again. Candidates with big donor bases can tap them for more money later or turn around and rent their own list to others.

Political professionals have gotten more sophisticated about efficiently converting online outrage into campaign cash. At the same time, candidates who court controversy may increasingly rely on rage-fueled online fundraising as more traditional donors freeze them out. In the aftermath of Jan. 6, Hawley lost the support of some big donors, and major companies such as AT&T and Honeywell pledged to withhold donations from lawmakers who objected to the Electoral College vote.

“The news cycle that emerges out of controversial behavior by a candidate is like a strong gust of wind, and these mechanisms like list-building are the equivalent of sails," said Eric Wilson, a digital strategist who has advised Sen. Marco Rubio and the National Republican Senatorial Committee. “For candidates like Marjorie Taylor Greene and Josh Hawley, who have largely been shunned by traditional corporate donors who are frequently the mainstays for elected officials, especially in off years, they have no choice but to pursue grassroots fundraising. And in order for that to work, they have to continue to make more noise. It is a feedback loop in that regard."

It's not clear how Rudnick compiled his list (or lists). But one clue to the audience that Rudnick may help unlock is who else has hired him. Besides Hawley and Greene, FEC records show that last quarter LGM Consulting also rented a list or provided online fundraising solicitations to:

In the 2020 campaign cycle, the firm's clients included then-Rep. Doug Collins, a Trump ally who lost the Georgia Senate primary; Madison Cawthorn, the 25-year-old congressman from North Carolina who spoke at the Jan. 6 rally; and Laura Loomer, a far-right internet personality who calls herself a “proud Islamophobe" and lost a run for a Florida congressional seat.

Rudnick has his own history of controversy. He was fired by the Pennsylvania Republican Party in 2008 after sending emails to Jewish voters likening a vote for Barack Obama to the leadup to the Holocaust. “Many of our ancestors ignored the warning signs in the 1930s and 1940s and made a tragic mistake," the email said. “Let's not make a similar one this year!" Rudnick told the Associated Press at the time that party officials authorized the message, but he declined to name them.

Campaigns don't have to disclose whose list an email is being sent to, and fundraising emails aren't comprehensively made public, so it's not possible to tell exactly how Hawley and Greene used the lists they rented. But several of Hawley's fundraising emails contained digital fingerprints tying them to Rudnick: They were sent from a web domain that shares an address with one of Rudnick's companies, and the links to donate include “ASG," short for Rudnick's Alliance Strategies Group.

In one email, sent on March 6, Hawley touted his interview on Tucker Carlson's Fox News show, in which Hawley said Democrats would use the Jan. 6 insurrection “as an excuse to seize power, to control more power, to step on people's Second Amendment rights, to take away their First Amendment rights." Following up on a major media appearance with a fundraising email is an effective technique, Wilson said.

In a second email using the Rudnick-linked domain, Hawley explicitly laid out his goal of posting an impressive fundraising number.

“I will be filing the first FEC financial report I have filed since I stood up for the integrity of our nation's election and the left began their attempts to cancel me," Hawley said in the email. “With your donation of $25, $50, $100 or more before the critical deadline on March 31, we will shock the left — they won't be able to ignore us any longer."

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