COVID-19 Economic Disaster Loan Program Records Reveal Fraud
SBA Inspector General Hannibal “Mike” Ware warned of “potentially rampant fraud” in the program in July. Bloomberg News then reported how to apply for bogus grants went viral in some neighborhoods over the summer, how foreign crooks looted loans using fake IDs and how even someone posing while President Donald Trump took home $ 5,000. Bloomberg too reported about a family that started dozens of bogus farming businesses in suburban Cleveland and raised more than $ 7 million in loans.
The recently released recordings solve a mystery that has clouded the SBA program for months. Nationwide, the number of $ 10,000 grants approved equates to about two-thirds of small businesses with 10 or more employees, according to the most recent census data available. But in some congressional districts around Chicago, Atlanta, Miami, Houston, and elsewhere, the $ 10,000 grants outnumbered eligible companies. Nationally, the surplus was approximately 133,000 grants, with a total value of $ 1.3 billion.
In Postal code 60620, which encompasses the South Hermitage block in Chicago’s Auburn Gresham neighborhood, Census data shows at most 156 institutions large enough to qualify for the largest SBA grant. But the agency sent 3,824 grants of $ 10,000 there, suggesting that the vast majority of payments involved fraud. The newly disclosed records provide the names and addresses of all aid recipients and show that most applicants in 60620 did not provide proof of business registration or even a business name – they only used nothing more than an individual’s name and a residential address.
Many grant recipients identify themselves on social media as employees, not small business owners. Frequently, two or three checks for $ 10,000 were given to different people living in the same apartment or single family home. A few blocks west of South Hermitage, a bungalow near Dawes Park has six. Then there were the two dozen “farms” dotted around the neighborhood, operating from single-family homes, apartment buildings, and a narrow lot containing only a billboard.
The only parts of the neighborhood that didn’t get showered with $ 10,000 grants were the ones that should have been: commercial gangs with nail salons, smartphone stores, and clothing stores. Many of these businesses are not on the recipient list, including the Four Seasons Barber Shop, not far from the South Hermitage block. Around noon one day last week, a row of barber chairs was empty except for a few barbers waiting for a client. “At the moment we are trying to get by,” said a barber through a black face mask.
One clue to the extent of the fraud comes from the SBA’s handling of concert workers. The agency gave companies grants of $ 1,000 for each worker, up to a maximum of $ 10,000. Typically, drivers for companies like Uber are independent independent contractors, eligible for just $ 1,000. But Bloomberg has identified 217 pilots for Uber, Lyft, and Amazon Flex who won grants of $ 10,000.
About 3% of the more than 21,000 grant recipients who identified themselves as drivers for these businesses or provided their business addresses received more than $ 1,000, indicating that they claimed in the application to have their own employees. . The result is that about 11% of the grant money was spent on inflated employee numbers. If this rate of fraud continued across the program, more than $ 2 billion of the $ 20 billion in grants would be in doubt.
Another clue comes from grants and loans given to businesses that have described themselves as farms. Farm producers had an advantage in the application process because they were eligible in May and early June, when applications were closed to most others. Records reveal thousands of unincorporated “farms” in dense urban areas, from Brooklyn to Chicago to San Francisco. Hundreds of them said they had 10 employees, or used an address in a multi-unit building, or both.
The two Greenwich Village poultry farms appear to be the brainchild of a con artist who stole the identities of apartment residents, a church treasurer and his wife. Informed by Bloomberg News of the loan approvals, the treasurer contacted the SBA and was told the money had never been released due to an issue with a bank account. “Would it be asking too much of the government to understand that it should not give loans to New York poultry farmers?” said the treasurer, who asked not to be named because he didn’t want to embarrass his church. “Is it difficult to filter? “
Las Vegas strip club workers who claimed to run their own 10-employee businesses and collect grants despite a prohibition on helping ‘live performances of a lascivious sexual nature’. Bloomberg identified 21 strip club workers there who got maximum size grants, including 11 at Sophia’s Gentlemen’s Club, a topless joint calling himself the # 1 luxury strip club of the city. Recipients did not go to great lengths to hide their profession, often using their workplace address and describing their businesses as “organizing adult parties.”
The $ 10,000 payment was a lifeline for a stripper who couldn’t find a job after Larry Flynt’s Hustler Club in Las Vegas closed. One of at least seven people who worked at the club and got grants of this size, said he didn’t think he did anything wrong and couldn’t remember claiming to have 10 employees. “I couldn’t get unemployment because I was working for money,” he said. For the past few months, he’s been trying to make ends meet by posing for photos with tourists in exchange for tips. “As a dancer you are in front of people more than other jobs,” he said. “There is no money to be made right now. People are scared. Flynt and Sophia’s calls and emails went unanswered.
The town of Mont Vernon opened an investigation after the media reported that a large number of municipal workers unduly collected aid from small businesses. The city said later at least 17 of them had received assistance from the SBA and was cooperating with the Federal Bureau of Investigation. Bloomberg News compared the names of more than two dozen local recipients of $ 10,000 grants to a database of city employees, including 11 from the fire department.
Mayor Shawyn Patterson-Howard said in an interview that some workers have legitimate side activities and others may have been tricked into accepting payments without knowing something was wrong. An FBI spokeswoman in New York declined to comment.
The Justice Department announced 37 disaster aid fraud prosecutions across the country, but in most cases the defendants were also charged with others, more serious offenses. The SBA says it has referred more than 80,000 loans for possible criminal investigation.
Many of the places where disaster aid fraud was most common are, like Auburn Gresham, relatively low-income neighborhoods disproportionately hit by the pandemic and the economic downturn. In Auburn Gresham’s case, the looting and vandalism that followed George Floyd’s murder claimed even more lives. Help from the SBA, however poorly obtained, may have provided a lifeline.
It is impossible to know how much money went to named recipients, as opposed to identity thieves in other states or foreign countries. It’s also unclear how many went to middlemen who offered to submit SBA applications in exchange for cut profits. And there’s no way to tell how many legitimate local businesses have been denied grants because the scammers helped deplete the $ 20 billion funding pool.
For many who live in the neighborhood, the pandemic has made a “bad situation” worse, said Reverend Michael Pfleger, senior pastor of St. Sabina Church, whose pantry faces unprecedented demand this year. “When people are desperate, they do desperate things,” he said. “I don’t justify it, but I understand. There are some who are just crooks, ”he added, but“ there is another whole group that says, ‘It hurts, I don’t know what to do, and if I find a way to get money from the government, I’m gonna do it.
David Moore, a city councilor who represents part of Auburn Gresham on city council, said the government bears a large part of it. He said many aid recipients may not have understood how the program works or assumed someone will verify their eligibility. The thought process, he said, was “’If I don’t qualify, I’m not going to get it. But I got it, so I had to qualify. The responsibility lies with the administration.
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