The House Select Subcommittee on the Coronavirus Crisis, chaired by Rep. James E. Clyburn, released the final report on its investigation into the use and distribution of $5 trillion in federal pandemic-related aid, concluding that that there has been approximately $86 billion in potential fraud identified against the Economic Injury Disaster Loan (EIDL) program alone. In the 200-page report, which was released December 9, 2022, the Select Committee blamed numerous actors for the alleged fraud, including financial technology (fintech) companies, government officials and Paycheck Protection Program lenders.

The Justice Department has announced the first-ever False Claims Act settlement with a lender to resolve allegations related to processing a Paycheck Protection Program loan on behalf of an ineligible customer. This settlement occurred shortly after the Justice Department announced the creation of three new Strike Force teams to enhance its existing efforts to combat and prevent COVID-19 related fraud. This groundbreaking settlement and DOJ’s decision to create additional task forces signals that the government intends to intensify investigations into alleged COVID-19 related fraud, including the roles played by lenders, government officials and fintech companies.

The CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, provided emergency financial assistance through the PPP in the form of forgivable loans to businesses to cover payroll and other specified expenses. Lenders who originated PPP loans were entitled to receive a fixed fee from the Small Business Administration (SBA).

From the outset, the government vowed to prevent recipients from fraudulently taking advantage of CARES Act programs. While initial investigations and prosecutions focused on individuals and companies that allegedly received fraudulent loans, the Select Subcommittee’s report seemingly broadens potential investigations to include lenders, government officials and fintech companies.

The Select Subcommittee

The Select Subcommittee on the Coronavirus Crisis was established on April 23, 2020, as authorized and directed in the 117th Congress by House Resolution 935.1, and was tasked with investigating the effectiveness, efficiency and equity of the nation’s response to the COVID-19 pandemic. The Select Subcommittee released 37 investigative reports and other disclosures examining various topics, including how financial technology companies facilitated COVID-19- related fraud and ways in which companies prioritized profits over the health of their workers. The Select Subcommittee held over 40 hearings and briefings, exploring a range of issues related to the coronavirus pandemic. It was modeled after the Truman Committee, which rooted out waste, fraud and abuse during World War II.

The Report

The Select Subcommittee’s report reflected findings based on a plethora of evidence, including firsthand accounts, contemporaneous records and expert testimony. The report highlighted that, in some cases, fintech companies, which were supposed to help applicants complete applications and process requests for pandemic-related aid, instead acted fraudulently and took advantage of those in need. The government relied on unvetted, underregulated private sector fintech companies to implement the program. The fintech companies were given extraordinary responsibility in administering the nation’s largest pandemic relief program, without the necessary oversight. SBA lenders delegated applicant screening to fintech companies that claimed to employ fraud control technology, however, the fintech companies failed to stop obvious and preventable fraud. Several fintech companies took billions in fees from taxpayers while seemingly assisting in defrauding the government programs.

The report also highlighted facts related to the government’s poor implementation of government aid programs. The report estimated that substantial fraud, amounting potentially to tens of billions of dollars, was committed against numerous pandemic relief programs. The report further stated that government officials failed to implement basic safeguards against fraud, leaving the programs vulnerable due to poor oversight.

The report identified approximately $86 billion in potential fraud involving the EIDL program. Financial institutions filed more than 20,000 suspicious activity reports (SARs) related to COVID-19 EIDL transactions. The Select Subcommittee also found indications that substantial PPP loans were approved despite warnings that they were likely fraudulent. Over 11,000 applications totaling nearly $3 billion were approved despite containing inconsistent identifying information provided by companies or information that indicated companies were ineligible.

What to Expect Next

Fintech companies, their owners, board and even employees can expect to be in the crosshairs of government investigations, both civil and criminal. The report suggests that the Justice Department may widen its investigative focus to include fintech companies, lenders and government officials. Companies that assisted applicants with PPP loans are not immune from scrutiny. Any company that is concerned about potential pandemic-related fraud exposure should consult counsel now and not wait to be contacted by law enforcement. Companies that have already received a subpoena or an inquiry from a law enforcement agency should immediately consult with counsel who can assess the full potential for civil and criminal exposure prior to responding. Any employees who believe they are mere witnesses may be exposing themselves and their employers to civil monetary or criminal penalties and should contact counsel prior to making any disclosures.

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