Beware of Emerging Scams – CARES Act Financial Scams and Fraud Targeting Small Businesses

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Snell & WilmerIn a recently published survey of 2,832 businesses about their concerns related to the pandemic’s impact, 82 percent were interested in pursuing federal assistance, but only four percent of respondents expressed concerns about government financial support, such as the Paycheck Protection Program (PPP) and Small Business Administration (SBA) loans. Those who have considered or are considering these funding streams should exercise caution before providing data about themselves and their businesses.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is the largest financial assistance bill issued in American history. Unsurprisingly, such a large infusion of funds in the economy, including $376 billion in relief for American workers and small businesses, has attracted fraudulent applications for CARES Act funds and scams. Scammers have targeted small business owners to profit from their personal or business information. The SBA issued an alert to warn small business owners about scams. The SBA instructs small business owners to “[b]e on the lookout” to avoid falling victim to a scam. Thus far, the SBA has identified three scams small business owners may encounter.

Grant Fraud

Scammers may try to contact small business owners by impersonating the SBA or a government official to convince business owners to apply for funding with the scammer. The scammer may try to obtain the individual’s personal information or business information with the following too-good-to-be-true promises:

Great news! You are eligible to receive CARES Act funding.

For a small fee, you can obtain a government grant.

The SBA has awarded you a $10,000 grant. You do not need to submit an application.

The scammer’s goal in a grant fraud scheme is usually to obtain an individual’s personal or business information. The SBA warns individuals that the “SBA does not initiate contact on either 7a or Disaster loans or grants. If you are proactively contacted by someone claiming to be from the SBA, suspect fraud.”

Loan Fraud

Scammers may present themselves as loan officers to obtain a PPP borrower’s information. The SBA provides the following information to help individuals distinguish a legitimate financial institution from a scammer:

  • If you are contacted by someone promising to get approval of an SBA loan, but it requires any payment up front or offers a high interest bridge loan in the interim, suspect fraud.
  • The SBA limits the fees a broker can charge a borrower to three percent for loans $50,000 or less and two percent for loans $50,000 to $1,000,000 with an additional ¼ percent on amounts more than $1,000,000. Any attempt to charge more than these fees is inappropriate.

Phishing

Phishing involves a hacker purporting to be from a reputable institution to lure an individual into disclosing personal information to the hacker. Below is a typical phishing attempt, in which the hacker is trying to obtain personal information through a malicious tax form.

According to the SBA, individuals can avoid phishing by checking for the following details before responding to an email asking for personal information:

  • “If you are in the process of applying for an SBA loan and receive email correspondence asking for PII [personally identifiable information], ensure that the referenced application number is consistent with the actual application number.
  • Look out for phishing attacks/scams utilizing the SBA logo. These may be attempts to obtain your personally identifiable information (PII), to obtain personal banking access, or to install ransomware/malware on your computer.
  • Any email communication from SBA will come from accounts ending with sba.gov.
  • The presence of an SBA logo on a webpage does not guaranty the information is accurate or endorsed by SBA. Please cross-reference any information you receive with information available at www.sba.gov.

The takeaway? Even in a world recovering from a pandemic, fraudsters and scammers remain. Constant vigilance is likely necessary, particularly with respect to financial transactions.

Footnotes:
  1. Nat’l Research Ctr., Inc., Colorado Business COVID-19 Impact Survey, A Survey of Colorado Businesses on the Early Impacts of the Pandemic an Initial Recovery Strategies 6, 15 (2020) (https://choosecolorado.com/wp-content/uploads/2020/05/Colorado-Business-COVID-Survey-Results-2020-FINAL.pdf).
  2. Department of Justice, Beware of SBA Loan Scams, Government Officials Warn, Press Release, May 13, 2020 (https://www.justice.gov/usao-wdnc/pr/beware-sba-loan-scams-government-officials-warn).
  3. U.S. Small Business Administration, SBA Programs – Scams and Fraud Alerts, Report, March 31, 2020 (https://www.sba.gov/document/report--sba-programs-scams-fraud-alerts).
  4. U.S. Small Business Administration, SBA Programs – Scams and Fraud Alerts, Report, March 31, 2020 (https://www.sba.gov/document/report--sba-programs-scams-fraud-alerts).
  5. Federal Trade Commission, Grant Fraud & Scams (https://www.grants.gov/learn-grants/grant-fraud/grant-related-scams.html).
  6. U.S. Small Business Administration, SBA Programs – Scams and Fraud Alerts, Report, March 31, 2020 (https://www.sba.gov/document/report--sba-programs-scams-fraud-alerts).
  7. U.S. Small Business Administration, SBA Programs – Scams and Fraud Alerts, Report, March 31, 2020 (https://www.sba.gov/document/report--sba-programs-scams-fraud-alerts).
  8. Sergui Gatlan, US Small Business Administration Grants Used as Phishing Bait, BleepingComputer, March 27, 2020 (https://www.bleepingcomputer.com/news/security/us-small-business-administration-grants-used-as-phishing-bait/).
  9. U.S. Small Business Administration, SBA Programs – Scams and Fraud Alerts, Report, March 31, 2020 (https://www.sba.gov/document/report--sba-programs-scams-fraud-alerts)

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