Efforts to root out scammers in the $670 billion Paycheck Protection Program and $374 billion Economic Injury Disaster Loan program are sweeping up legitimate borrowers. Business owners have had their loan funds frozen, often along with their personal bank accounts, after tripping alarms meant to prevent fraud, The Wall Street Journal reports.
More than 7 million loans have been made under both federal programs, which aim to blunt the economic impacts of business lockdowns and stay-at-home orders. The loans are either provided by or guaranteed by the government, and most are eligible for forgiveness under certain circumstances.
A pot of money that big was always going to attract scammers. Lenders have reported to the government more than 5,000 instances of suspected fraud in the EIDL program. The PPP approved loans so quickly and lacked strong enough safeguards that there was a “significant risk” that some people who shouldn’t have likely got loans, the Government Accountability Office warned in June.
The Justice Department has charged at least 50 people with fraudulently obtaining loans, including two who allegedly used the money to buy Lamborghinis.
But the dragnet has also snared lawful companies. Nick Oberheiden, a Dallas-based lawyer, says he has heard from hundreds of small business owners whose bank accounts were frozen after receiving government loans. Some were subsequently contacted by the Federal Bureau of Investigation or Secret Service, an arm of the Department of Homeland Security. Read the full story.
