Atlanta-based Kabbage to pay up to $120 million to settle PPP fraud allegations

The settlement is part of a broader effort by federal authorities to combat widespread fraud that grew as a result of rushed efforts to inject billions of dollars into the economy during the pandemic . If the government succeeds in recovering the sum, the Kabbage settlement would mark one of the Justice Department’s most significant victories to date.

Kabbage, founded in 2008 on the promise of providing fast loans to small businesses, sold its technology and most of its operations in 2020 to American Express, which defaulted on its PPP loans. What remained of the company, then known as KServicing, filed for bankruptcy protection in 2022 under the cloud of whistleblower allegations and a federal investigation.

As a result, the U.S. Department of Justice and the U.S. Small Business Administration may not receive the full $120 million they negotiated earlier this month. The outcome will depend on how many assets Kabbage can liquidate and how a Delaware bankruptcy judge decides to divide them.

For now, the federal government continues to fall in line with Kabbage’s other creditors.

The Justice Department could not immediately be reached for comment. Neither could Kabbage’s current chief executive, Jeremiah Foster, who was hired last year to close the company.

A 2022 Congressional report singled out fintech companies like Kabbage for making PPP loans “easy targets” for fraud.

Investigators found that Kabbage, for its part, ignored its employees’ concerns about fraudulent applications and that at least one manager appeared to urge his staff to review PPP loan applications less fiercely. They also claimed the company cut its fraud prevention staff while it originated the loans.

The congressional task force’s findings were based, in part, on internal Slack messages discovered by investigators. The messages show that after an employee raised concerns about suspicious activity, his manager insinuated that he did not need to review the applications as he would for a Kabbage-funded loan.

“A fundamental difference is that the risk here is not ours — it’s SBA (sic) risk,” the official said, referring to the Small Business Administration that oversees the program.

The Paycheck Protection Program injected more than $792 billion into small businesses in the early days of the COVID crisis, and it offered to forgive loans as long as businesses used most of the money to pay their employees. The vast majority of its loans eventually turned into grants.

The influx of money opened the door to widespread fraud. The FBI says it has opened more than 1,800 cases related to PPP fraud and arrested at least 500 people. Two years ago, an AJC investigation examined how slowly authorities had taken action against lenders, focusing instead on individual borrowers. Prosecutors in metro Atlanta alone have charged dozens of people in PPP-related cases, including a lawyer, a prison guard and a group of celebrities.

And the Justice Department’s agreements with Kabbage indicate that the government could still investigate people in the company’s orbit.

In exchange for resolving the whistleblower lawsuits, the company agreed to turn over its internal investigations and encourage its former employees to undergo interviews with federal authorities.