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KPIX 5 Investigation Reveals Paycheck Protection Program Is Vulnerable To Fraud

SAN JOSE (KPIX 5) -- The national Paycheck Protection Program (PPP) has loaned half a trillion dollars to thousands of small businesses and some bigger ones since the start of the pandemic. There's still more than a billion dollars left to hand out.

So what does it take to qualify? KPIX 5 discovered that, for some applicants, not much. We got a tip from a viewer about suspicious activity involving some large PPP loans, so we decided to check it out.

Lebnitz Tran's businesses just got over a million dollars thanks to the program. He registered four companies with the state in May and one month later received large PPP loans for each one of them.

The four companies - 88 Cloud Computing LLC, 88 Enterprise Services LLC, 88 Investment Empire LLC and 88 Venture Capital LLC - are on the Small Business Administration's list of companies that received PPP loans. Each received between $350,000 and $1 million in loans within the span of a week in June.

It turns out the companies are just as elusive as Tran. According to filings with the state, they provide cloud computing and investment services. Two of them list 24 employees each. But there was no sign of activity at the address listed for all four businesses: a home in an affluent South Bay suburb where no one wanted to talk to us.

We had no luck at any of Tran's other numerous properties. One tenant we met told us to get off the property. When we finally reached Tran on one of his multiple cell phone numbers, he hung up.

According to the county, Tran's four companies are not licensed to do business in Santa Clara County. And it turns out there are more red flags.

"One of the rules of the PPP program is you can only get one loan," said James Wilcox, Professor of Finance and Economics at the Haas School of Business at UC Berkeley. "So if you see multiple loans under the PPP program going to what looks like one source, this would certainly get your attention and be a reason to investigate."

Wilcox said that to apply for a PPP loan you also have to have been in business by February 15, before the pandemic started. Tran's companies were registered with the California Secretary of State in May.

"This is not a program that was designed for startups," said Wilcox.

Wilson added he wouldn't be surprised if some unscrupulous companies are gaming the system because the application process was purposefully designed to be simple so that desperate small businesses could keep afloat and pay their employees. As a result, the program is vulnerable to abuse, he said.

"These loan applications require relatively little documentation," said Wilcox. "It's much easier for example to fill out the application for a PPP loan for an amount that might be, say, $50,000 or $100,000 or even $500,000 or a million dollars. Much easier than it is to get a personal credit card.

Michelle Connolly hears all kinds of stories at her Boondocks Barbershop in San Carlos. But this one hit home personally. She applied for a PPP loan to keep her barbershop afloat during the pandemic but says she was turned down.

"It makes me think that there's something wrong with the system," said Connolly. "It's devastating. I have four children. I have a mortgage, I have barbers here and we all are trying to work and for somebody to basically cheat the system is just unfair to all of us small business owners."

Millions of small businesses that desperately need the loans to survive are not getting them.

In a statement, a spokesperson for the Small Business Administration told us, "The SBA does not comment on individual borrowers. Evidence of waste, fraud, and abuse with any of SBA's loan programs is not tolerated and should be reported."

The SBA has yet to respond to a critical report by the Government Accountability Office. The watchdog agency found a "significant risk" of fraud in Paycheck Protection Program loans.

The GAO report recommends "that SBA develop and implement plans to identify and respond to risks in PPP … and address potential fraud."

Wilcox suspects that's going to be a tall order. "These loans are really designed to be almost entirely forgiven and not paid back," said professor Wilcox. "Millions and millions of these loans have been made, and it will be a gigantic task for any government agency or anybody else to really sort it out."

After Mr. Tran hung up on us, we texted him and told him he could call any time if he changed his mind and decided to talk to us. So far that has not happened.

  • Statement from the SBA:

The SBA does not comment on individual borrowers. Evidence of waste, fraud, and abuse with any of SBA's loan programs is not tolerated and should be reported.
PPP loans are not made by SBA. PPP loans are made by lending institutions and then guaranteed by SBA. Accordingly, borrowers apply to lenders and self-certify that they are eligible for PPP loans. The self-certification includes a good faith certification that the borrower has economic need requiring the loan and a certification that the borrower has applied the affiliation rules and is a small business, among other certifications The lender then reviews the borrower's application, and if all the paperwork is in order, approves the loan and submits it to SBA.

A small business or non-profit organization that is listed in the publicly released data has been approved for a PPP loan by a delegated lender. However, the lender's approval does not reflect a determination by SBA that the borrower is eligible for a PPP loan or entitled to loan forgiveness. All PPP loans are subject to SBA review and all loans over $2 million will automatically be reviewed. The fact that a borrower is listed in the data as having a PPP loan does not mean that SBA has determined that the borrower complied with program rules or is eligible to receive a PPP loan and loan forgiveness. Further, a small business's receipt of a PPP loan should not be interpreted as an endorsement of the small business' business activity or business model.

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