October 2, 2023

Fraud Analysis

Kabbage files for bankruptcy in the wake of federal investigations.

Kabbage, one of the biggest online lending companies in the US, is now plagued with serious issues that have prompted a federal investigation into its Paycheck Protection Program practices. The company has now decided to file for bankruptcy in the wake of these investigations.

American Express merged with Kabbage in late 2020, leaving behind its PPP portfolio, which is being handled by KServicing.

According to the filings, the company faces investigations by the Federal Trade Commission, House Select Subcommittee on Coronavirus Crisis, and the U.S. Small Business Administration into its PPP practices.

In March 2020, Congress created the PPP program to assist small businesses affected by COVID-19 closures. The program benefited small businesses with loans of upto $10 million to use for payroll and other approved reasons. The PPP program was federally funded, but banks and certified lenders were responsible for vetting businesses, distributing the cash, and assisting the business in getting forgiveness.

Kabbage was operated by a small team of just 19 employees, overseeing a portfolio of 48,000 PPP loans worth $1.3 billion, as well as dealing with a growing number of legal issues, according to bankruptcy filings. It also wasn’t very successful in obtaining forgiveness for nearly 60,000 loans it has processed. The forgiveness has been delayed due to multiple investigations into possible errors.

The US Attorney for Massachusetts first opened an investigation into Kabbage in December 2020 for possibly violating the False Claims Act, which penalizes government fraud. The Federal Trade Commission launched another investigation in February 8, 2021, followed by another investigations by the House Select Subcommittee on the Coronavirus Crisis and the US Attorney for East Texas, respectively.

To keep up with the latest developments in the world of fintech and for more fintech news, please visit https://worldfintechnews.com/.

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