Kabbage Inc. Resolves Accusations of PPP Fraud

Kabbage Inc., now operating as KServicing, has reached a settlement in response to allegations of defrauding the Paycheck Protection Program (PPP). The company, currently undergoing bankruptcy proceedings, has agreed to resolve claims of submitting false loan forgiveness, guarantees, and processing fee claims to the Small Business Administration (SBA).

The Justice Department revealed that Kabbage, now known as KServicing Wind Down Corp., had submitted thousands of false claims to the SBA, violating the False Claims Act (FCA). The company filed for Chapter 11 bankruptcy in October 2022, and as part of the settlement, the U.S. will receive a general unsecured claim in the bankruptcy proceedings.

The PPP was established in March 2020 under the CARES Act to aid small businesses during the economic challenges brought on by the COVID-19 pandemic. The SBA oversaw the program, allowing private lenders like Kabbage to approve loans for eligible businesses, with the possibility of loan forgiveness if used for approved expenses.

Kabbage is accused of inflating PPP loan amounts, leading to the SBA guaranteeing and forgiving loans beyond eligible amounts. The company admitted to several wrongdoings, including double-counting state and local taxes, failing to exclude compensation over $100,000 per employee, and miscalculating employer payments for leave and severance.

Despite being aware of these errors since April 2020, Kabbage continued to disburse incorrect loans. The government will receive an unsubordinated, general unsecured claim of up to $120 million, with the exact recovery amount dependent on the assets available in the bankruptcy estate. Kabbage will also receive a $12.5 million credit for payments returned to the SBA during the investigation.

Principal Deputy Assistant Attorney General Brian M. Boynton emphasized the importance of holding lenders accountable for PPP misuse, while Acting U.S. Attorney Joshua S. Levy criticized Kabbage for prioritizing profit over safeguarding taxpayer funds. U.S. Attorney Damien M. Diggs stressed the significance of compliance with PPP requirements in light of this settlement.