The Justice Department has announced that Kabbage Inc., a now-bankrupt financial technology company, has agreed to resolve allegations of violating the False Claims Act (FCA). The company is accused of knowingly submitting thousands of false claims for loan forgiveness, loan guarantees, and processing fees to the U.S. Small Business Administration (SBA) in connection with its participation in the Paycheck Protection Program (PPP).
Kabbage, currently winding down its operations as KServicing Wind Down Corp., filed for Chapter 11 bankruptcy in the District of Delaware in October 2022. As part of the resolution, the United States will receive a general unsecured claim in the bankruptcy proceeding.
The PPP was created by Congress in March 2020 as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. It aimed to provide federally guaranteed loans to small businesses suffering economic hardship due to the COVID-19 pandemic. The PPP is administered by the SBA.
Principal Deputy Assistant Attorney General Brian M. Boynton stated, “The department is committed to holding accountable lenders that knowingly contributed to the misuse of such funds by approving PPP loans for ineligible borrowers or otherwise failing to comply with applicable program requirements.”
Acting U.S. Attorney Joshua S. Levy added, “This office will continue pursuing any company or individual, like Kabbage, that took advantage of the PPP.”
The resolution addresses two different violations allegedly committed by Kabbage resulting in false claims submission and payment. Firstly, it is alleged that Kabbage systemically inflated tens of thousands of PPP loans. Secondly, it is alleged that Kabbage knowingly failed to implement appropriate fraud controls.
As part of these claims' resolution, the government will receive an allowed general unsecured claim in the bankruptcy proceeding up to $120 million. The actual amount recovered will depend on assets available for distribution to unsecured creditors.
The resolution also provides for Kabbage Inc. to receive a $12.5 million credit for payments previously returned to the SBA during the department’s investigation of the alleged misconduct.
The claims resolved include those brought under the qui tam or whistleblower provisions of the False Claims Act in two actions. Under this Act, a private party can file an action on behalf of the United States and receive a portion of any recovery.
The government’s investigation of Kabbage was a coordinated effort among various agencies, including the Justice Department’s Civil Division, Commercial Litigation Branch, Fraud Section, and others.
The claims asserted in the settlements are allegations only, and there has been no determination of liability.