A large percentage of Covid-19 economic relief loans operated by investment management companies have been obtained fraudulently, according to a new report.
A total of 2,999 investment advisory firms registered with Security and Trade Commission – nearly a quarter of companies registered for the commission – have obtained loans through the Paycheck Protection Program, Guillaume Begg from the School of Business at the University of San Diego and Thuong Harvison from the University of Arizona writes in a new report. In total, these companies have raised more than $ 590 million in loans, introduced by the Small Business Administration in March 2020 to help small businesses with payroll, according to the report. Millions of borrowers have obtained $ 659 billion in forgivable loans under the PPP program. Evidence of abuse quickly emerged, including cases of wealth management companies disciplinary stories receiving millions of dollars in PPP loans.
Beggs and Harvison found that of the $ 590 million in PPP loans obtained by SEC-registered companies, $ 36 million, or about 6%, was “over-allocated” to “companies that obtained unusually large loans.” .
Researchers found evidence of “freedoms” regarding the size of the payrolls of many companies, by factoring in the headcount on a company’s form ADV and comparing them to loan amounts, which were tied the number of employees, according to the report.
The report also concludes that a history of dealings with regulators and legal issues “is associated with the receipt of unusually large PPP loans by investment advisory firms.”
“Overall, our results suggest that irregularities in the process of obtaining PPP loans appear to have been much more widespread than suggested by current levels of detected fraud,” the researchers write. “As long as our analyzes are valid from the outside for the entire program, this represents a huge amount of potential abuse, over $ 39 billion.”
Regulators cracked down on PPP abuses. In September, the Department of Justice has laid charges against 57 defendants accused of fraud in the program, representing more than 175 million dollars borrowed from the PPP.
And this summer the Financial sector regulatory authority targeted several individual brokers who allegedly abused SBA programs, including brokers at Wells fargo, Merrill Lynch and JP Morgan.
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