House Panel: Ariz. Company Cofounded By Newscaster Made Millions On Fraudulent PPP Loans
A congressional committee is recommending investigations into several technology and loan companies for fraud in the processing of loans under the billion-dollar Paycheck Protection Program, including a Phoenix startup founded by a former TV news anchor.
The select subcommittee on the coronavirus crisis, Rep. James Claiburn, D-D.C., released a damning report on Thursday that alleges companies deliberately approved large loans over loans intended to help small family businesses. If applications are clearly fake, staff ignore the signs.
Billions of dollars in unqualified business aid to help companies retain workers during the pandemic is nothing new — the commission previously found nearly $84 billion in potentially fraudulent loans. But the report alleges that the fintech companies that processed the claims perpetuated the fraud and tried to shift the blame to the Small Business Administration, earning themselves millions in fees.
The committee recommends that the Justice Department use the findings of its 129-page report to investigate and prosecute the companies involved. He makes several recommendations to the Small Business Administration to increase term loans to prevent rampant fraud.
Much of the report focuses on Phoenix-based BlueCorn PPP, which was founded in 2020 by former Channel 15 (KNXV-TV) news anchor Stephanie Hawkridge Reese and her husband, Nate Reese. Hawkridge Races left the station in 2018.
The report could not be reached for comment Thursday. According to the person who answered, the Blueacorn number listed online used an Illinois area code and was a private line.
Other companies noted in the report include Elev8 Advisors of Phoenix, Wempley of Wilmington, Delaware, Cabbage Inc. Bluevine from Atlanta, Redwood City, CA. There are other companies that work with them on loan programs.
Although the lenders were responsible for underwriting and processing the loans, which they charged between 1-5% depending on the volume, they relied on the agents named in the report to do most of the work, including reviewing the applicants . qualifications. Starting in 2021, fintech startups like Blueacorn can participate in the program.
Fintech companies played a leading role in the program, forcing $800 billion in loans to companies with fewer than 500 employees.
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"Even when these companies failed to launch the program, they still made huge profits from program management fees, most of which ended up in the pockets of company owners and executives," Claiborne said in a prepared statement.
"In addition to the losses incurred by allowing others to participate in the PPP fraud, some of these individuals increased their illegal profits by participating in the PPP fraud."
ABC 15 news anchor Hockridge was in attendance
In a letter to investigators, the company said Bluecorn used third-party companies and contractors for processing. They are paid $37 to $55 an hour or $2 to $8 per order.
According to the report, the owners of Bluecorn received about 300 million dollars in profit. In a letter the agency sent to the committee in February, it said it collected more than $1 billion in fees for processing P3 applications, of which about $700 million was spent.
Commissions of inquiry found that Hawkridge Rees was heavily involved in the company's day-to-day operations and how it processed loan applications.
The company spent a total of $8.6 million, or less than 1% of payments received, on fraud prevention.
The company's owners reportedly took out a $300,000 private partnership loan that was partially backed by their own company. In the loan application, "Reyes falsely claimed to be African-American and a war veteran."
The couple moved to Puerto Rico last year, where they are opening another credit counseling business, according to reports. Maricopa County records show Hawkridge Reyes still owns a condominium near Scottsdale Fashion Square.
A congressional committee released videos to the media showing Reyes at a luxury beach house in San Juan, Puerto Rico, and at a bar in Arizona. He takes a large roll of cash, puts it in his front pants pocket and turns it inside out to show the hooligans on camera.
On May 21, 2020, Hawkridge Reyes wrote on Facebook that he is the co-founder of Bluecorn, but his name is not mentioned in the company's registration documents filed with the state of Arizona.
"I founded Blue Acorn as a remedy to the blatant discrimination that is stifling small businesses and their workers during this government-mandated shutdown," he said.
When it emerged last year that the company was under investigation, Hawkridge Rice declined to comment when contacted by ABC 15. He served as news anchor at the station from 2011 to 2018.
Small business loans are not a priority. "cross them out"
The report also notes that, unlike the PPP program's goal, BlueCorn did not prioritize small businesses, but instead focused on the most important applications that would bring them the most profit.
The Commission's investigators spoke with several people who reviewed loan applications for BlueCorn and were told that they prioritized processing requests quickly rather than reviewing applications.
"The faster the better," said a previous reviewer, adding that it took him 30 seconds or less to review the app.
"I mean... I don't believe in prioritizing a bigger loan over a smaller one... but there's a lot to figure out when we get started... closing these huge loans is going to make money for everybody," Hawkridge said in a Slack message . . Reese got it. . Committee
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In a Slack message obtained by the committee, he briefly wrote of the captions: "Remove them." "We don't care. We're not the first bank to deny eligible borrowers funding."
Investigators also found Slack messages written by Hawkridge Rice that showed large loans were not only prioritized, but also less likely to be investigated for fraud.
The report identifies potentially fraudulent public-private partnership loans handled by BlueCorn's owner and people working with Elev8 Advisors in Phoenix.
Blueacorn engaged Elev8 to advise on compliance with PPP laws and regulations.
According to the report, at least 16 PPP loan reviewers working for Elev8 Advisors on behalf of BlueCorn received loans worth more than $150,000.
Adam and Messer Christine Spencer, co-owners of Elev8, bought a house for about $8 million and "several fancy cars" after taking out loans, the report said. Spencer could not be reached Thursday and did not immediately return a message left with Elev8.
Other companies also turned a blind eye to the scandal
The report makes similar claims against other companies, including Ompli, which has processed more than $16 billion in PPP loans and collected nearly $2 billion in fees from lenders.
In 2021, Womply and Blueacorn jointly arranged one of three PPP loans.
Womply CEO Toby Scammell was found guilty of insider trading in 2014 and disbarred from working in the securities industry.
The report said it led Womply's efforts to prevent fraud and ordered the company not to cooperate with investigators.
Cabbage is also responsible for preventing warping. Investigators found that Cabbage's risk manager, who oversees fraud specialists, told his team that reviewing PPP applications is different from traditional lending because "the risks here are not our responsibility -- they are the SBA's."
As fraud in the PPP program increased, Capiz nearly halved its investigative team, the report said.
BlueVine initially suffered from fraud, but banks working with the company were able to pressure the company to improve verification procedures and reduce fraud, the report said.
The university was the first to identify gaps in financial technology
The connection between fintech companies and PPP fraud was revealed last year when the McCombs School of Business at the University of Texas at Austin released a report analyzing how these companies approve loans.
They identified more than 1.8 million loans worth about $76 billion with signs of potential fraud.
This report highlights the performance of Blueacorn, as well as Prestamos and Capital Plus, the two lenders that work with the company.
The report explains how borrowers, including criminals, are creating fake companies to apply for loans based on fake employee numbers and salaries, and how financial technology companies will automatically process approvals.
Claiborne said he wants the report to better take care of federal funds.
"We must learn from this inexcusable behavior so that federal programs, including emergency assistance programs in future crises, are administered more efficiently, effectively and fairly, minimizing waste, fraud and abuse." Claiborne said in a statement regarding the report.
"Based on our preliminary findings, I have directed (the Small Business Administration and its Office of Inspector General) to conduct further investigations into these businesses and pursue any appropriate legal remedies, and have notified the Department of Justice that some of our findings may be of interest to them."
Contact reporter Ryan Randazzo at ryan.randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.
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This article originally appeared in The Arizona Republic: Home Panel: Massive fraud at Bluecorn PPP in Arizona
