Prosecutors Likely to Be Investigating PPP Fraud for Years

As thousands of applications for government-backed loans flooded into Chris Hurn's firm, Fountainhead Commercial Capital, it reported at least 500 suspicious cases to federal officials, the New York Times reported. But what shocked him was the brazen glee of the scammers who got money anyway. At least a dozen times, “someone tried to defraud us, got turned down and then followed up to taunt us that they got their loan,” said Mr. Hurn, Fountainhead’s chief executive. Four months after the federal government’s signature coronavirus relief program for small businesses expired, investigators and lawmakers have only scratched the surface of schemes that illicitly tapped its forgivable loans. The program’s quickly drafted and frequently revised rules, its removal of normal lending guardrails, and governmental pressure to swiftly approve applications created the ideal conditions for thievery to thrive. So far, the Justice Department has brought criminal charges against more than 80 people accused of stealing at least $127 million from the relief program, but there’s far more to uncover. The House Select Subcommittee on the Coronavirus Crisis said that it had identified more than $4 billion in potentially improper loans, and some bankers believe the total will be much higher. A Small Business Administration fraud hotline that took in 742 complaints in 2019 has received more than 100,000 this year. And there are hundreds of active investigations across more than a dozen government agencies, which means that a program that offered borrowers a few months of relief will spark years of court actions.

States Try to Rescue Small Businesses as U.S. Aid Is Snarled

With the economic recovery faltering and federal aid stalled in Washington, D.C., state governments are stepping in to try to help small businesses survive the pandemic this winter, the New York Times reported. The Colorado legislature held a special session last week to pass an economic aid package. Ohio is offering a new round of grants to restaurants, bars and other businesses affected by the pandemic. And in California, a new fund will use state money to backstop what could ultimately be hundreds of millions of dollars in private loans. Other states, led by both Republicans and Democrats, have announced or are considering similar measures. But there is a limit to what states can do. The pandemic has ravaged budgets, driving up costs and eroding tax revenues. And unlike the federal government, most states cannot run budget deficits. “We have done what we can do to pump money into small businesses so that people can continue to work,” said Gov. Mike DeWine (R) of Ohio. “From the jobs point of view and the economy point of view and the workers’ point of view and small businesses, we’ve got to get that help from the federal government. That’s the only place we can get it."



In related news, economists are warning that a COVID-19 relief bill without aid for state and local governments would mean passing up an opportunity to include a proven stimulus provision, The Hill reported. Congressional leaders are at odds over not only the price tag of a new relief measure, but what should be in it. The various proposals on Capitol Hill range from tens of billions of dollars in government aid for states, cities, tribes and territories to no funds at all. “The most effective form of relief and stimulus for the overall economy is flexible money that states can use depending on need,” said Tracy Gordon, senior fellow with the Urban-Brookings Tax Policy Center, which is led by a former Obama administration official. State and local government budgets have been hit hard by the pandemic, losing revenue from sales taxes and business taxes as local purchases dried up and stores shuttered. Other fees and revenue sources are dwindling as residents pull back from many day-to-day activities.

Hawley Introduces Bill for Second Round of Stimulus Checks

Sen. Josh Hawley (R-Mo.) today introduced legislation to provide a second round of stimulus checks to most Americans as negotiations on a larger coronavirus relief package struggle to reach a breakthrough, The Hill reported. Hawley, who has said he will oppose any deal that doesn't include another round of direct assistance, said that his legislation mirrors a proposal from the March CARES Act that provided a $1,200 check for individuals who made up to $75,000. Under Senate rules, any one senator can go to the floor to ask for a vote, but any one senator can also object and block the vote. Hawley’s decision to introduce a stand-alone bill comes as lawmakers on both sides of the aisle have pushed for another round of checks to be included in any year-end agreement. Separate proposals from Senate Majority Leader Mitch McConnell (R-Ky.) and a bipartisan group of lawmakers did not include another round of stimulus checks over concerns that including them would increase the price tag and compromise support for the frameworks. But Treasury Secretary Steven Mnuchin pitched Speaker Nancy Pelosi (D-Calif.) and GOP leadership on another proposal that would include $600 checks. House Minority Leader Kevin McCarthy (R-Calif.) told Axios that both he and McConnell supported the proposal.

U.S. Unemployment Claims Jump to 853,000 Amid Resurgence of Coronavirus

The number of people applying for unemployment aid jumped last week to 853,000, the most since September, the Associated Press reported. The Labor Department said today that the number of applications increased by 137,000, from 716,000 the previous week. The four-week moving average was 776,000, an increase of 35,500 from the previous week’s revised average, according to the department. Before the coronavirus paralyzed the economy in March, weekly jobless claims typically numbered only about 225,000.

U.S. Household Net Worth Hits Record in Third Quarter

The net worth of U.S. households rose to a record in the third quarter as the value of stock portfolios and real estate surged, a Federal Reserve report showed, although household debt also grew as stimulus programs phased out and the recovery began to slow, the Wall Street Journal reported. Household net worth rose 3.2 percent in the third quarter from the second quarter to $123.52 trillion, the Fed said today. Household debt rose 5.6 percent to $16.4 trillion, its fastest pace in at least two years. The report underscores what many economists have called a K-shaped recovery from the coronavirus-induced shock early this year. More affluent Americans are doing well, while millions of others — including lower-paid workers in vulnerable jobs in retailing and restaurants — are seeing their incomes and net worth decline. Only about 15 percent of American households held stocks directly at the end of 2019, according to Fed data. About half of households owned retirement accounts, such as 401(k) and IRA accounts, with a median value of $65,000. (Subscription required.)

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