COVID-19 , Fraud Management & Cybercrime , Fraud Risk Management

JPMorgan Chase Investigating Misuse of Relief Loans

JPMorgan Chase is investigating whether some of its employees may have enabled the misuse of the federal government's Paycheck Protection Program, which provided small business loans during the COVID-19 pandemic, Bloomberg reports.

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No criminal charges have been filed, and JPMorgan plans to cooperate with law enforcement, according to Bloomberg. An internal memo notes that the bank has seen instances of customers misusing Paycheck Protection Program loans, Bloomberg reports. PPP provided nearly $670 billion worth of federally backed loans to businesses, with many of the loans issued by banks.

"We are doing all we can to identify those instances [of fraud] and cooperating with law enforcement where appropriate,” according to the internal JPMorgan memo, Bloomberg reports.

The memo was circulated throughout the bank on Tuesday, the news report states. A spokesperson for JPMorgan could not be immediately reached for comment on Wednesday.

PPP was part of the $2.2 trillion stimulus plan known as the 2020 Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The loan program was administered through the U.S. Small Business Association.

Funding for loans is no longer available, and Congress is debating whether to fund another round. The loans are forgivable if businesses prove they were used for payroll and other approved expenses designed to help save jobs.

The Department of Justice has announced a number of indictments for PPP-related fraud.

Many of the federally financed loans were issued through some of the country's biggest banks, including JPMorgan Chase, which issued about 239,000 loans worth $29 billion as of May 1, according to its website.

PPP Under the Microscope

PPP has come under Congressional scrutiny over how it was administered and how loans were issued to certain businesses and organizations.

On Sept. 1, the House Select Subcommittee on the Coronavirus Crisis issued a preliminary report about PPP that found billions of dollars in loans were possibly misspent.

After the preliminary report was issued, Rep. James Clyburn, D-S.C., the chairman of the subcommittee, sent letters to the inspector generals' offices of both the SBA and the Treasury Department demanding further reviews of PPP and how the money was loaned out to certain organizations.

"The subcommittee’s analysis shows that PPP helped millions of small businesses and nonprofit organizations stay afloat during the coronavirus crisis, but a lack of oversight and accountability from SBA and Treasury may have led to billions of dollars being diverted to fraud, waste and abuse, rather than reaching small businesses truly in need," Clyburn wrote.

The U.S. Government Accountability Office warned in a report issued in June that PPP was subject to "limited safeguards and lack of timely and complete guidance and oversight planning have increased the likelihood that borrowers may misuse or improperly receive loan proceeds."

Other Banks

Other banks have acknowledged problems in administering PPP loans.

In March, for example, Bank of America filed a notification letter with the California Attorney General's Office concerning a security incident involving a possible data leak related to PPP loans (see: Bank of America: COVID-19 Loan Data May Have Leaked).

In the letter, Bank of America noted that while it was uploading PPP applications into a Small Business Administration "limited access" test platform, an error occurred that may have exposed address and tax identification numbers for businesses seeking loans, along with some of the owners' personal information, such as, name, address, Social Security number, phone number, email address and citizenship.