Kabbage, a small-business lender going through bankruptcy, agreed to pay up to $120 million to settle claims it committed Paycheck Protection Program fraud.
KServicing Wind Down, through a pair of settlements, addressed claims by the Justice Department that it “knowingly submitted thousands of false claims for loan forgiveness, loan guarantees and processing fees to the U.S. Small Business Administration.”
Under the first settlement, KServicing will provide the government with a recovery claim of up to $63.2 million, though the company will receive a $12.5 million credit for payments it already returned to the SBA.
KServicing admitted that Kabbage double-counted state and local taxes employees paid when calculated gross wages, failed to exclude yearly compensation over $100,000 per employee, and miscalculated payments made by employers for leave and severance.
While Kabbage was unaware of initial errors, it allegedly failed to correct errors for loans that were already disbursed.
The other settlement had a recovery claim of up to $56.7 million. It addressed claims that Kabbage knowingly failed to put in place appropriate fraud controls designed to comply with PPP, Bank Secrecy Act, and anti-money laundering obligations.
Kabbage, in 2020, processed roughly $7 billion in PPP loans for more than 300,000 borrowers, emerging as the programs second-biggest lender by volume. It received about $190 million in processing fees, according to one of the settlement agreements.
KServicing, the entity that remained after American Express bought Kabbage’s technology and a portion of its team in 2020, filed for bankruptcy protection in Ocrober 2022.