WEST WARWICK, R.I. (WPRI) – Michele Graziano cringed when she heard the U.S. Small Business Administration had expanded its COVID-19 disaster loan program again this month.
The West Warwick resident had her identity stolen last year after the taxpayer-funded program – known officially as the Economic Injury Disaster Loan, or EIDL, program – started lending billions of dollars in an effort to keep businesses afloat during the pandemic.
The fraudster who stole her personal information used it to secure a $9,700 loan under the guise of a fake chicken farm with an address listed as her three-bedroom apartment. The fraudulent business was one of 80 fake farms first identified by Target 12 in December.
“It is creepy,” Graziano told Target 12. “There’s just no oversight.”
Fast forward to this month and Graziano, like others who were targeted through the program, still doesn’t know whether she’s on the hook to pay back the loan. The SBA – which has mostly refused to acknowledge the program is riddled with fraud – has given the fraud victims little to no information about how the mess will be sorted out.
During a recent U.S. Senate hearing, SBA Inspector General Mike “Hannibal” Ware said his office and the SBA have seized about $2.1 billion in relief money fraudulently claimed through SBA programs, such as the disaster loan program and the Paycheck Protection Program.
But Ware said his office had received nearly “150 years’ worth of hotline complaints” during the pandemic, totaling about 150,000 calls, “pertaining to waste, fraud and abuse in SBA’s programs and operations.”
“Investigations pertaining to SBA’s pandemic response programs will last nearly a decade,” Ware said, adding that it would likely last even longer if not for varying statutes of limitations for fraud.
Here are the addresses where disaster loans were approved in Rhode Island (data as of Dec. 1, 2020)
Unlike the Paycheck Protection Program – which offers businesses forgivable loans – the SBA’s regular disaster loan program isn’t forgivable, meaning borrowers must pay back the 20- and 30-year loans.
Some victims of SBA disaster loan fraud told Target 12 they continue to receive monthly bill notifications in the mail, showing when their first payments will be coming due. (Initially, payments were supposed to be due one year after the borrowing date, but the SBA has extended that to two years.)
Michael A. Smith, a Bristol resident, had a fraudster take out a $9,900 loan for a fake business at his property dubbed “Michaela Smith Animal Farm.” He said he understands that a lot small business owners have been hurting during the coronavirus pandemic due to economic shutdowns, but he criticized the SBA for not properly vetting borrowers.
“The SBA certainly should be a little more conscientious in their screening,” Smith told Target 12.
SBA District Director Mark Hayward declined to comment for this story, but he told 12 News earlier this month that the SBA had made 10,857 disaster loans totaling $580 million for businesses in Rhode Island during the pandemic. He highlighted that the program has helped many businesses in-need.
“The EIDL loan gives them an opportunity to plan for the future,” Hayward said.
Ware, the inspector general, criticized the SBA last year for lowering its regulatory guardrails around the program — and there’s little evidence to suggest much has been done about that problem since then.
In the wake of Target 12’s initial report in December, which identified $3.8 million approved for at least 80 fake farms, U.S. Sen. Jack Reed slammed the SBA for cutting out local control of the program, and called on the agency to investigate the fraud cases.
Last week, Reed told Target 12 he still hadn’t received a formal response from the SBA, and he attributed the delay in part to the transition of power between the Trump and Biden administrations.
“We expect a response very quickly,” he said, adding that Congress took steps in December to spend millions more on anti-fraud protections and investigative resources for the SBA.
Despite the various problems with the program, Reed and other lawmakers voted in favor of a COVID-19 disaster relief package last winter that greenlighted an additional $20 billion for the disaster loan program. Comparing Hayward’s estimates this month with an analysis by Target 12 in December, it appears the federal agency has approved about $18 million more for Rhode Island borrowers since that money was approved.
“The demand was so critical — we were focused with a collapse of the economy that we wanted to get this money out — we discovered through a lot of good reporting that it was being abused,” Reed said. “We are going to do all we can to get the money back. To hold those who were perpetrators responsible.”
In addition to more money getting pumped into the program, the SBA this month also increased the amount existing borrowers can receive to $500,000. That leaves Graziano feeling uneasy in West Warwick.
Graziano has contacted multiple law enforcement agencies to notify them about the fraud tied to her address. She also reached out to the SBA ahead of her interview with Target 12 for an update, but was told there is no contact with borrowers until after fraud investigations are complete.
The experience spurred her to lock her credit, which makes it harder for fraudsters to unlawfully use her identity to obtain money. But it also makes it more complicated when she needs to borrow. Regardless, Graziano said she’s not sure she will ever lift the freeze.
“It made me cringe, actually, when I heard another round of this was going to go out. People need to be checking their credit every month to make sure that anything from the SBA isn’t getting into your account,” Graziano said. “It is the first warning right there that the SBA is sending out fraudulent money to these businesses.”
Anyone who believes they might be the victim of SBA loan fraud is encouraged to reach out to the following offices at these email addresses:
Gina Marini and Tolly Taylor contributed to this report.