SBA Uncovers $8.6 Billion in Suspected Pandemic Loan Fraud in California

The Small Business Administration (SBA) announced Friday it has suspended 111,620 California borrowers linked to potentially fraudulent activity in pandemic-era relief programs, marking the agency’s largest crackdown to date on suspected COVID-19 loan fraud.

The suspended borrowers received 118,489 loans through the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs, with the total amount of questionable funding reaching more than $8.6 billion.

“Today, we announced we have suspended nearly 112,000 borrowers tied to at least $9 billion in suspected fraud,” said SBA Administrator Kelly Loeffler in a statement. “This staggering number represents the most significant crack-down on those who defrauded pandemic programs, and it illuminates the scale of corruption that the Biden Administration tolerated for years.”

The California investigation follows a similar probe in Minnesota last month, where the SBA suspended 6,900 borrowers after identifying nearly $400 million in potentially fraudulent loans. That investigation uncovered 7,900 questionable PPP and EIDL loans approved during the pandemic.

The SBA previously reported that at least $2.5 million of those funds were connected to a Somali-linked fraud scheme operating out of Minneapolis.

Loeffler emphasized that the agency is collaborating with federal law enforcement to identify those responsible for defrauding American taxpayers, hold them accountable, and recover stolen funds.

“As we did in Minnesota, we are actively working with federal law enforcement to identify the criminals who defrauded American taxpayers, hold them to account, and recoup the stolen funds,” Loeffler said.

The PPP and EIDL programs were established in 2020 as part of the federal government’s emergency response to the COVID-19 pandemic. The programs aimed to provide financial support to small businesses struggling with the economic fallout from pandemic-related shutdowns and disruptions.

However, the programs’ rapid deployment and initially limited verification requirements created opportunities for widespread fraud. Government watchdogs have been working to identify suspicious loans since the programs’ inception.

The scale of the California fraud investigation highlights ongoing concerns about oversight and accountability in pandemic relief programs. The $8.6 billion identified in California represents one of the largest state-specific fraud discoveries related to COVID-19 relief funding.

Financial crimes experts note that the rush to distribute funds during the pandemic created perfect conditions for fraud. Many relief programs prioritized speed over strict verification processes, as businesses nationwide faced imminent closure without immediate assistance.

The SBA’s current administration has taken a state-by-state approach to investigating pandemic program fraud. Loeffler’s statements suggest additional state investigations may be forthcoming as part of a broader effort to address fraud across the country.

“As we continue our state-by-state work, our message is clear: pandemic-era fraudsters will not get a pass under this Administration,” Loeffler stated.

The California and Minnesota investigations have drawn significant attention from lawmakers. House Republicans have called the Minnesota fraud probe “the tip of the iceberg,” suggesting similar patterns may exist in other states. In response, GOP senators have launched a task force specifically focused on cracking down on pandemic-related fraud.

For legitimate small businesses that relied on pandemic relief, these fraud investigations serve as a reminder of how criminal exploitation of emergency programs can undermine public trust and potentially impact future disaster response efforts.

The SBA has not yet provided details on the specific fraud indicators that triggered the California suspensions or a timeline for potential criminal charges against those involved.