SBA Halts $5.5 Million in Minnesota Funding Amid Massive Fraud Scandal

Federal Small Business Administration (SBA) Administrator Kelly Loeffler has suspended more than $5.5 million in annual support to resource partners in Minnesota, citing a “fundamental breakdown in the public trust” under Governor Tim Walz’s leadership.

In a strongly worded letter sent Tuesday to Governor Walz, Loeffler announced the immediate halt of federal disbursements “until further notice,” as Minnesota grapples with what has become the largest fraud scandal of the COVID-19 pandemic era.

“Under your leadership, Minnesota failed to safeguard taxpayer dollars, and SBA will not continue to place federal resources at risk in a state where oversight measures are ignored and accountability is abandoned,” Loeffler wrote.

The decision follows recent revelations from U.S. Attorney Joseph Thompson, who stated last Thursday that a “significant amount” of $18 billion worth of Medicaid funding was likely lost to fraud in the state. According to Loeffler’s letter, the final figure of fraudulent activity could reach at least $9 billion.

At the center of the scandal is a Somali fraud network that allegedly netted $1 billion through schemes centered in Minneapolis. Loeffler noted that at least half of certain Medicaid funding programs subsidized by Minnesota taxpayers have been “pocketed by criminals.”

The SBA identified approximately $2.5 million in Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) funds issued during the pandemic that were tied directly to this fraud scheme. Even more concerning, another $430 million in PPP subsidies—representing about 13,000 individual loans—had been flagged as potentially fraudulent but were funded anyway. Many of these loans were subsequently forgiven during the Biden administration.

The immediate funding freeze affects several critical small business support programs in Minnesota, including $2.22 million in Small Business Development Center awards, $450,000 for women’s business centers, $2.6 million in “microloan” awards for fiscal year 2025, and approximately $550,000 in other disbursements.

Loeffler’s letter also criticized the governor’s response to early warning signs, claiming that when “legislators and whistleblowers raised concerns about potential abuse during the pandemic, your Administration resisted oversight, refused accountability, and allowed the misconduct to metastasize.”

The administrator specifically took issue with what she characterized as Walz dismissing some criticisms of his administration’s “generosity” as “racism.” Governor Walz has previously stated that fraudsters in Minnesota will face prison time regardless of “color” or “religion,” while cautioning against “demonizing an entire population.”

The scandal has drawn attention from multiple federal agencies. The Department of Agriculture, which oversees SNAP and other nutrition assistance programs, and Treasury Secretary Scott Bessent have launched their own investigations into the matter.

Loeffler described Minnesota’s fraud scandals as the consequence of “socialist policies deliberately designed to pump out welfare funding without oversight or accountability,” and concluded her letter with a pointed message: “SBA’s responsibility is to taxpayers and small business owners, not to criminals or the politicians who enable them—We will continue to do what you did not: protect federal dollars on behalf of the American people.”

The funding suspension represents a significant escalation in federal response to the Minnesota fraud case, which continues to grow in scope and severity as investigations progress. The scandal raises broader questions about oversight mechanisms for federal assistance programs and the balance between efficient aid distribution and proper safeguards against fraud.

Governor Walz’s office has not yet responded to requests for comment on the SBA’s decision or the broader allegations regarding his administration’s handling of the fraud situation.