JP Morgan Chase, the largest bank in the U.S., is investigating evidence that some of its employees and customers may have engaged in fraud when distributing and obtaining billions of dollars in loans from government coronavirus relief programs.
JPMorgan is conducting an internal investigation into how it helped distribute funds from the $660 billion Paycheck Protection Program (PPP) created under the CARES Act, according to an internal memo signed by JP Morgan CEO Jamie Dimon and viewed by CBS.
The bank also said it is working with law enforcement authorities and believes some of its employees may have broken the law by their conduct.
The forgivable PPP loans were administered by the Small Business Administration with private banks processing applications and distributing the cash. What could possibly go wrong?
Most big banks said they were not ready to start processing applications when the PPP launched. They were flooded with applications immediately and said they lacked clear guidance from the government. New rules were written after Congress created the program and banks had difficulty with the SBA website crashing, NPR reported. The first round of loans ran out of money by April 16.
Some JP Morgan Chase employees improperly applied for and received covid-relief money intended for legitimate U.S. businesses hurt by the pandemic, Bloomberg reported.
The bank discovered that suspicious amounts of money had been deposited into checking accounts owned by bank employees. This “prompted an unusual all-staff message from JP Morgan Tuesday that puzzled many across the industry for its candid admission of potentially illegal acts by some of its own while not describing what they had done,” according to Bloomberg.
Two separate CARES Act programs were supposed to benefit business owners. PPP loans let businesses borrow up to $10 million. They are 100 percent forgivable if no employees are laid off or if they are rehired after being laid off.
A second round of coronavirus relief included an additional $60 million for Economic Injury Disaster Loans. EIDL loans allow businesses to borrow up to $2 million in loans and include a grant of up to $10,000.
Bank employees are said to have received funds from the SBA’s EIDL program, Bloomberg reported: “The findings of employee misconduct came in a broader sweep of individual accounts that received business aid, the person said, noting the bank fired people it believes improperly tapped the money. The SBA warned banks July 22 to be on the lookout for suspicious deposits or activity as part of the EIDL program.”
While the bank has identified rampant misuse of the EIDL program, only a small percentage of it has been tied to bank employees, a person with knowledge of the matter told Bloomberg. “The bank hasn’t found evidence of wrongdoing by employees related to the PPP program, the person said.”
JP Morgan Chase funded $28 billion in loans through the PPP — more than any other bank, CBS News reported. The program was supposed to be for small businesses and firms with 500 employees or less. However, the SBA made exceptions, mainly for restaurant and hotel chains.
The loans were supposed to be distributed on a first-come, first-served basis. However, JP Morgan Chase has been criticized for serving larger borrowers and customers first, ahead of smaller firms.
Almost all of JP Morgan Chase‘s large commercial banking customers who applied for loans got them in round one of the Small Business Administration relief program, but most of the small applicants got nothing, according to data disclosed by the bank.
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For every transaction made, banks working with the SBA took 1 percent-to-5 percent in fees, depending on the amount of the loan, according to government figures. Loans worth less than $350,000 brought in 5 percent in fees while loans worth anywhere from $2 million to $10 million brought in 1 percent in fees, NPR reported.
This won’t be the first time bank employees are investigated for fraud.
In 2016, Wells Fargo Bank was mired in one of the biggest cases of widespread banking fraud. For more than a decade, bank employees created millions of fake accounts in customers’ names to meet sales goals set by the bank. Management knew about it. Wells Fargo settled for $3 billion.
The settlement barely dented the bank’s profits, said Rep. Maxine Waters, chairwoman of the House Financial Services Committee, in a statement.
