KeyBank to Pay $7.7 Million Over Fraudulent PPP Loan Allegations

Recently, KeyBank National Association agreed to pay $7.77 million to resolve allegations of fraud related to its handling of Paycheck Protection Program (PPP) loans designed to help small businesses during the pandemic. This settlement highlights significant implications—not just for banking institutions but also for small business owners navigating the continuing fallout from the COVID-19 economic crisis.

The U.S. Department of Justice (DOJ) announced that KeyBank’s actions violated the False Claims Act by submitting for forgiveness fraudulent loans obtained through an inside scheme orchestrated by one of its branch managers. Specifically, Tommy Hawkins, a former bank manager, allegedly colluded to assist individuals without legitimate businesses in securing loans that led to approximately $6 million in taxpayer funds being misappropriated.

“Today’s settlement holds KeyBank accountable for violating the False Claims Act,” said Special Agent in Charge Patricia Tarasca of the Federal Deposit Insurance Corporation Office of Inspector General. “The bank submitted fraudulent loan applications for forgiveness under the Paycheck Protection Program, despite having concerns about the origination of many of the loans.”

This case underscores the need for vigilance among small business owners, especially when applying for government assistance programs. Small business owners should ensure that they thoroughly vet all loan applications and understand the implications of submitting inaccurate information. Ultimately, taxpayer money is at stake, and the consequences could arise not only for banks but for business owners as well.

The PPP was created in March 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide emergency financial support to struggling small businesses. Funds were meant to help keep companies afloat while navigating the economic downturn induced by the pandemic. However, as the KeyBank case demonstrates, an initial intention to assist small businesses can still yield unintended consequences, namely fraud and mismanagement.

KeyBank appears to have cooperated fully during the investigation, which led to the identification of other potentially fraudulent loans. The bank reported its concerns to the Small Business Administration (SBA) regarding 18 loans it suspected might be problematic. Despite these alerts, KeyBank processed forgiveness applications for all 48 loans that Hawkins helped facilitate, which were below the threshold requiring more granular review. This procedural oversight could raise a red flag for small business owners: diligence is crucial when managing financing and compliance.

Additionally, the case serves as both a cautionary tale and an encouragement for small business owners to maintain impeccable records and transparency in financial dealings. While small businesses must hope for support during economic hardships, they must also be prepared for potential legal repercussions stemming from any involvement in fraudulent activities.

The settlement is also part of a broader crackdown on fraud related to COVID-19 assistance programs. A total of seven individuals, including Hawkins, face criminal charges stemming from this conspiracy to commit bank fraud. Hawkins has since pleaded guilty and awaits sentencing alongside several co-conspirators. This context reinforces the seriousness with which authorities are treating fraud in these programs.

Beyond the immediate implications for KeyBank and the individuals involved, this case may influence how banks assess loan applications in the future. Small business owners can expect stricter scrutiny, aligning with a broader intent to safeguard taxpayer money and ensure that such funds are directed to legitimate businesses in need.

In the wake of this case, small business owners should take proactive measures, including consulting financial advisors to better understand compliance regulations and loan requirements. Familiarity with the available resources and regulations can be a significant asset, especially when applying for assistance that impacts survival in tough economic times.

As the economy continues to evolve post-pandemic, supporting small businesses must balance accessibility with accountability. The KeyBank settlement is an essential reminder of the need for rigorous financial integrity in the pursuit of funding and a wake-up call for all stakeholders involved. Small business owners can read more about this matter in detail at the official SBA website here.

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This article, "KeyBank to Pay $7.7 Million Over Fraudulent PPP Loan Allegations" was first published on Small Business Trends

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