Thousands of "Mystery" Companies Got PPP Loans, New Study Suggests

HACKETTSTOWN, N.J., Oct. 12, 2022 /PRNewswire/ -- About 11% of all Paycheck Protection Program loans were made to "mystery" companies – firms whose existence could not be confirmed by matching against existing lists of companies from other sources, according to a new study by SMR Research Corp.

The companies that could not be confirmed took 606,881 loans worth $37.6 billion. In addition, SMR found, 37,124 of these companies showed an address at a residential home – but where the company claimed to have five or more employees. 

"For many companies, there will be innocent explanations for both of these findings," said SMR President Jim Kasprzak. "But certainly, the large numbers imply the possibility of fraud that should be investigated."

SMR maintains a database of over 34 million U.S. companies, chain store locations, schools, and government facilities. The database is compiled from public records such as state corporation records, city business registration files, state and local inspection and licensing files, and other sources. In all, SMR uses nearly 500 sources.

In the PPP study, SMR did not look at loans made to self-employed individuals or sole proprietors. It focused on 5.4 million loans made to corporations and partnerships. SMR excluded loans in a few states where SMR's company coverage is substantial but not fully complete.

SMR matched the 5.4 million companies to its existing files in each of three time periods to see if any other source could confirm a company's existence. 

"For example, a company based in Texas with a PPP loan also should be found in the official Texas state corporation records files in 2020, 2021, or 2022," Kasprzak said. "Some were just not there, raising the possibility that sometimes, the company names were simply made up."

In many cases, Kasprzak noted, the failure to match might have been due to differences in spellings of company names or addresses – although SMR used a number of alternative matching methods and address standardization.

Similarly, there could be innocent explanations for the home-based businesses that claimed to have five or more employees. Perhaps some of these firms merely used a home address to receive mail, for instance. Or maybe they were indeed houses with lots of workers in them. 

"Generally, we believe a wide-open federal stimulus plan was needed during the pandemic to offset business closures and layoffs," Kasprzak commented. "But an offer of essentially free money does attract some fraud." PPP debts were forgiven if the company used the money to support employment.

The study also showed major differences among lenders in the number of corporate customers whose companies could not be confirmed. 

Bank of America was the largest lender in the study, having produced 383,019 PPP loans. Among them, 11.3% could not be confirmed by name and address. By contrast, one Florida financial firm, a self-described "hard money" lender, produced 4,320 loans, of which 43.4% were to borrowers that could not be confirmed to exist in SMR's study.

SMR Research Corp., based in Hackettstown, NJ, is a compiler of real estate and company data. SMR was founded in 1984.

SMR Contact: Stuart Feldstein at 908-852-7677, or [email protected]

300 Valentine St.  Hackettstown, NJ 07840. 
908-852-7677 
Visit www.SMRresearch.com

SOURCE Smr Research Corporation