A Virginia firm that got a no-bid $750 million contract to manage the quick distribution of Covid relief loans — the biggest such contract awarded — netted $340 million in "windfall profits" for itself, says a report released Tuesday by the House Select Subcommittee on the Coronavirus Crisis.
The company, RER Solutions Inc., was hired by the Small Business Administration to help distribute billions in loans through the Economic Injury Disaster Loan (EIDL) program to small businesses struggling during the pandemic.
In a statement, Rep. James E. Clyburn, D.-S.C., the committee chair, blamed the Trump administration for mismanaging the pandemic loan programs. “Today’s report," he said, "underscores once again the Trump administration’s failure to act as an effective guardian of Americans’ taxpayer dollars in responding to the economic crisis triggered by the coronavirus pandemic. They failed to take reasonable steps to prevent EIDL funds from being lost to fraud, and they wasted additional public funds by overpaying a contractor that did little to implement the program.”
The report was released in advance of a congressional hearing Tuesday during which Biden administration officials are giving updates on efforts to detect and punish fraud.
The $378 billion EIDL program has been heavily criticized for sending billions to fake businesses during the pandemic. The SBA inspector general has previously estimated that fraud in the EIDL program may have cost $84 billion.
Prosecutors have accused borrowers of purchasing luxury homes, cryptocurrency and Teslas with EIDL funds.
But now instead of just the borrowers themselves, the scrutiny extends to the companies that were hired to help distribute the billions in loans to the public in 2020.
Prior to the pandemic, RER Solutions Inc. of Herndon, Virginia, was a frequent government contractor, with smaller multimillion-dollar contracts dating back to 1999, according to federal government purchase orders. Before 2020, the firm had received less than $100 million over the preceding 20 years, according to purchase orders.
When the pandemic hit, the company won the $750 million no-bid contract. The new report calls it "the largest contract awarded by the federal government in service of the response to the pandemic’s economic impacts."
To do the work, the company told congressional investigators, it relied on a six-person in-house team and subcontracted the rest of the work out to two companies.
First, RER turned to Detroit-based Rocket Loans and paid it $233 million of the original government contract to help distribute the SBA funds.
When RER realized that the flood of loans was too much for Rocket, it subcontracted an additional $148 million to one of Rocket’s affiliated businesses, Maryland-based Rapid Financial, according to the report.
In the report, congressional investigators say this left a net "windfall profit" of $340 million for RER.
RER Solutions and Rapid Financial did not immediately respond to requests for comment.
In a statement, Rocket Loans said, "Rocket Loans provided several solutions to help the SBA create an EIDL loan origination system that was efficient and had robust fraud prevention capabilities. Ultimately, the SBA had full decision-making power and chose the options that they felt could best-prevent fraud while also complying with the CARES Act."
A previous SBA inspector general report in April raised questions about the pandemic contract with RER, noting that the rates of payment the SBA was using were from 2018 and outdated. The report concluded there was no guarantee that the SBA was paying a “fair and reasonable” rate to RER.
Congressional investigators say they also found that EIDL loan reviewers at the SBA were in such a rush to get funding out the door that they were told to approve loans even if “applicant’s online identity verification had failed” even in cases “where there was an indication the applicant may be deceased.”
“The Trump administration prioritized speed over certainty, a choice that left the door wide open to fraudsters, exposing taxpayer dollars to fraud, waste, and abuse," said an SBA spokesperson in a statement Tuesday. "From Day One, the Biden-Harris SBA focused on delivering small business relief quickly and efficiently without compromising the integrity of our programs. Today’s report from the Select Committee recognizes the success of the Biden administration’s reforms that curtailed fraud, protected taxpayers and ensured that vital relief funds benefited the small businesses Congress intended to help.”
In prepared testimony for the hearing, SBA Inspector General Hannibal "Mike" Ware said that "SBA’s disaster assistance lending for the pandemic response, principally through EIDL, is in the hundreds of billions — an amount exceeding all of SBA’s disaster assistance lending since 1953. ... [O]ur concern is that the true scope of the fraud landscape will not be known until these loans go into repayment. Our office, and others in the pursuit of justice, must be poised to combat fraud for years to come."
Other administration officials in charge of the Covid fraud prosecution effort plan to announce that federal prosecutors have charged almost 1,500 defendants in more than 1,000 cases and recovered $10 billion in loans.
The work is expected to continue. “Countering this fraud has become a core focus of the Secret Service’s investigative work,” according to prepared testimony from the agency’s Pandemic Fraud Recovery Coordinator Roy D. Dotson Jr. “Investigative efforts to recover stolen assets and hold criminals accountable will continue for years.”
There are at least 1,150 ongoing SBA investigations into alleged Covid relief fraud, related to disbursements of more than $2.4 billion.
In his prepared testimony for the hearing, Michael Horowitz, the Justice Department inspector general and head of the Pandemic Response Accountability Committee, said he welcomed the House’s June 8 passage of a bill that extends the statute of limitations for Covid relief loan fraud to 10 years, and “look(ed) forward to the Senate considering similar legislation.”