House panel: Ariz. company co-founded by newscaster made millions on fraudulent PPP loans

A congressional panel is recommending several tech and lending companies be investigated for fraud for the way they processed billions of dollars in Paycheck Protection Program loans, including a Phoenix-based startup co-founded by a former television newscaster.

The Select Subcommittee on the Coronavirus Crisis, chaired by Rep. James Clyburn, D-S.C., released the incriminating report Thursday that alleges the companies intentionally approved high-dollar loans ahead of those meant to assist small mom-and-pop businesses and directed workers to ignore signs when applications were blatantly fraudulent.

That tens of billions of aid dollars meant to help businesses retain workers during the pandemic were issued to ineligible companies is not new — the committee previously identified about $84 billion in potentially fraudulent loans. But the report asserts fintech companies that processed applications perpetuated the fraud and sought to blame the Small Business Administration while earning hundreds of millions in fees for themselves.

The committee is recommending the Department of Justice use the findings from its 129-page report to investigate and prosecute the companies involved. It also is making several recommendations to the Small Business Administration to tighten up emergency lending to prevent rampant fraud.

Much of the report is dedicated to Phoenix-based Blueacorn PPP, which was co-founded in 2020 by former Channel 15 (KNXV-TV) newscaster Stephanie Hockridge Reis and her husband, Nate Reis. Hockridge Reis left the station in 2018.

Neither could be reached Thursday after the report was released. The number listed online for Blueacorn uses an Illinois area code and was a personal line, according to the person answering.

Other companies highlighted in the report include Elev8 Advisors of Phoenix, Womply of Wilmington, Del., Kabbage Inc. of Atlanta, Bluevine of Redwood City, Calif., and various other companies that worked with them on the loan program.

While lenders were responsible for underwriting and processing loans, for which they earned commissions of 1-5% depending on the size, they also relied on agents like those listed in the report to handle much of the work, including reviewing an applicant's qualifications. Starting in 2021, startup fintech companies like Blueacorn were allowed to participate in the program.

Fintech companies took up a leading role in the program, which eventually issued $800 billion in forgivable loans to companies with fewer than 500 workers.

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"Even as these companies failed in their administration of the program, they nonetheless accrued massive profits from program administration fees, much of which was pocketed by the companies’ owners and executives," Clyburn said in a prepared statement.

"On top of the windfall obtained by enabling others to engage in PPP fraud, some of these individuals may have augmented their ill-gotten gains by engaging in PPP fraud themselves."

Facebook page for Stephanie Hockridge Reis on Nov. 30, 2022
Facebook page for Stephanie Hockridge Reis on Nov. 30, 2022

ABC 15 newscaster Hockridge involved

Blueacorn used third-party companies and contractors to process, the company told investigators in a letter. They were paid $37 to $55 per hour, or on a per-application basis from $2 to $8 per application.

Blueacorn's owners took nearly $300 million in profits, according to the report. A letter the company sent the committee in February said it actually collected more than $1 billion in fees for processing PPP applications but also had about $700 million in expenses.

Investigators for the committee found Hockridge Reis was deeply involved in the day-to-day operations of the company and how it reviewed loan applications.

The company only spent $8.6 million, or less than 1% of the fees, received on fraud prevention.

The company owners also collected $300,000 in PPP loans that were in part facilitated by their own company, according to the report. In one application for a loan, Reis "falsely claimed to be an African American and a veteran."

The couple relocated to Puerto Rico last year, where they launched another lending consultancy, the report said. Maricopa County records show Hockridge Reis still owns a condominium near Scottsdale Fashion Square.

The congressional committee provided media with videos that appear to show Reis at a luxury beach house in San Juan, Puerto Rico, and also inside of a bar in Arizona. He is holding a massive roll of bills that he stuffs in the front pocket of his pants and highlights for the camera to show the bulge.

On May 21, 2020, Hockridge Reis posted on Facebook that she had co-founded Blueacorn, but her name is not on the company's incorporating documents filed with the state of Arizona.

"I co-founded Blue Acorn as a remedy for the blatant discrimination that's suffocating small businesses & their employees during this government-mandated shutdown," she wrote at the time.

When it was revealed last year the company was under investigation, Hockridge Reis declined to comment when reached by ABC 15. She worked for the station from 2011-2018, including as a news show anchor.

Small business loans not prioritized. 'Delete them'

The report also says that, contrary to the goals of the PPP program, Blueacorn did not prioritize small businesses but instead focused on the largest applications that would earn them the most.

Investigators for the committee spoke with multiple people who reviewed loan applications for Blueacorn who reported they were instructed to prioritize speed in processing applications rather than verify the applications were legitimate.

"The faster the better," one former reviewer said, adding they were instructed to take 30 seconds or less to review an application.

"I mean … I don’t believe in prioritizing the biggest loans over the smallest … but, there should be some understanding that as we get started…closing these monster loans will get everyone paid," Hockridge Reis said in one Slack message obtained by the committee.

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"Delete them," she wrote of small loans in one Slack message obtained by the committee. "Who f------ cares. We're not the first bank to decline borrowers who deserve to be funded."

The investigators also obtained Slack messages written by Hockridge Reis that indicate big loans were not only given priority but also less scrutiny for fraud.

The report goes on to describe potentially fraudulent PPP loans processed for both the Blueacorn owners and people who worked with Phoenix-based Elev8 Advisors.

Blueacorn hired Elev8 to advise the company on compliance with laws and regulations related to the PPP.

At least 16 PPP loan application reviewers working for Elev8 Advisors on behalf of Blueacorn received more than $150,000 in PPP loans, the report said.

Elev8 owners Adam and Kristen Spencer of Mesa purchased an almost $8 million home in cash and "multiple luxury cars" after collecting the loans, the report said. The Spencers could not be reached Thursday and did not immediately return a message left with Elev8.

Adam and Kristen Spencer paid $7,995,000 cash for a 10,975-square-foot mansion in north Scottsdale’s Silverleaf community in the summer of 2021. The Mediterranean-style house has six bedrooms and seven bathrooms.
Adam and Kristen Spencer paid $7,995,000 cash for a 10,975-square-foot mansion in north Scottsdale’s Silverleaf community in the summer of 2021. The Mediterranean-style house has six bedrooms and seven bathrooms.

Other companies similarly overlooked fraud

The report levies similar accusations about other companies, including Womply, which processed more than $16 billion in PPP loans and collected nearly $2 billion in fees from lenders.

Womply and Blueacorn combined processed about one of every three PPP loans in 2021.

Womply CEO Toby Scammell was convicted of insider trading in 2014 and has been barred from participating in the securities industry.

He led Womply's fraud prevention efforts and told the company not to cooperate with investigators, according to the report.

Kabbage also is accused of lax fraud prevention. Investigators found a Kabbage risk manager supervising fraud specialists told his team that the difference reviewing PPP applications versus normal lending is that “the risk here is not ours — it is SBA’s risk.”

The report said that as fraud surged in the PPP program, Kabbage cut its review teams by about half.

Bluevine initially was swamped with fraud, but the banks working with the company were able to push the company to improve its review procedures and reduce fraud, the report said.

University first identified fintech shortcomings

The link between fintech companies and PPP fraud was identified last year when the McCombs School of Business at the University of Texas, Austin released a report analyzing how such companies approved loans.

They identified more than 1.8 million loans worth about $76 billion with indications of potential fraud.

Blueacorn's activities were highlighted in that report, as were Prestamos and Capital Plus, two lenders who worked with the company.

The report explained how borrowers, including criminals, created fake companies to apply for loans based on fictitious employee counts and salaries, and the automated reviews by fintech companies would grant approvals.

Clyburn said he wants the report to lead to better care of federal money.

“We must learn from this inexcusable misconduct to erect guardrails that will help ensure that federal programs — including emergency assistance programs in future crises — are administered more effectively, efficiently, and equitably while keeping waste, fraud, and abuse to an absolute minimum," Clyburn said in his statement on the report.

"Based on our initial findings, I have asked the (Small Business Administration and its Office of Inspector General) to conduct further investigation into these companies and pursue all appropriate remedies, and I have informed DOJ that some of our findings may warrant its attention.”

Reach reporter Ryan Randazzo at ryan.randazzo@arizonarepublic.com or 602-444-4331. Follow him on Twitter @UtilityReporter.

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This article originally appeared on Arizona Republic: House panel: Arizona company Blueacorn PPP facilitated massive fraud