Blueacorn Batched Docs With Redactions
- Issuer
- Congressional materials
- Document type
- Blueacorn Batched Docs With Redactions
- Case
- Blueacorn Batched Docs With Redactions
Cited in: Blueacorn
Full text
Full text shows the first 300 of 544 pages; the complete document is the PDF above.
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA ASIA PACIFIC EUROPE
December 23, 2021
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
Blueacorn remains committed to cooperating fully with the Subcommittee’s inquiry, and
continues to review potentially responsive information and documents. Today, in accordance
with the agreement between Blueacorn and Subcommittee staff that Blueacorn should provide its
responses on a rolling basis, we are submitting in the attached spreadsheet Blueacorn’s response
to Information Request Nos. 2 & 3—the requests asking for a week-by-week breakdown of how
many loans processed by Blueacorn were approved and how many were denied. To assist the
Subcommittee staff with interpreting the numbers in the attached spreadsheet, this letter provides
a brief explanation of how the data has been organized.
The rows of the spreadsheet represent the individual weeks. As we discussed during a
prior meeting, Blueacorn determined that the most logical and useful way to assign applications
to a specific week was to use the date on which the applicant started the loan application, rather
than the date on which the loan was denied or approved. In particular, because an application
may take several weeks or months to complete as Blueacorn works with the applicant to compile
the requisite documentation and verify eligibility, the rejection date for many applications was
merely an arbitrary date when batches of incomplete applications were closed out. For the
Subcommittee to see the actual progress of lending decisions over time, we believe it is most
useful to tabulate how many applications that began in a particular week were granted and how
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
many were denied. Note that although the Subcommittee’s requests ask for data since April 1,
2020, Blueacorn has only been involved in processing PPP loans since January 2021, and only in
any significant volume since the opening of the extension of the second round of the PPP in late
February 2021.
The columns of the spreadsheet reflect the different stages in the process at which loan
applications could be denied or rejected. This reflects that Blueacorn did not simply accept
completed applications from any applicant for its partner lenders to approve or deny. Rather,
Blueacorn employed a series of fraud prevention practices and technologies throughout its entire
adaptive application process that could for various reasons prevent an application from being
submitted, could lead to its denial after it was submitted, and, indeed, could even lead to a late-
stage denial by the lender due to irregularities discovered after the Small Business
Administration (“SBA”) had already approved the loan. In order to provide the Subcommittee
staff with a full picture of Blueacorn’s fraud detection and prevention mechanisms, we have
broken out the data into the following categories (which correspond to the column headings):
Column A – “Time_Period”: This column identifies the week in question
(specifically, the first day of the week).
Column B – “Applications – Post Eligibility Questionnaire”: This column reports
the number of applicants who completed Blueacorn’s eligibility questionnaire and
started an application. The eligibility questionnaire contained two components. The
first component required applicants to provide contact information and a valid email
address to confirm their identities. Applicants were required to verify their phone
number through a multi-factor process proving that they were an individual human
applicant, permitting them to continue preparing an application. The second
component required applicants to respond to a series of questions to determine
whether they would be eligible to apply for a PPP loan. These questions included (1)
whether the applicant was in business before February 15, 2020; (2) whether the
applicant received a PPP loan in the previous year; (3) what the applicant’s income
was in 2019; and (4) what the applicant’s income was in 2020. The use of this
questionnaire ensured that automated and/or robotic submissions were effectively
eliminated.
Column C – “Applications – In Adaptive Application Process”: This column
reports the number of applicants who passed Blueacorn’s initial eligibility
questionnaire as described above. Applicants who reached this stage have to then
complete a series of twelve steps before finalizing their applications. For instance,
applicants were asked to provide banking and income information to substantiate
their loan applications, including links to bank accounts, bank statements, ACH
Page 3
account and routing information, and draft or finalized IRS Schedule C forms.
Applicants were also asked to take a picture of their photo ID, complete a biometric
scan of their faces, and answer questions based on their background and credit history
using “Out of Wallet” or “Knowledge Based” questions. Applicants who could not, or
would not, submit the required documentation were not permitted to submit an
application.
Column D – “Applications - Completed”: This column reports the number of
applications that were formally submitted by potential borrowers who have
successfully completed the twelve-step process described above. Upon completion,
additional automated checks, as well as a dedicated human review, were conducted to
validate the details provided by the applicants. Applications were then approved,
denied, or sent back for additional documents or details—as evidenced in the
following three columns.
Column E – “Denied - Pre SBA”: This column reports the number of completed
applications that were denied before the application was submitted to the SBA.
Column F – “Denied - Post SBA”: This column reports the number of completed
applications that were denied due to issues that arose after receiving SBA approval
but before the loan was issued. For instance, Blueacorn utilized data analytics to
identify any suspicious trends in applications (e.g., applications listing identical IRS
Schedule C details), and any such applications were subject to enhanced due
diligence (“EDD”) and denied even after SBA approval if applicants failed to supply
sufficient information in response to EDD requests for information. Blueacorn also
maintained an offensive cyber security team that monitored online web forums
discussing how to fraudulently obtain PPP loans, and applications exhibiting these
criteria would be subject to EDD or denied. Blueacorn would also deny or apply
EDD to applications returned or flagged as suspicious by the applicant’s bank.
Finally, this column includes a small number of individuals who chose not to
continue with the process by failing to sign their official DocuSign promissory note.
Column G – “Approved”: This column reports the number of applications that were
approved for funding by Blueacorn, and sent to the lenders for final approval and
funding. It equals the difference between the number of completed applications
(Column D) and the number of applications rejected at the pre- and post-SBA stage
(Columns E and F).
Page 4
Outside of the numbers provided in the attached spreadsheet, which reports the
overwhelming majority of the applications that Blueacorn processed, Blueacorn notes that it also
facilitated and ultimately approved approximately 86,000 loans in connection with an agreement
it had with Womply, Inc. These applications did not come in through the website or follow the
same process, so they require a different method of reporting than the one used in this
spreadsheet. Blueacorn will provide additional information on those loans at a later date.
Some information provided in connection with this response is business-sensitive and, if
released, would cause injury to Blueacorn. We have marked this letter and the enclosed materials
“Confidential” and request that they not be disclosed beyond the Subcommittee or made public.
If public release is contemplated, we request the opportunity to be heard before the proposed use.
Please feel free to have your staff contact us with any questions concerning this response.
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
Confidential Treatment Requested
Blueacorn: Response to House Subcommittee Information Request Nos. 2 & 3
Applications - Post Eligibility Applications - In Adaptive
TIME_PERIOD Questionnaire Application Process Applications - Completed Denied - Pre SBA Denied - Post SBA Approved
2021-01-04 14 14 14 1 0 13
2021-01-11 237 237 237 58 8 171
2021-01-18 214 214 214 64 6 144
2021-01-25 280 280 270 75 14 181
2021-02-01 252 252 246 92 17 137
2021-02-08 230 227 218 89 2 127
2021-02-15 372 324 266 104 9 153
2021-02-22 5,393 4,075 2,313 970 66 1,277
2021-03-01 48,433 35,342 17,432 7,536 453 9,443
2021-03-08 45,240 36,662 24,983 10,008 1,283 13,692
2021-03-15 112,687 94,307 70,468 29,399 2,905 38,164
2021-03-22 227,293 201,586 161,461 75,643 14,944 70,874
2021-03-29 455,038 377,961 271,678 130,988 37,642 103,048
2021-04-05 580,331 474,507 319,033 164,586 41,521 112,926
2021-04-12 445,212 346,385 197,260 91,098 15,487 90,675
2021-04-19 547,386 371,849 158,814 69,622 8,628 80,564
2021-04-26 645,359 424,067 157,899 69,295 6,796 81,808
2021-05-03 663,439 446,241 150,427 73,414 5,233 71,780
2021-05-10 177,173 145,475 77,719 44,228 1,955 31,536
2021-05-17 140,883 120,652 71,809 44,720 1,546 25,543
2021-05-24 48,565 41,151 20,581 13,144 411 7,026
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA ASIA PACIFIC EUROPE
January 12, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, we are submitting Blueacorn’s
responses to Information Request Nos. 8, 9, and 10.
Request No. 8
Please provide a detailed description of Blueacorn’s relationship with any non-bank or
bank partners involved in PPP loans, including the name of each entity and any revenue sharing
or liability sharing agreements.
Response to Request No. 8
As this Subcommittee recently concluded in a written report, contrary to Congress’s clear
intent in establishing the PPP in the CARES Act, the initial rounds of the program saw the
majority of PPP funds distributed to larger businesses via traditional banks. Small businesses in
traditionally underserved markets, including those that were minority- and women-owned, were
not able to access the program in the same meaningful way because private lenders, who were
responsible for collecting borrower applications and processing loans, primarily worked with
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
their existing customer base. As a result, many of those who were truly in need of financial
support during the COVID economic crisis faced longer wait times and greater obstacles to
obtaining the funds, thus creating a gap between the population the program was intended to
serve and the population the program actually reached. Among other deficiencies, as the New
York Federal Reserve Bank eventually found, the “racial disparities in access” to PPP funds
were so significant that the program reached “only 20% of eligible firms in states with the
highest densities of Black-owned firms.”
In late 2020 and early 2021, aware of the PPP’s prior failings and in anticipation of an
expected second round of PPP funding, Blueacorn partnered with SBA-approved community
lender Capital Plus Financial LLC (“Capital Plus”) to help fill that gap. Their joint mission was
to streamline the complicated PPP application process to help qualified applicants—primarily
sole proprietorships, independent contractors, and self-employed individuals that had previously
been ignored by lenders—gain access to the PPP loan funding they needed and deserved. In
April 2021, Blueacorn partnered with another SBA-approved community lender— Prestamos
CDFI, LLC (“Prestamos”), a division of the non-profit Chicanos Por La Causa—for the same
purpose. In total, Blueacorn and its two lending partners helped more than 700,000 sole
proprietorships and small businesses obtain loans, approximately 80% of which are minority
owned.
Blueacorn served as a lender service provider (“LSP”) to Capital Plus and Prestamos
pursuant to lender service provider agreements with each entity (respectively, the “Capital Plus
LSPA” and “Prestamos LSPA”).1 In its role as an LSP for the lenders, Blueacorn operated a web
portal through which small businesses, independent contractors, and the self-employed could
easily determine their eligibility for a PPP loan, complete an application, and submit the required
information and documentation. On behalf of the lenders, Blueacorn contracted with marketers
to advertise the existence of the website to potential applicants; collected application information
from those applicants; performed various fraud checks; engaged in customer service
communications with applicants; and submitted completed applications for approval by the
lenders. After the lenders and SBA approved the applications, Blueacorn assisted the lenders in
securing execution of the necessary loan documents, issuing the loans, and processing
forgiveness applications.
1
Blueacorn entered into the Capital Plus LSPA through its wholly-owned subsidiary, Fin Cap, Inc. The original
Capital Plus LSPA was executed in January 2021, with an effective date of October 23, 2020, and was updated in
February 2021. Blueacorn entered into the Prestamos LSPA in April 2021 through its wholly-owned subsidiary, BA
PPP Fin, LLC.
Page 3
Blueacorn was compensated by the lenders in the following ways:
Capital Plus – Blueacorn’s compensation from Capital Plus consisted of: (i) an initial
20% share of SBA fees received by Capital Plus for each loan (with 50% of this amount
held back until the borrower applied for SBA forgiveness for the underlying loan), which
compensated Blueacorn for the amount that Blueacorn paid marketers to advertise on the
internet; and (ii) 41% of the remaining SBA fees (and 8% for two of Blueacorn’s initial
founders, who had since exited), which, among other things, compensated Blueacorn for
its various operating costs and expenses (including personnel costs for the application
review process, expenses related to technological development, costs associated with the
provision of customer support for borrowers, and other technology costs such as
DocuSign).
Prestamos – Blueacorn earned 70% of the SBA fees received by Prestamos for each loan,
with 10% of Blueacorn’s share held back until the borrower either completed a
forgiveness application or the loan matured. Although not broken out into a separate
reimbursement item as it was in the Capital Plus LSPA, this arrangement similarly
compensated Blueacorn for its expense of paying the entire cost associated with
marketing on the internet, along with all of the other operating costs and expenses
associated with Blueacorn’s various responsibilities.
Request No. 9
Please provide a detailed description of how Blueacorn recruited PPP loan applicants,
including marketing strategies and advertising plans.
Response to Request No. 9
Blueacorn’s main marketing strategy was to employ paid third-party referral agents.
These agents operated principally by purchasing online advertising from providers like Google
and Facebook that directed potential PPP loan applicants to Blueacorn’s website. Applicants
would click through third-party advertisements and be redirected to Blueacorn’s webpage.
In addition to Facebook and Google, these third-party referral agents purchased
advertising through offline mediums. This included traditional mediums like radio spots, TV
advertisements, and digital billboard ads. Similar to the online marketing, these advertisements
directed potential applicants to Blueacorn's webpage to check their eligibility.
Blueacorn also attracted potential applicants directly. Potential applicants found their
way to Blueacorn’s website through results on search engines like Google and Bing, online and
personal word of mouth, and similar mechanisms that did not involve a referral.
Page 4
A relatively small share of loans processed by Blueacorn were generated through the
Blueacorn Enterprise Partner program. Under this program, Blueacorn contracted with entities
that had an existing membership base of potentially eligible applicants—such as businesses with
a large number of independent contractors that could benefit from the Paycheck Protection
Program—to promote Blueacorn’s website.
Finally, Blueacorn processed approximately 86,000 loans pursuant to an agreement with
Womply, Inc. (“Womply”) at a point when Womply’s portfolio of non-CDFI lenders no longer
had the ability to make loans for borrowers already in processing. These loans were generated
through Womply’s advertising and marketing efforts, and were reviewed and underwritten by
Womply without any involvement from Blueacorn.
Request No. 10
Please provide a detailed description of any incentives or rewards that Blueacorn offered
or provided to employees or contractors processing PPP loan applications, including non-
monetary rewards.
Response to Request No. 10
Blueacorn almost exclusively relied on third-party companies and contractors to process
loan applications, all of whom were compensated in one of two ways. Certain contractors
received an hourly rate in the range of $37-55 per hour. Others were compensated on a per-
application basis in the range of $2-8 per application. Per application processing fees were paid
each time a processor reviewed an application regardless of whether the application was
approved or denied. Processors were also paid an additional fee for secondary or tertiary reviews
whenever more information was required from the borrower, and paid at the same rate. In
addition to these fees, one third-party company received a goodwill bonus of approximately
$10,000, unrelated to any metrics like hours or applications reviewed, to be distributed to the
contractors that it supplied.2
* * *
Some information provided in connection with this response is business-sensitive and, if
released, would cause injury to Blueacorn. We have marked this letter and the enclosed materials
2
Blueacorn also had one direct employee who assisted with processing PPP loan applications. He was salaried, and
the bonus received was based on overall performance and not on the number of applications reviewed.
Page 5
“Confidential” and request that they not be disclosed beyond the Subcommittee or made public.
If public release is contemplated, we request the opportunity to be heard before the proposed use.
Please feel free to have your staff contact us with any questions concerning this response.
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
February 4, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, and in response to certain
supplemental requests that the Subcommittee staff conveyed by email on January 18, we are
submitting Blueacorn’s responses to Information Request Nos. 1 and 12, as well as supplemental
responses to Request Nos. 8 and 10. As discussed with the staff during a recent video
conference, certain of the original and supplemental requests that the staff has identified as
priorities will take longer to respond to than others, so we will continue to provide information
on a rolling basis in order to avoid unnecessarily delaying production of information that is
currently available to be produced.
Request No. 1
How much is Blueacorn’s total revenue from facilitating PPP loans to date?
Response to Request No. 1
Congress put in place a fee structure that generated approximately $1,840,750,000 in
SBA fees for lenders on nearly $12 billion in PPP loans that Blueacorn helped facilitate for
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
approximately 750,000 small businesses. Of that approximately $1.84 billion in lender fees,
Blueacorn has received approximately $1.03 billion; but Blueacorn has itself spent in excess of
$700 million dollars on the operational expenses associated with the services it provided to the
lenders, including payment for marketing and referral services, eligibility verification services,
customer service support, fraud prevention, and technology development and infrastructure
costs. 1
Response to Staff’s Follow-Up to Request No. 8 Regarding Third-Party Relationships
In the Subcommittee staff’s email dated January 18, the staff asked Blueacorn to provide
detailed descriptions of each of Blueacorn’s partnerships with respect to PPP loans, including all
third-party contractors, third-party marketing or referral agents, and Womply.
During the call that we arranged with the staff on January 19 to better understand the
staff’s request, we explained that Blueacorn had dozens of third-party contractors and vendors,
and that providing detailed descriptions of all of those relationship was feasible, but would
require substantial effort even though many of the relationships were unlikely to be of interest to
the Subcommittee. As an alternative, we proposed providing the staff with a chart of all of
Blueacorn’s major third-party relationships, which the staff could then review to determine
whether it wanted more information about certain vendors. That chart is below. We also agreed
to supplement our earlier descriptions of the relationships between Blueacorn and its two lending
partners by providing the relevant contracts between those parties. We did so on January 20.
Finally, we agreed to supply a detailed description of Blueacorn’s relationship with two
particular non-lenders— Womply and PayNerd—and to produce the corresponding contracts.
Those descriptions are below, and the contracts are being produced to the Subcommittee today.
Chart of Major Third Party Relationships
The following is a chart of major third-party relationships in the major categories of
Blueacorn’s PPP-loan-processing activities. For instance, while not all marketing partners are
listed, the ones included in the chart comprise the set of marketers involved in the overwhelming
majority of applications that were approved and funded through Blueacorn. Although there were
relationships with a variety of other marketers, they accounted even in combination for only a
very small and, in context, immaterial number of the loans that Blueacorn processed.
1
Blueacorn has filed a lawsuit in Delaware seeking to recover at least $175 million in payments it made to its
principal provider of marketing services.
Page 5
to-day operations of Blueacorn. and exited Blueacorn in April as part of the
company’s transition to a new senior management team that included non-founding
professionals, such as Barry Calhoun as CEO and as COO. and do not
have any ongoing formal or informal connections to Blueacorn, beyond those contained in the
agreement by which they exited the company (which was produced to the Subcommittee on
January 20). Blueacorn is currently preparing a response to the Subcommittee’s questions
regarding compensation to , , and others, and will provide that response in a
subsequent letter.
Response to Staff’s Follow-Up to Request No. 10 Regarding Incentives
In the Subcommittee staff’s email dated January 18, the staff asked Blueacorn to provide
information related to incentives or rewards that Blueacorn provided to its “direct employees”
who were involved in processing PPP loan applications. On the call with the staff on January 19,
the staff further clarified that it was seeking information for any individual who was involved in
processing PPP loan applications, and not just those individuals who were involved in reviewing
the loan applications. Blueacorn responds as follows.
In early 2021, during Blueacorn’s initial ramp up period, the company paid bonuses to
one employee and several contractors (one of whom later became an employee). The bonuses
were not based on any metric related to PPP loan applications. Blueacorn provided this
additional compensation only to thank the individuals for working longer hours than expected.
None of these bonuses exceeded $15,000. At around the same time, Blueacorn’s Director of
Operations departed the company, and received a $100,000 compensation package as part of her
departure.
Request No. 12
What was the total compensation of each member of Blueacorn’s executive team in 2019,
2020, and 2021, broken down by constituent components?
Response to Request No. 12
In a conversation between Blueacorn’s counsel and Subcommittee Staff, it was agreed
that Blueacorn would submit a list of people who have made up its senior leadership over time,
Page 7
Please feel free to have your staff contact us with any questions concerning this response.
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
March 25, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, and in response to certain
supplemental requests that the Subcommittee staff conveyed by email on February 16, we are
submitting Blueacorn’s responses to the Subcommittee staff’s supplemental requests related to
Blueacorn’s relationship with Womply and Blueacorn’s relationships with marketing partners,
third-application processors, compliance consultants, and technology consultants. As previously
discussed with the staff, certain of the original and supplemental requests that the staff has
identified as priorities will take longer to respond to than others, so we will continue to provide
information on a rolling basis in order to avoid unnecessarily delaying production of information
that is currently available to be produced.
Response to Staff’s Supplemental Request Regarding Blueacorn’s Relationship with
Womply
In the Subcommittee staff’s email dated February 16, the staff asked Blueacorn to
provide details on the evaluations and fraud checks conducted by Blueacorn on PPP loans
referred by Womply, a summary of the analysis that Womply conducted on these loans prior to
the referral, and the reasons that over one hundred thousand loan referrals were discounted. The
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
staff also asked that Blueacorn outline the amount it believes it is owed by Womply for this
work.
While Blueacorn did not have first-hand visibility into the review process that Womply
performed, Womply committed in its PPP Loan Referral Agreement with Blueacorn to satisfy a
series of conditions “prior to Womply sending an application to Blueacorn.” Those conditions
included, among a variety of other things, performing a KYC check and verifying bank activity.
Three pages of details about Womply’s review process are set out at Exhibit A to the PPP Loan
Referral Agreement, entitled, “Application Review Process,” which was previously provided to
the Subcommittee.
Upon receipt of the Womply-referred applications, Blueacorn performed additional
review. First, Blueacorn compared applicants’ reported income to the average income reported
by the U.S. Bureau of Labor Statistics for businesses within the same North American Industry
Classification System (“NAICS”) category. Any applicant who reported income above 130-
150% of the 90th percentile of income for their NAICS classification was not forwarded to
Blueacorn’s lending partner for consideration. In addition, Blueacorn used the applicant’s tax ID
to confirm that the individual had not previously been denied a PPP loan by Blueacorn.
Blueacorn also ran the applicant’s email address, phone number, and the gross and net income as
reported in their IRS Schedule C documentation across its database of applications, and flagged
for further investigation any Womply-referred application that contained overlapping
information.
The checks detailed above account for the vast majority of Womply-referred loans that
Blueacorn determined not to forward to its lending partner for consideration. Another 30,000 to
40,000 applications were not forwarded because the PPP ended before the applications could be
fully processed. Finally, some number of applications were forwarded for consideration by
Blueacorn’s lending partner, and then were submitted to the SBA and approved, but were not
ultimately completed for a variety of reasons, including the borrower’s bank returning the funds,
or the applicant opting not to sign their PPP promissory note.
Under the terms of Blueacorn’s agreement with Womply, Womply was to receive
payment from Blueacorn upon Blueacorn’s receipt of payment from Blueacorn’s lending partner.
Accordingly, Womply does not owe Blueacorn any payment under the agreement.
Response to Staff’s Supplemental Request Regarding Blueacorn’s Relationship with Third-
Parties
In the Subcommittee staff’s email dated February 16, the staff asked Blueacorn to
provide descriptions of the relationships between Blueacorn and all marketing partners, third-
party loan application processors, compliance consultants, and technology consultants. This was
in response to a chart provided in our letter on February 4, 2022, that contained information for
Page 3
the major third-party partners and vendors. We are providing additional information about those
partners and vendors below.
Blueacorn contracted with five major marketing partners: PayNerd/PayNerdier,
OpenForce, VIPP, Elev8, and MooveGuru. As noted in Blueacorn’s initial response to
Information Request No. 9, Blueacorn’s primary marketing strategy involved engaging third-
party referral agents. These partners would perform their function as a referral agent by placing
paid online advertising with providers like Facebook and Google that directed potential
applicants to a website containing an eligibility screening quiz and, if the applicant appeared
likely to qualify for a PPP loan, redirected the applicant to Blueacorn’s website to begin
preparing an application. In addition to Facebook and Google, Blueacorn’s third-party referral
agents also used offline mediums including radio, television, and digital billboard advertisements
to direct potential applicants to the eligibility screening quiz. Pursuant to the terms of their
various contracts, these partners shared a percentage of Blueacorn’s revenue on funded loans.
Blueacorn contracted with three third-party staffing companies to supply contractors to
perform eligibility verification on loan applications. Those partners included TEK Systems,
HireRising, and Evergreen—all of whom provided temporary contractors to review loan
applications.
Bluacorn also contracted with two compliance consultants—Everett Advisors and
Elev8—to advise the company on compliance with relevant laws and regulations related to the
PPP, and to assist with responding to subpoenas and other requests for records.
Finally, Blueacorn contracted with four technology consultants—Draco Solutions, AVM
Consulting, Synapse Studios, and Snaptech. These companies provided technology contractors,
such as server managers and software engineers, to help build and operate the technology
platform that Blueacorn used to compile, review, and track PPP loan applications.
* * *
Some information provided in connection with this response is business-sensitive and, if
released, would cause injury to Blueacorn. We have marked this letter and the enclosed materials
“Confidential” and request that they not be disclosed beyond the Subcommittee or made public.
If public release is contemplated, we request the opportunity to be heard before the proposed use.
Page 4
Please feel free to have your staff contact us with any questions concerning this response.
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
Objectives. From the outset and continuously throughout the PPP, Prestamos
CDFI committed to two objectives: (a) to maximize the availability of PPP lending
to sole proprietors and similar endangered small businesses in underserved
communities; and, (b) as an SBA lender, to ensure program integrity.
Two Areas of Focus. Last week’s call discussed Prestamos CDFI’s PPP lending
in two categories: (a) Prestamos CDFI’s direct lending between April 2020 and
May 28, 2021 (“pre-Blueacorn”); and, (b) Prestamos CDFI’s lending with
Blueacorn post-April 14, 2021 (“post-Blueacorn”).
2. Pre-Blueacorn Lending Practices
Rounds 1 and 2. By August 8, 2020, when Round 2 ended, the program had
distributed $523 billion in forgivable loans to more than 5 million borrowers,
averaging over $100,000 per loan. During Rounds 1 and 2 Prestamos CDFI
experienced obstacles similar to those described in the Select Subcommittee’s
report in October 2020.1 During 2020 Prestamos CDFI made 925 PPP loans
through the SPARK Platform, providing $26 million to borrowers and supporting
the retention of 4,000 jobs in Prestamos CDFI’s service territory. The average
PPP loan amount was $28,100.
Prestamos CDFI provided direct PPP loans during these rounds using its pre-
existing SBA lending platform – the “SPARK Platform.” The SPARK Platform
consists of proprietary SBA loan processing software developed by a longtime
nonprofit SBA lender. It provides an online portal for accepting and processing
PPP applications, and Prestamos CDFI added a dedicated customer assistance
phone bank. SPARK promotes its capabilities as follows: “SBA lenders and LSPs
can process loans more efficiently, while staying compliant with the latest SBA
SOP rules.”2 Numerous community banks and CDFIs rely on the SPARK
Platform to originate and service SBA loans.3
Governmental Effort to Enlist CDFIs. During Round 2 the Treasury and
Congress recognized sole proprietors and other small businesses with fewer
than 4 employees (which comprise over 50% of US small businesses) had been
denied access to PPP lending. Disproportionate harm was reported to African
American-owned businesses and underbanked small businesses.
During Round 2, the Senate Small Business Committee supported a Treasury-
SBA decision to allocate $10 billion in PPP lending through CDFIs. On January
8, 2021, the SBA opened the Round 3 loan portal, with a funding window
dedicated to promote PPP loan applications to CDFIs as a means of promoting
PPP loan access for minority, underserved, veteran, and women-owned small
businesses.
Efforts to Mitigate Fraudulent Applications. Prestamos CDFI certified its
compliance with Bank Secrecy Act (“BSA”) requirements in its SBA Form 3507.
Throughout the PPP, Prestamos CDFI implemented strong customer
identification and customer verification in compliance with the SBA’s regulations
and guidance provided in FAQs.
Threshold Protections. Before Prestamos CDFI became a PPP lender, it was
not required to comply with the BSA. Prestamos CDFI required every borrower
1
https://coronavirus.house.gov/sites/democrats.coronavirus.house.gov/files/PPP%20Report%20Final%20%283%29.p
df
2 https://lendwithspark.com/spark-loan-origination-platform/features-loan-origination-software/
3 https://lendwithspark.com/client-stories/
-2-
applying through the SPARK Platform to have a verified bank or credit union
account. The PPP regulations guided lenders not initially subject to BSA
requirements to rely on the AML/CIP of a federally insured bank or credit union
“with an established CIP as part of its AML program.” Prestamos CDFI adhered
to this guidance for PPP loans processed through the SPARK Platform.
Additional Protections. PPP regulations provided assurance that lenders could
rely upon borrowers’ certified representations and documents in good faith.
Prestamos CDFI nonetheless employed an additional internal review program
throughout the PPP to detect fraudulent misrepresentation, conducting its own
review of the applicant’s ID and, as applicable, crosschecking that applicants’
businesses remained in good standing (e.g., checking LLC registrations with
secretaries of state).
Staffing. The Prestamos CDFI SPARK team included: (i) intake specialists who
processed the initial loan applications; (ii) second level reviewers who evaluated
and confirmed information included in the loan application and supplemental
verification information required by Prestamos CDFI (e.g., confirming LLC
registration with secretaries of state offices, customer identification information,
etc.); (iii) customer service call center representatives; and (iv) managers
overseeing the process.
Prestamos CDFI increased, not decreased, its level of fraud detection as the
program progressed. Prestamos CDFI relied upon a team that combined the
efforts of approximately 18 full-time employees and independent contractors to
manage the SPARK platform in 2020. The size of that group grew to 30 in 2021.
Prestamos CDFI developed a detailed internal PPP Training Manual and
conducted regular training sessions.
Relevant Information. In addition to the application forms and files generated by
the SPARK System, Prestamos CDFI developed detailed procedures and
checklists based on the PPP Interim Final Rule and FAQs provided by the SBA
to verify customer identification information (e.g., drivers licenses), crosscheck
backup documents provided by loan applicants (e.g., LLC registrations, tax
forms), and banking information provided by loan applicants (e.g., applicant bank
and credit union routing and account numbers; voided checks).
As detailed in its PPP Training Manual, Prestamos CDFI’s required customer risk
and fraud detection policies and processes required additional reviews and
verifications, including the following: applicants’ February 2020 bank statement,
a corresponding voided check matching the applicant’s name, government
issued photo ID, IRS payroll tax documents, legal business names; NAICS Code;
wage confirmation; business name and article of incorporation (as appropriate);
1099 or invoice confirming self-employment (as appropriate); and confirmation of
documentation supporting the loan amount.
Manual Reviews. Each PPP application processed through the SPARK Platform
was manually reviewed by a Prestamos CDFI employee against the second level
reviewer checklist for accuracy and completeness. Any applications or backup
material that raised questions of potential fraud, were subjected to further
scrutiny. Applications presenting fraud concerns that could not be resolved were
denied.
ACH Transfers to Verified Accounts. Prestamos CDFI provided ACH
authorizations to transfer funds to borrowers’ designated bank accounts.
Prestamos CDFI did not transfer funds directly to borrowers. This was designed
to assure that approved loans would only go to borrowers who were vetted
according to BSA requirements by their depository banks.
-3-
Approved PPP loan applications were submitted to the SBA E-Tran portal
through the SPARK Platform, and once approved by SBA, Prestamos CDFI
authorized an ACH transfer to the borrower’s verified bank or credit union
account. Any PPP loan applications flagged by the SBA or later by a borrower’s
bank or credit union was subjected to further review and denied if the issue could
not be resolved.
Results. Prestamos CDFI received and processed approximately 7,505 PPP
applications, and originated 3,145 PPP loans, using the SPARK Platform from
April 2020 through May 28, 2021: 925 PPP loans in 2020 and approximately
2,100 in 2021 (averaging $27,518 per loan).
From the start of the PPP program in April 2020 through 2021, 784 loan
applications (approximately 10%) Prestamos CDFI processed through the
SPARK Platform ultimately were denied for failing to meet Prestamos CDFI’s
underwriting criteria. Another 3,576 PPP applications (approximately 47%)
initially submitted through the SPARK Platform were withdrawn at various points,
including loans withdrawn after discovery of flags that suggested possible fraud
or when applicants were unresponsive to requests for additional information or
failed to upload requested backup documents to the SPARK Platform, or
because applicants indicated that they obtained a PPP loan elsewhere. In total,
approximately 57% of the PPP loans Prestamos CDFI processed between April
2020 and May 28, 2021 were either denied or withdrawn in the course of
Prestamos CDFI’s underwriting process.
3. Post-Blueacorn Lending Practices
Round 3 Concerns. The Select Subcommittee and oversight agencies have
identified a range of obstacles that prevented sole proprietors and other
vulnerable small businesses from accessing the PPP in Rounds 1 and 2.
Lenders reportedly avoided lending to unbanked and underbanked small
business borrowers, disproportionately impacting minority-owned small
businesses. Some lenders considered existing percentage-based SBA fees
insufficient to justify the time and effort required to process PPP loan applications
from low-income small businesses. Other rules disadvantaged the borrowers
themselves.
To address these issues, Congress and responsible agencies adjusted fee
structures for PPP loans in December 2020 and, in February 2021, the SBA
changed the eligibility rules, allowing lenders to qualify sole proprietors for loans
based on reported revenue rather than profit.
Reliance on CDFIs. In addition to the foregoing rules changes, the SBA opened
a Round 3 loan portal in January 2021 with a funding window dedicated to PPP
loan applications to CDFIs as a means of promoting PPP loan access to
underserved small business borrowers, including sole proprietors and small
businesses with fewer than 4 employees.
By this time, it was obvious to Congress and the Administration that many
vulnerable underserved small business borrowers had been left out of the
program, and reports surfaced showing that delays in federal relief when
underserved small businesses in low-income and minority neighborhoods most
needed it, might result in irreversible small business failures and widen the racial
wealth gap. To close the gap in lending availability, the government promoted
efforts to ramp up CDFI lending to underserved small businesses on an
unprecedented scale. In its FAQs, the SBA referenced financial technology
solutions as a means to promote efficiency and “financial inclusion in
implementing the PPP.”
-4-
Prestamos CDFI recognized that the only available option for Prestamos CDFI
and other CDFIs to reach the required scale would be to join forces with a
responsible financial technology firm.
Blueacorn. Prestamos CDFI chose to work with Blueacorn for several reasons.
First, Prestamos CDFI was familiar with Blueacorn. Second, like Prestamos
CDFI, Blueacorn was dedicated to lending to sole proprietors and other
vulnerable underserved small businesses. Third, Blueacorn appeared to possess
the capabilities required to lend to these underserved small businesses at scale.
Fourth, Prestamos CDFI recognized it did not have the capability to underwrite
loans at scale. But Blueacorn had developed its own capabilities, augmented by
recognized Artificial Intelligence (“AI”) capabilities, and reliably could perform this
vetting.
Blueacorn’s Artificial Intelligence Capability. The Blueacorn Platform utilized
an AI-driven Customer Identification Program (“CIP”) – the Onfido system – that
facilitated customer identification and verification at the speed and scale
necessary to evaluate the volume of applications generated by Blueacorn. (The
Blueacorn Platform processed approximately 434,000 loans for Prestamos CDFI
between April 14, 2021 and the end of Round 3 in June 2021). The integration of
the Onfido CIP in the Blueacorn Platform was a major factor in Prestamos CDFI’s
decision to engage Blueacorn as an LSP. Blueacorn also utilized the Plaid
system to verify customer banking relationships.
Prestamos CDFI reviewed the Onfido system (and the Plaid system) and found
that both had received authoritative validation and recognition.4 Prestamos CDFI
recognized that in addition to these two systems, the Blueacorn Platform
included additional layers of antifraud protections including multiple systems for
confirming banking information, and manual reviews of documents submitted in
support of PPP applications. Overall, Prestamos CDFI understood that
Blueacorn’s customer verification and antifraud systems exceeded BSA
requirements for non-regulated CDFIs.
Results. Combining its capabilities with Blueacorn, Prestamos CDFI materially
helped the US Government to accomplish its objectives in Round 3 and, in the
process, provided a lifeline to several hundred thousand underserved small
businesses. Absent the combination with Blueacorn, Prestamos CDFI could not
have made this difference. Still, it would be a mistake to regard the results of
Round 3 as a total success. As the Treasury Department has recognized since
the program ended, Round 3 was at best a qualified success because so much
damage had been done when vulnerable small businesses were left out of
Rounds 1 and 2. The need for lending and other support for underserved small
businesses continues in vulnerable communities. Prestamos CDFI and other
CDFIs have not ceased to provide the needed support.
4 https://onfido.com/resources/blog/onfido-wins-fraud-prevention-innovation-of-the-year-in-the-2021-cybersecurity-
breakthrough-awards#:~:text=CyberSecurity%20Breakthrough%20Awards-
,Onfido%20Wins%20%E2%80%9CFraud%20Prevention%20Innovation%20of%20the%20Year%E2%80%9D%20in,t
he%202021%20CyberSecurity%20Breakthrough%20Awards&text=Onfido%2C%20the%20global%20identity%20veri
fication,its%20innovative%20fraud%20prevention%20technology.
-5-
DLA Piper LLP (US)
500 Eighth Street, NW
Washington, DC 20004
www.dlapiper.com
April 25, 2022
VIA E-MAIL
CONFIDENTIAL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515-6143
Re: Response to U.S. House of Representatives Select Subcommittee on the
Coronavirus Crisis
Dear Chairman Clyburn,
We are writing on behalf of Prestamos CDFI in response to the Select Subcommittee's letter dated April
7, 2022, including requested documents and information. We are responding initially to the questions and
document requests prioritized by Select Subcommittee counsel in follow up discussions on April 8, 2022.
We will provide additional responsive information promptly, on a rolling basis, as discussed with Select
Subcommittee counsel.
Background – The Select Subcommittee’s letter requests that Prestamos CDFI provide information
regarding fraud and financial crime prevention controls Prestamos implemented in its facilitation of PPP
loans in conjunction with financial technology (“FinTech”) companies.
The letter also expresses concern, based on an academic paper by University of Texas researchers (“UT
Paper”), that “many of the loans issued by Prestamos may have been tied to fraudulent applications or
ineligible companies.” A November 22, 2021 letter to Prestamos CDFI's lender services provider
(“LSP”), Blueacorn, published on the Select Subcommittee's website, raised similar concerns based on
the UT Paper’s contention that “nearly 50%” of PPP loans by Blueacorn's “partner financial institutions”
had “indicators of fraud, including loans that were made to businesses that claimed they paid workers
significantly more than their industry norm and loans made to businesses that lacked a state business
registration.”
The Select Subcommittee's April 7 letter states that the purpose of the requested documents and
information is "to gain a full understanding of Prestamos' PPP lending as the Select Subcommittee
examines the facilitation of PPP loans by FinTech companies and their partners.”
Responses to Select Subcommittee’s Questions and Information Requests – We appreciate the Select
Subcommittee’s interest in gaining a full understanding of Prestamos CDFI’s PPP lending. We
previously provided information: (1) describing Prestamos CDFI and its role in providing critically
needed PPP lending in Round 3 which provided vital financial relief to several hundred thousand
minority-owned small businesses excluded during Rounds 1 and 2; and (2) Prestamos CDFI’s diligence in
April 25, 2022
Page Three
A. Prestamos CDFI Policies and Procedures Governing PPP Loan Applications Received Directly
from Loan Applicants
Information Request Question 5 – Applications Prestamos CDFI Received Directly from Loan
Applicants – From April 2020 through May 28, 2021, Prestamos CDFI directly received and processed
approximately 7,503 PPP applications using the SPARK Platform (as previously discussed with Select
Subcommittee counsel and detailed in our memorandum to the Select Subcommittee dated April 5, 2022).
From the total applications received, Prestamos CDFI approved and funded 3,145 PPP loans, including
925 PPP loans in 2020 and approximately 2,220 in 2022 (averaging $27,518 per loan).
a. Every loan application directly received by Prestamos CDFI was manually reviewed. At the
outset of the PPP in April 2020, Prestamos CDFI relied on an internal team that combined the
efforts of approximately 18 full-time employees and independent contractors to manage and
process applications via the SPARK Platform. The size of that group grew to 30 in 2021. Over
the lifecycle of the PPP, over 80 Prestamos CDFI full-time employees and independent
contractors worked on the application processing and review team. The team included: (1) intake
specialists who processed the initial loan applications; (2) second level reviewers who evaluated
and confirmed information included in the loan application and supplemental verification
information required by Prestamos CDFI (e.g., confirming LLC registration with secretaries of
state offices, customer identification information, etc.); (3) customer service call center
representatives (over 20 in total); and (4) managers overseeing the process. A list of the
Prestamos CDFI SPARK Platform PPP review team and each individual’s role is provided in
response to Subcommittee Information Request Question 1, below.
b. Number of loan applications processed through the SPARK Platform that were denied.
Based on the most recent reviews, from the start of the PPP program in April 2020 through 2021,
approximately 782 loan applications (approximately 10%) Prestamos processed through the
SPARK Platform were declined for failing to meet Prestamos’ underwriting criteria. Of those,
approximately 227 applications were declined due to questionable supporting documentation.
Another approximately 3,575 PPP loan applications (approximately 47%) initially submitted
through the SPARK Platform were deemed withdrawn at various points, including loans
withdrawn after Prestamos CDFI reviewers flagged questionable documents submitted in support
of an application (approximately 71 applications), when applicants were unresponsive to requests
for additional information or failed to upload requested back up documents to the SPARK
Platform (approximately 2,200 applications), or because applicants indicated they had obtained a
PPP loan elsewhere (approximately 241 applications). In total, about 57% of the PPP loans
Prestamos processed directly between April 2020 and May 28, 2021, were either denied or
withdrawn in the course of Prestamos’ underwriting and identification, prevention, and mitigation
of potential fraud.
c. Number of PPP loans directly processed by Prestamos CDFI rejected or denied by the SBA.
The SBA would not specifically “reject” applications that were submitted by Prestamos CDFI to
the SBA for PPP loan approval. Rather, if there was an issue with a specific application, the SBA
portal would provide a “code” indicating a deficiency in the application of some sort or another.
April 25, 2022
Page Four
Any application for which a code was returned would be reviewed by the Prestamos CDFI
internal application review team. If the issue could be resolved, the application was resubmitted.
When there was an issue with a loan application Prestamos CDFI submitted to the SBA that could
not be resolved, Prestamos CDFI would deny the application. Prestamos CDFI does not have
information about the number of “codes” received for applications submitted for SBA approval in
the manner requested by the Subcommittee, but Prestamos CDFI will determine whether there is
a way to provide that information and submit it on a rolling basis, as it becomes available.
B. Policies and Procedures Governing PPP Loan Applications Received From Lender Services
Provider, Including Anti-Fraud Measures
Information Request Question 4 – Applications Received from Loan Services Providers (LSPs) –
Prestamos CDFI processed approximately 434,000 PPP loans originated through the Blueacorn platform.
By the time the SBA opened Round 3 of the PPP in December 2021, it had become obvious to Congress
and the SBA that the PPP was in danger of leaving many thousands of underserved minority-owned small
businesses behind. To help address the problem, Congress and the SBA established a loan funding
window dedicated to PPP loan applications processed by CDFIs – one of many federal efforts to equip
CDFIs to help the SBA reach underserved small businesses during Round 3. To prevent irreversible harm
to the small business borrowers left behind, the SBA encouraged CDFIs to strive to reach these borrowers
on an unprecedented scale before Round 3 closed.
To help expand PPP lending in Round 3 to a serve sole proprietors, independent contractors, and self-
employed small businesses in the manner Congress and the SBA sought, Prestamos CDFI was
approached by and ultimately engaged Blueacorn as an LSP on April 14, 2021. The SBA, congressional
leaders, and private sector analysts had highlighted FinTechs’ ability to increase access to the PPP for
small businesses in underserved communities that did not have access to the PPP in Rounds 1 and 2.
Prestamos CDFI chose to work with Blueacorn for several reasons. First, Prestamos CDFI was familiar
with Blueacorn. Second, like Prestamos CDFI, Blueacorn was dedicated to lending to sole proprietors
and other vulnerable underserved small businesses. Third, Blueacorn appeared to possess the capabilities
required to lend to these underserved small businesses at scale. Fourth, Prestamos CDFI recognized it did
not have the capability to process PPP applications at scale, but Blueacorn’s PPP platform could, by
integrating multiple layers of well-established fraud detection and prevention tools and artificial
intelligence (“AI”) capabilities, as detailed in Blueacorn’s marketing materials, policies, and procedures
(provided in response to Subcommittee Document Request 7, below).
a. Review of Blueacorn-processed PPP loans. All the loans processed by Blueacorn received
multiple levels of the review by Blueacorn before they were submitted to Prestamos CDFI for
submission to the SBA, pursuant to the LSPA signed by Prestamos CDFI and Blueacorn on April
14, 2021, including identity verification, and antifraud measures. Blueacorn only passed on to
Prestamos CDFI complete loan applications that had passed its multiple levels of vetting and
review.
April 25, 2022
Page Five
b. Blueacorn-processed loan applications rejected based on suspected fraud. As previously
discussed, only “complete” PPP loan applications that had already passed Blueacorn’s
underwriting and fraud detection processes were provided to Prestamos CDFI. Therefore,
Prestamos CDFI is not aware of the number of applications denied based on suspected fraud
during Blueacorn’s application intake, preparation, and review process.
c. Blueacorn-processed loan applications rejected by the SBA. The SBA did not definitively
“reject” loan applications. But SBA did flag some applications based on suspected fraud (or for
other reasons). When SBA flagged an application submitted by Prestamos CDFI from the group
of those processed by Blueacorn, the file was sent back to Blueacorn for further review. Many
times, such SBA flags were easily resolved, such as suspected fraud flags that turned out to be
due to “typos” in loan applications (e.g., transposed bank routing or account numbers).
Application with issues flagged by the SBA that could not be resolved were declined. Prestamos
CDFI is reviewing its loan database and communications with the SBA to try to determine the
total number of PPP loan applications originated by Blueacorn that the SBA flagged for suspected
fraud and will provide that information as soon as practicable.
Information Request Question 3 – Policies and Procedures for Identifying, Preventing, and
Mitigating Fraud in PPP Loan Applications Received from LSPs – As previously discussed, the
LSPA between Prestamos CDFI and Blueacorn provided Blueacorn with the responsibility for processing
PPP loan applications, including conducting document verification systems, customer identification
procedures (CIP), and other fraud identification, prevention, and mitigation measures. Blueacorn’s
internal PPP policies and procedures that were provided to Prestamos CDFI detail its internal employee
training systems, BSA compliance, and fraud prevention systems integrated into the Blueacorn PPP loan
application processing platform (see materials submitted in response to Subcommittee Document Request
7, below). Prestamos CDFI relied on Blueacorn to process PPP loan applications in accordance with its
responsibilities under the LSPA and consistent with Blueacorn’s internal policies and procedures.
Regular (often daily) interaction between Prestamos CDFI and Blueacorn staff during the PPP reinforced
Prestamos CDFI’s confidence in the comprehensive nature of Blueacorn’s fraud identification,
prevention, and mitigation efforts.
C. Information and documents responsive to prioritize information requested by the Select
Subcommittee
Information Request Question 1 – Prestamos CDFI Employees Dedicated to Fraud Prevention –
Prestamos CDFI continued to enhance its level of fraud detection throughout the PPP. As referenced
above, at the outset of the PPP in April 2020, Prestamos CDFI relied on an internal team combining the
efforts of approximately 18 full-time employees and independent contractors to manage and process
applications via the SPARK Platform. The size of that group grew to approximately 30 in 2021. An
Excel spreadsheet listing full- and part-time employees working on the PPP and their job descriptions are
attached (See Prestamos Employees, Bates Number PRE-0000001 – PRE-0000002).
April 25, 2022
Page Six
The application review team included: (1) intake specialists who processed the initial loan applications;
(2) second level reviewers who evaluated and confirmed information included in the loan application and
supplemental verification information required by Prestamos CDFI (e.g., confirming LLC registration
with secretaries of state offices, customer identification information, etc.); (3) customer service call center
representatives; and (4) managers overseeing the process. Every one of these employees and independent
contractors was trained to be on the lookout and screen against potential fraud
Prestamos CDFI PPP Employee Training Manual Fraud Detection Checklist – As detailed
in its PPP employee Training Manual, Prestamos CDFI’s customer risk and fraud detection
policies and processes required multiple additional reviews and verifications, including the
following: applicants’ February 2020 bank statement, government issued photo ID, IRS payroll
tax documents, legal business names; NAICS Code; wage confirmation; business name and
article of incorporation (as appropriate); 1099 or invoice confirming self-employment (as
appropriate); and confirmation of documentation supporting the loan amount. The Prestamos
CDFI training manual for employees and independent contractors processing PPP loan
applications on the SPARK Platform is attached (See Prestamos Training Manual, Bates Number
PRE-0000003 – PRE-0000112).
Prestamos CDFI PPP Review Team Fraud Detection Updates and Information Sharing – In
the course of reviewing the items on the SPARK Platform checklist, Prestamos CDFI’s second
level review team periodically identified and flagged fraudulent documents – such as doctored
IDs, tax forms, bank statements, and voided checks. When fraudulent documents were suspected,
the entire review team was alerted to share information about suspected patterns of fraud so that
the team could be alerted to flag similar suspicious documents and, ensure that similar fraudulent
documentation would not pass muster. As previously detailed, approximately 784 PPP
applications processed through the SPARK Platform (approximately 10% of the total number of
applications) were ultimately denied, either because of suspected fraud, because they did not
qualify for the program, or an SBA flag on their application could not be resolved. Another
approximately 3,576 applications (approximately 47%) were deemed “withdrawn,” because
applicants failed to upload required documentation, became unresponsive, or indicated that they
obtained a PPP loan from another source.
The General Counsel’s office of Chicanos Por La Causa (CPLC), the 501(c)(3) parent entity of
Prestamos CDFI, conducted compliance oversight for Prestamos CDFI’s PPP work.
Prestamos CDFI also established a formal fraud detection and prevention team in 2021 to review
PPP applications flagged by Blueacorn, the SBA, or financial institutions for potential fraud.
Information Request Question 2 – Total Budgets for AML, BSA, and Fraud Compliance – Because
many members of the Prestamos CDFI PPP application processing, general counsel’s office, and fraud
prevention teams were already employees of Prestamos CDFI or its parent CPLC, salaries for those
employees generally were not formally allocated to the Prestamos CDFI’s PPP program. Accordingly,
Prestamos CDFI did not maintain salary information in the form requested by the Subcommittee’s
questions. Based on CPLC’s regular accounting standards, CPLC imputed a 16% levy against the
April 25, 2022
Page Seven
Prestamos CDFI budget for internal legal and accounting services. Prestamos CDFI is in the process of
reviewing salary data for employees and independent contractors working throughout the Prestamos
CDFI PPP program and will provide a more specific answer regarding the breakdown of these costs the as
soon as practicable.
Information Request Question 6 – Information Regarding Compensation of Prestamos CDFI’s
Senior Executives – Prestamos CDFI, as a 501(c)(3) wholly-owned subsidiary of CPLC, is a
“disregarded entity” for tax purposes. Accordingly, Prestamos CDFI’s financials are fully integrated with
CPLCs and reported as part of CPLC’s Form 990 (Return of Organization Exempt from Income Tax).
Note that, as a tax-exempt charitable organization, members of CPLC’s board of directors do not receive
any compensation for their services. The attached excepts from CPLC’s Form 990s for tax years for the
two most recent tax years are attached listing compensation for CPLC’s and Prestamos CDFI’s most
highly compensated and key employees. Note that the Form 990s reflect tax years concluding on June
30, 2020, and June 30, 2021, respectively. (Note Form 990 for year ending June 30, 2021, is still in draft.)
(See Year Ending June 30, 2020, 990 Excerpt, Bates Number PRE-0000113 – PRE-0000115 and Year
Ending June 30, 2021, 990 Excerpt Bates Number PRE-0000116 – PRE-0000118).
Document Request 7 – LSP Marketing Materials and Internal Policies and Procedures – We have
attached the following documents in response to Document Request 7:
Blueacorn Pitch Deck provided to Prestamos CDFI and detailing LSP “Risk Management and
Security,” “Loan Process Flow” procedures, and “Fraud Detection Process” (See Blueacorn
Deck – April 2021, Bates Number PRE-0000119 – PRE-0000158).
Blue Acorn “Paycheck Protection (PPP) Training Manual” (See BA-PPP Loan General
Training Manual, Bates Number PRE-0000159 – PRE-0000208).
Blueacorn “BSA, AML and OFAC” policy overview” (See BA AML, BSA, OFAC, Bates
Number PRE-0000209 – PRE-0000221).
Blueacorn “Employee Handbook” (See Employee Handbook, Bates Number PRE-0000222 –
PRE-0000288).
Blueacorn “Code of Ethics” (See Blue Acorn Ethics and Anti-Discrimination Policies, Bates
Number PRE-0000289 – PRE-0000295).
Document Request 3 – Documents Regarding Spot Checks of LSP Processed Loan Applications –
As previously discussed, Prestamos CDFI’s spot checks of completed LSP loan files was random and not
formally logged or documented as they occurred.
Document Request 9 – SBA Form 3507 – We have attached a copy of Prestamos CDFI’s completed
SBA Form 3507” (See Prestamos CDFI Form 3507, Bates Number PRE-0000296 – PRE-0000301).
April 25, 2022
Page Eleven
In other words, as Round 3 drew to a close, with Blueacorn's FinTech support, Prestamos CDFI funded
several hundred thousand loans for exactly the population of underserved and minority-owned small
businesses Congress and the SBA had prioritized.
Prestamos CDFI is proud of its role but believes the result in Round 3 was at best a qualified success
because these business owners were essentially excluded in Rounds 1 and 2. Round 3 helped close a
critical gap. In Prestamos CDFI’s opinion, this couldn’t have been done at the required scale without the
programmatic changes made by Congress and the SBA; and without the technological support supplied
by Blueacorn and other FinTechs.
3. UT PAPER MISCHARACTERIZATIONS
Prestamos CDFI’s central concerns are attributable to the UT Paper’s authors’ willful decision to
disregard the central facts that occurred in the PPP, especially Round 3.
In the August 2021 Paper, the authors described their familiarity with four rapidly emerging “literatures”
on FinTech lending that highlighted its growing importance, its positive economic effects through filling
gaps left by traditional banks, its reduction in defaults, its increased lending in zip codes with fewer
traditional banks, lower incomes, and higher minority percentages. Despite these positive factors, the UT
authors declared,
While FinTech literature finds benefits to FinTech lending such as increased
competition, broader financial access, faster lending speed, and lower defaults, our
paper analyzes a potential cost of FinTech expansion, leaving overall welfare
analysis to future research.
(8/13/21 Paper, p. 3)
The scope of the factual reporting on the need for Round 3 PPP loans to small businesses in dire need was
extensive: including reports by the Select Subcommittee and others in Congress, the Federal Reserve, the
SBA OIG, the General Accounting Office, and private sector analysts.1
1
https://libertystreeteconomics.newyorkfed.org/2021/05/WHO-RECEIVED-PPP-LOANS-BY-FINTECH-LENDERS/
https://libertystreeteconomics.newyorkfed.org/2021/05/WHO-BENEFITED-FROM-PPP-LOANS-BY-FINTECH-LENDERS/
https://coronavirus.house.gov/sites/democrats.coronavirus.house.gov/files/PPP%20Report%20Final%20%283%29.pdf
https://www.gao.gov/assets/gao-21-601.pdf
https://www.sba.gov/sites/default/files/2021-01/SBA%20OIG%20Report-21-07.pdf
https://www.federalreserve.gov/publications/files/2020-report-economic-well-being-us-households-202105.pdf
https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/2021-economiccommentaries/
ec-202113-reach-of-ppp-loans-in-lmi-communities.aspx
https://www.nber.org/system/files/working papers/w29364/w29364.pdf
https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2021/sbcs-report-on-firms-owned-by-people-of-color
https://www.bloomberg.com/graphics/2021-chicago-ppp-loans-economic-recovery/
April 25, 2022
Page Twelve
The UT Paper authors willfully chose to ignore readily available facts in the PPP and to replace them with
conjectural "inferences" based on “indicators” of “potential misreporting” designed by the UT Paper
authors after Round 3 was over. The August 2021 UT Paper numbers 18,405 words. It includes only
three references to “black-owned businesses,” a single reference to “Hispanic-owned firms,” and one
reference to minority borrowers. In contrast, the UT Paper references “zip codes” 55 times and potential
misreporting (or potentially misreporting, potentially misstated) 16 times.
The UT Paper does not examine loans actually proven to have been fraudulent. It "flags" loans where
one or more of nine “indicators” invented by the authors “may be present,” indicating “potential
misreporting.” The authors concede, “Each indicator creates an inference that a loan is suspicious but is
not proof of misreporting on its own.”
The decision to disregard the actual facts that occurred in the PPP untethered the authors to infer
culpability in every scenario without the balance factual evidence would have provided. Consider a few
examples of resulting mischaracterizations:
a. Congress’ Decision To Adjust Fees For Loans Of $50,000 Or Less. Congress made this
change to incentivize Round 3 loans to minority-owned self-employed small business
borrowers in dire need. The authors ignored this fact and attributed increased Round 3 loan
volumes to alleged profiteering — and they singled out Prestamos CDFI and Blueacorn.
Prestamos CDFI is a nonprofit CDFI. Over 90% of Prestamos CDFI and Blueacorn Round 3
loans provided critical relief to sole proprietors, independent contractors, and self-employed
borrowers; nearly 100% were for loans based on applications approved on or after March 3,
2021. (8/13/21 Paper, p. 30; 3/11/22 Paper, p. 33) The goal of Prestamos CDFI was to reach
the large groups Congress had targeted for relief in Round 3. They succeeded.
b. New Lenders. UT Paper: "Lenders with fewer SBA loans pre-pandemic, have lent in SBA
programs for fewer years, and for whom the PPP was their first experience with SBA lending
(in particular new FinTechs) all have higher rates of flagged loans … Blueacorn was founded
in April 2020 exclusively to source PPP loans in partnership with Capital Plus and Prestamos
CDFI. Both firms have relied heavily on online advertising promoting easy access to PPP
money and anecdotal discussions on forums such as Reddit suggested both employed identity
verification that was not rigorous.” (8/13/21 Paper, p. 28)
In lieu of the facts readily available in the PPP program, the authors relied for their
“inferences” on “anecdotal discussions on Reddit.” Factual examination would have shown
(a) Prestamos CDFI is a seasoned SBA micro-lender; (b) Prestamos CDFI executed an LSPA
with Blueacorn on April 14, 2021 (not in April 2020, as the authors insinuate), just in time to
address the programmatic needs urgently identified by Congress and the SBA; and, (c)
Congress was counting on Prestamos CDFI and other CDFIs to reach borrowers, who
had been denied loans in Rounds 1 and 2, using marketing and online advertising. Congress's
April 25, 2022
Page Thirteen
premise was: "If you build it, they won't come, if no one tells them about it." Prestamos CDFI
told them about it, as Congress expected. And then they came.2
c. Loan Screening. The UT authors concluded their March 2022 report with the following
discussion: “Did lenders improve their loan screening over time? While we do not observe
denied applications or specific lender practices, we can observe how loans that were
approved and funded changed over time… FinTech and traditional lenders both started the
PPP with suspicious loan rates of less than 10%, but by the end of the program the FinTech
suspicious loan rate was close to 30%, more consistent with scenario B.” (3/11/22 Paper, p.
35)
In the conclusion of the August 2021 Paper, the authors had conceded: "While there are
limitations to what our data and analysis can discern, the sheer scope of the tens and
hundreds of thousands of suspicious loans originated by many FinTech lenders suggests
that many lenders either encouraged such loans, turned a blind eye to them, or had
extremely lax oversight procedures.” (8/13/21 Paper, p. 35)
Had the authors not foreclosed access to the facts within the PPP, the answer would not have
been in doubt. The “sheer scope" of the hundreds of thousands of loans in Round 3 had
indeed been encouraged: by Congress, by the regulators, and then by Prestamos CDFI and
other lenders committed to providing loans to small businesses in dire need before Round 3
expired.
The UT Paper authors' decision to ignore the facts in the PPP in favor of inferences based on ex post facto
metrics distorted their ability to apply fact-based assessments. The metrics they used weren't even the
criteria that governed compliance by lenders and borrowers during the PPP. (A good thing, because the
authors' reliance on zip codes and certain other questionable "flags" introduced harmful bias that would
have subjected unserved borrowers to additional obstacles in Round 3.)
Whereas Congress, the SBA, Treasury, the SBA OIG, and the Federal Reserve recognized the possibility
of profound failure in Round 3, and severe harm to many thousands of self-employed borrowers, the UT
paper authors saw dramatic increases in Round 3 lending, and all they recognized were “indicators” that
created an “inference” of “potential misreporting.”
In its press release dated November 3, 2021, the Select Subcommittee described its purpose as follows:
The Select Subcommittee has consistently advocated for increasing access to loans
and capital to those in underserved markets, including businesses owned by veterans,
members of the military, socially and economically disadvantaged individuals, and
2
House Financial Services Committee Hearing, An Unprecedented Investment for Historic Results: How Federal
Support for MDIs and CDFIs Have Launched a New Era for Disadvantaged Communities, February 16, 2022,
Representative Ayanna Pressley, transcript page 62
April 25, 2022
Page Fourteen
women. In achieving this goal, both now and in the future, FinTechs and their bank
partners may have an important role to play through participation in small business
loan programs. However, future partnerships must be contingent on FinTechs
and their bank partners’ demonstrated ability to properly administer taxpayer
funds and not jeopardize the integrity of the programs in which they
participate.”
We appreciate the Select Subcommittee’s recognition of facts that contributed to the eventual progress
that occurred in Round 3, as well as the Select Subcommittee’s recognition of the UT Paper’s prospective
utility.
Respectfully submitted,
John A. Merrigan/s Matthew C. Bernstein/s
Enclosures
cc: The Honorable Steve Scalise, Ranking Member
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
May 12, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, we are submitting documents
responsive to Document Request Nos. 1, 2(a), 2(b), & 4. As previously discussed with the staff,
certain of the original and supplemental requests that the staff has identified as priorities will
take longer to respond to than others, so we will continue to provide information on a rolling
basis in order to avoid unnecessarily delaying production of information that is currently
available to be produced.
Request No. 1
All documents and policies establishing or governing the process that Blueacorn used to
review and approve PPP loan applications.
Request No. 2(a)
All documents and policies related to . . . any system of preventive controls that
Blueacorn has used to deter and minimize fraud related to PPP loans.
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
Response to Request No. 1 and 2(a)
In response to Document Request Nos. 1 and 2(a), Blueacorn is hereby producing the
PPP Loan Processing Script, which was a training document used to onboard and instruct
members of the Eligibility Verification team on how to process loan applications. This
document bears production Bates numbers BA-SSCC-0000166 – BA-SSCC-0000202.
Request No. 2(b)
All documents and policies related to . . . any system of detective controls Blueacorn has
had in place to identify and respond to PPP loan fraud after it had occurred.
Request No. 4
All training materials provided to employees and contractors from January 1, 2020 to
May 27, 2021, related to fraud control and prevention, PPP loans, financial crime
investigations, and suspicious activity reporting.
Response to Request No. 2(b) and 4
In response to Document Request Nos. 2(b) and 4, Blueacorn is hereby producing three
BSA, AML, and OFAC training presentations that were used in onboarding the Eligibility
Verification team. These documents bear production Bates numbers BA-SSCC-0000123 – BA-
SSCC-0000165; BA-SSCC-0000203 – BA-SSCC-0000215; and BA-SSCC-0000216 – BA-
SSCC-0000226.
* * *
Please note that the information provided in connection with this response is business-
sensitive and, if released, would cause injury to Blueacorn. We have marked this letter and the
enclosed materials “Confidential” and request that they not be disclosed beyond the
Subcommittee or made public. If public release is contemplated, we request the opportunity to
be heard before the proposed use.
Please feel free to have your staff contact us with any questions concerning this response.
Michael E. Borden
Michael A. Levy
Page 3
Enclosure
cc: Hon. Steve Scalise, Ranking Member
-----Original Message-----
From: @cov.com>
Sent: Thursday, May 19, 2022 9:35 PM
Subject: RE: Phone Call Follow-Up
Our understanding is that all of the 13 loans named in the April 26 letter and your April 29 follow-up email were
processed using the Blueacorn system. As we previously noted, we produced to the SSCC only materials directly
accessible by Capital Plus.
Based on records accessible to Capital Plus in the SBA lender portal, it appears that five of the loans named in the
April 26 letter and your April 29 follow-up email were forgiven after the borrower applied for forgiveness directly
with the SBA (loan numbers 6265518505, 2616498604, 3090888602, 6232778604, and 9150558608) and that four
were forgiven after the borrower applied for forgiveness through the Blueacorn system (loan numbers 4818108404,
9383918501, 1688898600, and 8252298609).
Regarding repayment of the loans to Nathan Reis, Stephanie Hockridge, Body Politix LLC, and Juuice, Inc., named
in the April 26 letter, our understanding is that the request for repayment was initiated by Blueacorn. We further
understand that Capital Plus is not currently planning to request that Adam Spencer or Kristen Spencer, both of
whom are affiliated with Elev8 Advisors, repay the loans named in the April 26 letter.
Additionally, we are planning to produce communications related to the repayment of the loans to Nathan Reis,
Stephanie Hockridge, Body Politix LLC, and Juuice, Inc., by Tuesday.
Thanks,
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
June 6, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, and in response to certain
supplemental requests that the Subcommittee staff conveyed by email on May 16, 2022, we are
submitting a document responsive to Document Request No. 5, as well as responses to
Subcommittee staff’s supplemental requests related to the PPP loan processing script, which
Blueacorn produced on May 12. As previously discussed with the staff, certain of the original
and supplemental requests that the staff has identified as priorities will take longer to respond to
than others, so we will continue to provide information on a rolling basis in order to avoid
unnecessarily delaying production of information that is currently available to be produced.
Document Request No. 5
All documents, including audits, monthly statistics, and external reviews, containing assessments
or estimates of the amount and value of improper payments that have been made to PPP
applicants whose loans were processed through or facilitated by the company.
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
Response to Document Request No. 5
In response to Document Request No. 5, Blueacorn is producing an external, public
report authored by economist Jeff Dominitz, PhD. In his report, which was supported by funding
from Blueacorn, Dr. Dominitz concludes that a previous study from the University of Texas—
which had estimated that at least 1.4 million PPP loans totaling between $64 and $117 billion
were potentially fraudulent—was characterized by serious methodological flaws that
disproportionately raised suspicions of fraud concerning loan applications submitted by smaller
businesses and overestimated the volume of fraudulent PPP loans facilitated by financial
technology companies.
Dr. Dominitz’s conclusion that the University of Texas study’s estimate of potential fraud
is seriously inflated is consistent with the conclusion stated by the SBA’s Office of Inspector
General in a report on potential PPP fraud released late last month, entitled, “SBA’s Handling of
Potentially Fraudulent Paycheck Protection Program Loans,” which is available at
https://www.sba.gov/document/report-22-13-sbas-handling-potentially-fraudulent-paycheck-
protection-program-loans. At page 5 of its report, OIG explained that its investigators had
identified “70,000 potentially fraudulent PPP loans totaling more than $4.6 billion,” along with
another “54,000 PPP related OIG Hotline complaints.” The SBA noted in its response to the
OIG’s conclusions (on an unnumbered page at page 23 of the PDF of the OIG report) that “the
70,000 PPP loans identified by OIG as potentially fraudulent, combined with the 54,000 PPP
inquiries to the OIG Hotline, equates to approximately one percent of the PPP loans made by
SBA.”
Dr. Dominitz’s report also highlighted (at page 10) a feature of the University of Texas
study that was otherwise potentially obscured—that although the study identified numerous
distinct indicators of potential fraud, the overwhelming percentage of loans that the study
identified as potentially fraudulent were based on a single flag—the “high implied
compensation” flag—with the other flags of potential fraud doing relatively little work. Put
differently, despite discussing numerous potential methods of fraud, the overwhelmingly
predominant type of potential fraud identified by the University of Texas study was applicants
potentially misrepresenting their eligibility for their loan by overstating their income. That was,
as is well known, an area that lenders were told not to scrutinize, having been instructed by the
SBA—as the SBA repeated again in its response to the recent OIG report (at page 23 of the
PDF)—“to rely on borrower certifications that they were eligible for the program.”
Dr. Dominitz’s report bears production Bates numbers BA-SSCC-0000573 through BA-
SSCC-0000606, and is also available publicly at https://econw.com/dr-jeff-dominitz.
Page 3
Staff’s First Supplemental Request Regarding the Loan Processing Script
Provide the names of the individuals that authored this document, reviewed this document, and
approved it for use. Provide details on in what way the following individuals were involved in
the drafting, approval, updating, or dissemination of this document: Adam Spencer, Kristen
Spencer, Barry Calhoun, Noah Spirakus, Nate Reis, and Stephanie Hockridge.
Response to Staff’s First Supplemental Request Regarding the Loan Processing Script
The loan processing script was authored by . and Adam
Spencer, in consultation with Everett Advisory Partners, reviewed and approved the document.
Staff’s Second Supplemental Request Regarding the Loan Processing Script
Please provide further details on the software and team that Blueacorn used to detect fraud, as
referenced in Appendix D, including the type of software, the composition of the team, and the
team’s management or leads. Also provide the communications, documents, and other records
related to the “feedback” referenced in Appendix D reading “this action has been taking in
response to feedback that we are marking too many documents as fraudulent.” Please include in
your follow-up response the names of the individuals that gave this feedback, when the feedback
was given, and who it was given to.
Response to Staff’s Second Supplemental Request Regarding the Loan Processing Script
All Blueacorn applicants were required to verify their identities. Appendix D of the loan
processing script addressed fraudulent identifications and instructed Blueacorn-contracted
eligibility verifiers (“EVers”) on common types of fraudulent identifications.
The steps taken to verify an individual’s identity changed over the course of the program.
From January to March 2021, applicants were asked to scan and upload their government-issued
identifications. These identifications were then manually reviewed by EVers.
At the end of March 2021, Blueacorn began using IDology—a platform that used an
applicant’s social security information to generate a list of multiple-choice questions that only
the applicant should be able to answer. An example of a question that the IDology system might
ask an applicant is “what was your home address in 1998?” Blueacorn realized within a week or
two that the IDology questions were quite difficult for many potential borrowers. For instance,
address questions were particularly hard to answer correctly if individuals had moved frequently
throughout their life, as many low income, sole proprietors served by Blueacorn had done.
Beginning in early April 2021, Blueacorn’s primary method of identity verification
became technology supplied by a well-regarded, venture-backed service provider called Onfido
Page 4
(https://onfido.com/company/about). Onfido prompted applicants to take photos of the front and
back of their driver’s license and then scan their face through an app. Onfido then compared the
two through its proprietary technology to confirm the identification of the applicant. Onfido also
ran a series of fraud checks on licenses to identify fakes including analyzing reflections in the
image and analyzing a license’s border. The technology also analyzed how borrowers interacted
with the process—for example, how long the applicant took to scan their face—to identify
suspicious behavior. After Blueacorn’s switch to Onfido, applicants were only directed to the
IDology system if they failed Onfido or if their application was subsequently flagged as
suspicious at some later point in the application process.
Regarding the feedback provided on Appendix D that Blueacorn was marking too many
documents as fraudulent, it is likely that the source of the sentiment expressed in this comment
was Matt Mandell, the founder and owner of PayNerd, a Blueacorn marketing partner that used
online advertising to refer potential applicants to Blueacorn’s application process. Over the
course of the 2021 round of the PPP, Blueacorn’s fraud detection systems became increasingly
rigorous. This increased rigor meant that Blueacorn’s eligibility verification system flagged an
increasing number of applications as potentially fraudulent. Mandell, whose company was
compensated only for marketing leads that ripened into completed loans, regularly suggested to
Blueacorn leadership that Blueacorn’s increasingly rigorous system was too sensitive and was
holding up or blocking applicants who were not engaged in fraud, thereby preventing legitimate
PPP loan applications from being processed. Although Mandell’s complaints were generally
rebuffed by Blueacorn leadership, there was merit to the feedback reported in Appendix D
(whoever may have offered it) that individual reviewers were ill-suited to identify any but the
least sophisticated fake identification documents. It was for that reason that Blueacorn
transitioned to verifying identity through IDology and Onfido.
Staff’s Third Supplemental Request Regarding the Loan Processing Script
Provide details related to the screenshot in Appendix E, including the title/name and full
contents of this chat channel, the participants in the chat channel, and the date that this comment
was made.
Response to Staff’s Third Supplemental Request Regarding the Loan Processing Script
The screenshot in Appendix E is from a Slack channel used by members of the Blueacorn
EV team to communicate and elevate suspicious or potentially fraudulent activity observed in the
PPP loan applications the team reviewed. The messages in the screenshot were made on April 1,
2021. The participants in the channel include Noah Spirakus, ,
, Owensby,
,
Page 5
Owensby, ,
,
Owensby, Spencer, Kristen Spencer,
,
,
Blueacorn is producing the full content of the Slack channel. The documents bear
production Bates numbers BA-SSCC-0000227 through BA-SSCC-0000572.
Staff’s Sixth Supplemental Request Regarding the Loan Processing Script
Did this document at one time have other appendices, including those labeled B, H, and I? If so,
please provide them and also provide the date that they were removed from this document.
Response to Staff’s Sixth Supplemental Request Regarding the Loan Processing Script
The loan processing script did at one time have additional appendices that were later
removed. As we have discussed in prior productions, Blueacorn continued to improve its loan
review process over the course of the PPP. As such the loan script was occasionally updated to
accurately reflect these changes. This included removing appendices when they were no longer
relevant due to either upgrades in Blueacorn’s technology or improvements to Blueacorn’s
review procedures.
Below are descriptions of the three appendices identified by subcommittee staff. No
other appendices were removed from the loan processing script.
• Appendix B: Loan Math – This appendix was removed on May 10, 2021. Around this
time, Blueacorn updated its technology to automate loan amount calculations based on
Line 7 of an applicant’s Schedule C. The inclusion of the “Loan Math” appendix was no
longer necessary. Blueacorn is producing Appendix B; it bears production Bates number
BA-SSCC-0000607.
• Appendix H: Miscellaneous FAQ – This appendix was not eliminated from the
document. It can be found at BA-SSCC-0000200.
Page 6
• Appendix I: How to Correct Mistakes in Salesforce – This appendix was removed on
May 2, 2021, after Blueacorn upgraded its Salesforce technology to resolve a particular
application routing error that prior to the technological upgrade occasionally occurred
and required an EVer to make manual adjustments within Salesforce to properly route the
application. Blueacorn is producing Appendix I; it bears production Bates numbers BA-
SSCC-0000608 through BA-SSCC-0000611.
* * *
Some information provided in connection with this response is business-sensitive and, if
released, would cause injury to Blueacorn. We have marked this letter and the enclosed materials
“Confidential” and request that they not be disclosed beyond the Subcommittee or made public.
If public release is contemplated, we request the opportunity to be heard before the proposed use.
Please feel free to have your staff contact us with any questions concerning this response.
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
June 30, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, we are submitting narratives and
documents responsive to certain supplemental requests that the Subcommittee staff conveyed by
email on May 16, 2022, and June 15, 2022. As previously discussed with the staff, certain of the
original and supplemental requests that the staff has identified as priorities will take longer to
respond to than others, so we will continue to provide information on a rolling basis in order to
avoid unnecessarily delaying production of information that is currently available to be
produced.
Staff’s Fifth Supplemental Request Regarding the Loan Processing Script
Clarify how this training was delivered and whether it was part of a presentation, used as a
script for a trainer/presenter, or read by EVs on their own from a share drive. Please explain
whether there was any testing or other method of learning confirmation done to confirm
understanding of this training?
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
Response to Staff’s Fifth Supplemental Request Regarding the Loan Processing Script
Blueacorn principally used the loan processing script as a tool to assist with onboarding
new Eligibility Verifiers (“EVers”). Blueacorn required all new EVers to participate in a
mandatory orientation training. During this training, a presenter, using the loan processing script
as a guide, walked new EVers through Blueacorn’s various policies and procedures. After this
initial presentation, EVers had access to the loan processing script in an electronic shared folder,
which held other training materials such as the BSA, AML, and OFAC training slide deck
presentations that we previously produced to Subcommittee staff, bearing bates numbers BA-
SSCC-0000123 through BA-SSCC-0000165 and BA-SSCC-0000203 through BA-SSCC-
0000226. EVers were encouraged to refer to these training materials throughout their time at
Blueacorn.
Staff’s First Supplemental Request Regarding the AML/BSA Training Slide Deck
Provide the names of the individuals that authored this document, reviewed this document, and
approved it for use. Provide the dates that this document was published and all dates when it
was updated. Provide details on what way the following individuals were involved in the
drafting, approval, updating, or dissemination of this document: Adam Spencer, Kristen Spencer,
Barry Calhoun, Noah Spirakus, Nate Reis, and Stephanie Hockridge?
Response to Staff’s First Supplemental Request Regarding the AML/BSA Training Slide
Deck
This PowerPoint presentation was created by and Everett Advisory Partners.
It was approved by Matt Yahes and Barry Calhoun on September 28, 2021.
assisted in creating earlier versions of this presentation, which we have previously produced to
Subcommittee staff. Those documents bear bates numbers BA-SSCC-0000203 through BA-
SSCC-0000226.
Staff’s Supplemental Request for Loan Files (email dated June 15, 2022)
Please [produce] all communications and documents – including the SalesForce files (similar to
the document produced in BA-PSI-0005457), Blueacorn Dashboard files (similar to the
document produced in BA-PSI-0007989), and the Loan History (similar to the document
produced in BA-PSI-0005456) – associated with the loans listed in Tab 1 and Tab 2 of the
attached spreadsheet.
Response to Staff’s Request for Loan Files
In response to subcommittee staff’s supplemental request for various loan files,
Blueacorn is hereby providing an initial production of loan files requested by the Committee.
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
July 22, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, we are submitting narratives and
documents responsive to certain supplemental requests that the Subcommittee staff conveyed by
email on May 16, 2022, and June 15, 2022. As previously discussed with the staff, certain of the
original and supplemental requests that the staff has identified as priorities will take longer to
respond to than others, so we will continue to provide information on a rolling basis in order to
avoid unnecessarily delaying production of information that is currently available to be
produced.
Staff’s Fourth Supplemental Request Regarding the Loan Processing Script
Explain what generally happened to applications flagged for fraud by an EV, including what
personnel reviewed those flagged applications and what personnel was responsible for
determining or recommending the final outcome of those flagged applications. Please describe
how the following people were involved in the review of applicated flagged for fraud: Adam
Spencer, Kristen Spencer, Barry Calhoun, Noah Spirakus, Nate Reis, and Stephanie Hockridge.
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
Response to Staff’s Fourth Supplemental Request Regarding the Loan Processing Script
All applications completed on Blueacorn’s online portal were reviewed by one of the
hundreds of Eligibility Verifiers (“EVers”) Blueacorn hired to conduct a manual check of
submitted applications. Following their review of a PPP loan application, EVers were required
to determine whether the applicant was eligible or ineligible. If an EVer determined an applicant
was ineligible, the EVer was prompted to indicate or “flag” the reason for that determination.
For example, in a number of cases, the EVer would flag that a loan could not be made because
the application was missing necessary documentation, or the submitted documentation was
blurry or unreadable. In such cases, Blueacorn would generally request that the applicant submit
documentation correcting the deficiency. If an EVer determined that an applicant was ineligible
due to concerns that the application appeared suspicious or fraudulent, they were instructed to
flag the application for fraud. In most cases, these applications were simply failed, and the
borrower was informed that Blueacorn could not move forward with processing their loan. In
some cases, applications flagged for fraud were reviewed by Blueacorn’s investigations team.
This generally occurred when Blueacorn identified that a large number of applications were
flagged by EVers for fraud for the same reason, and Blueacorn wanted to review those
applications in more detail. In such cases, a member of the investigations team would review all
information and materials submitted by the applicant, and use a tool in Salesforce to identify
similar borrowers (e.g., individuals listing the same address, phone number, or tax details).
Applications identified by Blueacorn’s investigations team as potentially fraudulent were then
referred to the lenders for the ultimate decision on whether the loan should be denied or funded.
Staff’s Supplemental Request for Loan Files (email dated June 15, 2022)
Please [produce] all communications and documents – including the SalesForce files (similar to
the document produced in BA-PSI-0005457), Blueacorn Dashboard files (similar to the
document produced in BA-PSI-0007989), and the Loan History (similar to the document
produced in BA-PSI-0005456) – associated with the loans listed in Tab 1 and Tab 2 of the
attached spreadsheet.
Response to Staff’s Request for Loan Files
In further response to subcommittee staff’s supplemental request for various loan files,
Blueacorn is hereby providing to the subcommittee the loan files listed in the chart below.
Additionally, Blueacorn, after diligently searching its records, has been unable to locate loan
files for Juuice, LLC ($20,832.00), ($19,807.00), ($17,500.00), and
($20,833.00). The Juuice and loans were made by Prestamos before
Blueacorn was Prestamos’s lender service provider. The loan appears from public
records to have been issued by Cross River Bank, which is not a lender for which Blueacorn ever
Page 4
Sincerely,
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
From: @cov.com>
Sent: Friday, July 22, 2022 4:41 PM
To:
@cov.com>
Subject: RE: Phone Call Follow-Up
Please find below responses to your questions for Capital Plus.
Thanks,
1. What was the Capital Plus process for identifying ineligible applicants and preventing
fraud related to PPP loan applications received from Blueacorn?
Blueacorn was the lending service provider for Capital Plus’s PPP program, and Capital Plus
relied on Blueacorn’s technological solutions to determine borrower eligibility and combat
fraud efficiently and at scale. Such arrangements allowed CDFIs like Capital Plus to reach a
greater number of underserved borrowers and were encouraged by the SBA, which notes in
its FAQ “that financial technology solutions can promote efficiency and financial inclusion in
implementing the PPP.” Throughout the PPP, Capital Plus worked closely with Blueacorn to
enhance anti-fraud measures, including by running algorithms designed to find statistically
improbable commonalities among applications and other potential indicia of fraud.
Additionally, if Capital Plus became aware of signs of fraud, such as a rejection of disbursed
PPP funds by a borrower’s bank, a law enforcement inquiry, or suspicious correspondence or
requests from an applicant or borrower, Capital Plus worked with Blueacorn to conduct an
investigation. If warranted, Capital Plus filed a SAR regarding the transaction.
2. How many PPP loan applications did Capital Plus receive from Blueacorn in 2021?
Blueacorn submitted a total of 521,221 loan applications to the SBA on behalf of Capital
Plus. For 106,925 of those loans, the borrowers had originally applied through Womply.
a. How many of these loan applications received a manual review by employees of
Capital Plus to verify eligibility or to identify fraud?
Capital Plus personnel reviewed loan applications and other materials upon
becoming aware of some indication of fraud or ineligibility, including as part of the
determination of whether to file a SAR. In general, Capital Plus does not maintain
statistics regarding the number of PPP loan applications that were manually
reviewed by Capital Plus personnel to verify eligibility or to identify fraud.
b. How many of these loan applications were rejected, denied, or not submitted to the
SBA at the direction of Capital Plus employees and due to suspicion of fraud or
determinations of likely ineligibility? Please exclude incomplete applications from
this total.
Again, Capital Plus relied on Blueacorn’s technological solutions to determine
borrower eligibility and combat fraud, and Capital Plus worked closely with
Blueacorn on enhancing those measures. Capital Plus was not assigned loan
applications from Blueacorn until an applicant had gone through the Blueacorn
eligibility determination and anti-fraud processes. If Capital Plus, or Blueacorn on
behalf of Capital Plus, discovered indicia of fraud related to an application, including
after the loan was approved by SBA but not yet successfully disbursed to a borrower,
Blueacorn sent the applicant a request for further information. Capital Plus
withdrew or canceled approximately 83,000 SBA-approved loans following a request
for additional information from borrowers.
c. Did Capital Plus keep any logs or other documentation recording the manual reviews
conducted by Capital Plus personnel of loan applications received from Blueacorn?
While Capital Plus does not maintain a comprehensive log of all individual loan
applications manually reviewed by Capital Plus personnel, the company does log
applications referred for investigation.
3. In 2021, how many Capital Plus employees were dedicated full-time and exclusively
to AML, BSA, eligibility verification, or fraud compliance, including those employed
full-time to prevent, detect, or investigate potential fraud? How did that compare to
2019 and 2020?
is the chief compliance officer for Capital Plus and has been with the
company since 2017. Capital Plus, a non-bank lender, first made PPP loans in 2021. In
2021, Capital Plus brought on three individual compliance consultants to support Ms.
in PPP anti-fraud and compliance matters. Also in 2021, Capital Plus engaged
Everett Advisory Partners to advise on and help implement Capital Plus’s PPP anti-
fraud and compliance programs. , who joined the company as a
contractor in 2021, also helped oversee these programs for Capital Plus. Additionally,
Blueacorn provided significant identity and eligibility verification and fraud compliance
services as part of its role for Capital Plus.
4. What were the total budgets for, and amounts allocated to, AML, BSA, eligibility
verification, and fraud compliance at Capital Plus, on a per quarter basis, in 2019,
2020, and 2021, excluding amounts budgeted or allocated to third party
contractors? Please include a breakdown of these expenses.
-----Original Message-----
From: @cov.com>
Sent: Thursday, May 19, 2022 9:35 PM
To:
Subject: RE: Phone Call Follow-Up
Our understanding is that all of the 13 loans named in the April 26 letter and your April 29 follow-up
email were processed using the Blueacorn system. As we previously noted, we produced to the
SSCC only materials directly accessible by Capital Plus.
Based on records accessible to Capital Plus in the SBA lender portal, it appears that five of the loans
named in the April 26 letter and your April 29 follow-up email were forgiven after the borrower
applied for forgiveness directly with the SBA (loan numbers 6265518505, 2616498604, 3090888602,
6232778604, and 9150558608) and that four were forgiven after the borrower applied for
forgiveness through the Blueacorn system (loan numbers 4818108404, 9383918501, 1688898600,
and 8252298609).
Regarding repayment of the loans to Nathan Reis, Stephanie Hockridge, Body Politix LLC, and Juuice,
Inc., named in the April 26 letter, our understanding is that the request for repayment was initiated
by Blueacorn. We further understand that Capital Plus is not currently planning to request that
Adam Spencer or Kristen Spencer, both of whom are affiliated with Elev8 Advisors, repay the loans
named in the April 26 letter.
Additionally, we are planning to produce communications related to the repayment of the loans to
Nathan Reis, Stephanie Hockridge, Body Politix LLC, and Juuice, Inc., by Tuesday.
Thanks,
DLA Piper LLP (US)
500 Eighth Street, NW
Washington, DC 20004
www.dlapiper.com
August 18, 2022
VIA E-MAIL
CONFIDENTIAL - DRAFT
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515-6143
Re: Response to U.S. House of Representatives Select Subcommittee on the
Coronavirus Crisis
Dear Chairman Clyburn,
We are writing to update the response we submitted to the Select Subcommittee on April 25, 2022. This
response provides additional information with respect to the Select Subcommittee’s questions, in a letter
dated April 7, 2022. In our April 25 response, we committed to provide additional information with
respect to Questions 2, 4, and 5. In addition, based on recent discussions with the Select Subcommittee
counsel, we include a written description of the use of prepaid debit cards. We will provide the
information with respect to Question 2 in a supplemental response.
Information Request Question 4 – Additional Information – In our April 25 letter, we reported that
Prestamos CDFI processed and funded approximately 434,000 PPP loans through the Blueacorn
Platform. Based on additional information, we now understand the number of loans processed and funded
through the Blueacorn Platform was approximately 439,622 (out of approximately 551,153 total loan
applications submitted to the SBA) in Round 3 of the PPP. Question 4 asked how many loan applications
were rejected or denied by Prestamos. Based on the most up to date data currently available from the
SBA, that number is approximately 109,253. Accordingly, the number of loan applications not approved
– either denied or withdrawn – was approximately 20% of the total number of loan applications processed
through the Blueacorn platform. In addition to the Prestamos loan applications not approved, we
understand Blueacorn also withheld approval of an additional large volume of Round 3 PPP loan
applications based on its underwriting.
Information Request Question 5 – Additional Information – On April 25 we reported that, from April
2020 through May 28, 2021, Prestamos CDFI directly received and processed approximately 7,503 PPP
applications using the SPARK Platform. From the total applications received, Prestamos CDFI approved
and funded 3,1461 PPP loans, including 925 PPP loans in 2020 and approximately 2,221 in 2021
(averaging about $27,518 per loan). In total, about 57% of the PPP loans Prestamos CDFI processed
1
Note that our original submission indicated that Prestamos funded 3,145 PPP loans through the SPARK system,
but updated records show the number was 3,146 (one loan had mistakenly been labeled as a “test loan” in the
database; that record has now been reclassified as an actual loan).
August 18, 2022
Page Three
['Our automated routines have determined that there is likely a problem with the principal
ownership percentage. Please ensure that the ownership percentage for this business type
equals 100%. Error E0196'] E0196
['Our automated routines have determined that there is a mismatch between business SSN
and principal SSN. Please ensure that the correct SSN is used for both the business and
principal. Error E0095'] E0095
['For a Second Draw PPP Loan, you must provide the First Draw (or original PPP) loan
number. Reference Error: E0004'] E0004
['Our automated routines have determined that you have utilized a PO Box for the Business
Address. The SBA and Form 2483 do not support the entry of a PO Box for purposes of
PPP. Please update this address and resubmit your loan. Error E02743'] E02743
['Confirm the PPP First Draw Loan Amount is correct. Error: E0018'] E0018
['For the NAICS code provided, the Loan Amount must be less than or equal to 2.5x the
Average Monthly Payroll. Please check the calculation and resubmit. Reference Error:
E0003'] E0003
['Our automated routines have determined that there is a mismatch between business SSN
and principal SSN. Please ensure that the correct SSN is used for both the business and
principal. Error E0096'] E0096
['Our automated routines have determined that there is a mismatch between business
TIN/SSN and Borrower TIN/SSN. Please ensure that the correct TIN/SSN type is selected
for the business and all principals. Error E0094'] E0094
['Please select at least one Loan Purpose. Error: E0021'] E0021
{"business":{"phone_number":["This field may not be
null."],"date_of_establishment":["This field may not be null."]},"status_code":400} 400
{"business":{"phone_number":["This field may not be null."]},"status_code":400} 400
['Our automated routines have determined that the loan amount is likely inaccurate. Please
verify that the loan amount requested is less than or equal to 2.5x the Average Monthly
Payroll. Please check the calculation and resubmit. Reference Error: E0303'] E0303
{"business":{"owners":[{"address_line_1":["This field may not be null."],"city":["This field
may not be null."],"state":["This field may not be null."],"zip_code":["This field may not be
null."]}]},"status_code":400} 400
Business Owner Information Must be Provided No code
['Email address must be provided and be less than 80 characters. Error E00743'] E00743
['Our automated routines have determined that the number of employees is likely inaccurate.
Please verify the number of employees for this business and resubmit. Error E0059'] E0059
['You are attempting to duplicate an owner/TIN. Error: E0034'] E0034
August 18, 2022
Page Six
Subcommittee counsel has requested we provide information about whether prepaid debit cards were used
to pay loans approved by the SBA, but for which a bank had raised questions. Prestamos CDFI
understands that prepaid debit cards were used in that circumstance 13,343 times. The cards were
authorized by Blueacorn and provided by Dash.
As we understand it, prepaid debit cards were provided to approved PPP borrowers in a number of
circumstances. Initially, cards were issued when banks refused ACH payments for approved PPP SBA-
loan applications. At the start of Round 3 of the PPP, in such cases, Blueacorn indicated that they would
review and address any errors (e.g., transposed account numbers, etc.) and seek to reissue an ACH
payment, which would be submitted for re-approval to Prestamos CDFI. If the bank continued to refuse
payment once any account number errors were corrected, a prepaid Dash card would be issued to the
borrower. If the error related to something more substantial than an account number typo, the borrower’s
application/eligibility would be reviewed again. Only once the account was reviewed and determined to
be eligible, would the transfer be resubmitted for approval by Prestamos CDFI and a prepaid Dash card
issued.
As the PPP progressed, Blueacorn reported to Prestamos CDFI that every loan for which an ACH transfer
was refused by the recipient bank would be subjected to enhanced verification procedures, even for
transfers refused for account number errors. Where the enhanced verification procedures confirmed the
applicant’s eligibility and resolved any account number issues, then another ACH transfer would be
attempted.
Eventually, Blueacorn began issuing prepaid Dash cards after an initial ACH transfer was unsuccessful
and the eligibility and identity of the borrower reconfirmed.
Near the end of Round 3 of the PPP, Blueacorn started issuing prepaid Dash cards following a bank’s
refusal of an ACH transfer and after enhanced re-verification of the borrower’ eligibility and identity.
That process was also followed for borrowers that were customers of the banks that refused any ACH
payments for PPP loans as a matter of policy.
Respectfully submitted,
John A. Merrigan/s Matthew C. Bernstein/s
Enclosures
cc: The Honorable Steve Scalise, Ranking Member
SIDLEY AUSTIN LLP
1501 K STREET, N.W.
WASHINGTON, D.C. 20005
+1 202 736 8000
+1 202 736 8711 FAX
+1
MBORDEN@SIDLEY.COM
AMERICA • ASIA PACIFIC • EUROPE
September 9, 2022
CONFIDENTIAL
VIA EMAIL
The Honorable James E. Clyburn
Chairman
Select Subcommittee on the Coronavirus Crisis
2157 Rayburn House Office Building
Washington, DC 20515
Re: Production in Response to Subcommittee Request Letter
Dear Chairman Clyburn:
We are writing on behalf of Blueacorn PPP, LLC (“Blueacorn”) in response to your
November 22, 2021 letter asking for information regarding Blueacorn’s Paycheck Protection
Program (“PPP”) loan processing activities.
In accordance with the agreement between Blueacorn and Subcommittee staff that
Blueacorn should provide its responses on a rolling basis, we are submitting this response to the
supplemental request that the Subcommittee staff conveyed by email on August 22, 2022. As
previously discussed with the staff, certain of the original and supplemental requests that the
staff has identified as priorities will take longer to respond to than others, so we will continue to
provide information on a rolling basis in order to avoid unnecessarily delaying production of
information that is currently available to be produced.
Staff’s August 22, 2022 Supplemental Request
Could you please provide the full name, most recent contact information, Blueacorn employment
dates and roles, employment history, and a summary of any other relevant qualifications of
Carrie Lawson?
Response to Staff’s August 22, 2022 Supplemental Request
worked for Blueacorn from March 2021 to November 2021. During
her time at Blueacorn as an Operations Management Consultant, Ms. managed
Sidley Austin (DC) LLP is a Delaware limited liability partnership doing business as Sidley Austin LLP and practicing in affiliation with other Sidley Austin partnerships.
Page 2
Blueacorn’s investigation team. In this role, Ms. oversaw a team charged with
investigating potentially fraudulent activity brought to Blueacorn’s attention by Blueacorn’s
internal triggers, inquiries from the SBA or from an applicant’s bank, subpoenas from law
enforcement or other government agencies, or specific allegations of fraud from the public. Ms.
also helped Blueacorn develop customer support processes and trained a customer
support team of more than 50 agents.
Page 3
Ms. ’s contact information is as follows:
•
Please note that when we spoke to Ms. in connection with obtaining the
foregoing information, she expressed a desire that we represent her in connection with this
matter. Subject to agreement on the terms of the engagement, we expect to do so, as we would
for other current and former Blueacorn officers and employees. Accordingly, please direct any
inquiries concerning Ms. to us.
* * *
Some information provided in connection with this response is business-sensitive and, if
released, would cause injury to Blueacorn. We have marked this letter and the enclosed materials
“Confidential” and request that they not be disclosed beyond the Subcommittee or made public.
If public release is contemplated, we request the opportunity to be heard before the proposed use.
Please feel free to have your staff contact us with any questions concerning this response.
Sincerely,
Michael E. Borden
Michael A. Levy
Enclosure
cc: Hon. Steve Scalise, Ranking Member
Paycheck Protection
Program Loan
Processing Script
Table of Contents
Table of Contents
Welcome EV er’s
Getting Started
Accessing Salesforce
Setting up Salesforce in Sales Console View
Setting Up Your Personal Loan Queue
Getting Started on Loans
Understanding SalesForce
Sales Console Phoenix View: What you will need while working through loans
Breaking Down the Fields in the Phoenix View Underwriter Tab
Optimizing SalesForce: Tools to help you use SalesForce more efficiently
Sending a Loan Back to Processing
Editing Information in the Loan Application
Working Through Loans
Identification: Does the name match the Phoenix Data
Schedule C: Does the name phoenix data?
Bank Statement: Is there a date within the range of December 1st 2019 to March 31st
2020 (as of 4/16) on the bank statement? Is the applicant’s name or DBA name on the
statement? Is the bank name (and Logo for larger banks) on the statement?
Wrapping up for the day
Appendices
APPENDIX A: EV FAQ
APPENDIX B: Loan Math
APPENDIX C: ID Check
Appendix D: Fraudulent Identification
Appendix E: Fraudulent Schedule Cs
Appendix F: Fraudulent Bank Statements/ or not a bank statement
Appendix: G IP Address Fraud
Appendix H: Miscellaneous FAQ
Appendix I: How to correct mistakes in SalesForce Forward all mistake to
, or
Appendix J: Enhanced Diligence Team
Appendix K: Quality Check Team
Appendix L: Daily Updates (Please add the newest updates ABOVE old updates.)
Welcome EVers
Welcome to Blueacorn’s Paycheck Protection Program project. This project involves
processing loan applications submitted to the SBA for the Paycheck Protection Program (PPP),
a program passed by the federal government to ensure that businesses can pay their
employees during the Covid-19 crisis.
This document will serve as a primary resource for processing loans throughout the
project. The table below displays important information regarding the project.
Getting Started
In this section, we will walk through accessing SalesForce, setting up Salesforce in Sales
Console View, creating your personal queue, and getting started on loans.
Accessing Salesforce
1. Navigate to the SalesForce Login page using the following URL:
https://login.salesforce.com/ The following page should appear.
2. Enter your Blue Acorn username and password, and click the login button.
2. The following page should appear.
3. Select the dropdown arrow next to the Home tab. Select Loans.
4. The menu bar at the top of the page should match the picture shown below. You have
now entered Sales Console View!
Setting Up Your Personal Loan Queue
1. Once in the Loans tab in Sales Console View, select the dropdown arrow shown below,
and select Phoenix UW Manager from the list displayed.
2. The following page should appear.
3. Select the dropdown arrow next to The Gear Icon, and select clone from the dropdown
menu.
4. The Clone List View window should appear. In the List Name box, enter “My Personal
Queue” followed by your initial and click Save.
5. The following page should appear. Click on the Filter icon on the right side of the page.
6. The following page should appear. Select Add Filter.
7. The following page should appear. Select the New Filter box. For the Field box, ensure
that Underwriter is selected from the dropdown menu. For the value box, enter your full
first and last name (NOTE: This must be your full name spelled correctly). Select the
Done button.
8. Select Save.
9. Congratulations. You have successfully made your personal queue. (Note: it will likely be
empty at first unlike the example here.)
Getting Started on Loans
1. Your personal queue should be empty at first. To access loans, first go to the Phoenix
UW Manager in the Loans dropdown menu.
2. Select any Loan Number from the Loan Number column.
3. A page similar to the following should appear. Select the arrow on the left side of the
screen to pop out the Loan list.
4. A menu similar to the following should appear. Select the personal queue you made
earlier from the Loans dropdown menu.
5. The menu on the left side of the page will now show your personal queue. Note how it is
currently empty.
6. Select Assign Next Loan to Me from the right side of the page.
7. You have now assigned yourself a loan! If you hit the refresh button in the menu
displaying your personal queue, you should see the loan populate in your queue. Now
you’re ready to get to work!
Understanding SalesForce
This section will explain the tools presented in SalesForce.
Sales Console Phoenix View: What you will need while working through
loans
After setting up your Personalized SalesForce Queue, you should see a populated list:
● From this list you can see your assigned loans on the left.
● On the right you can see your first PPP loan.
Breaking Down the Fields in the Phoenix View Underwriter Tab
For the Eligibility Verification process, we want to stay in the Phoenix View tab.
1. Bank Statement Uploaded?
a. If the applicant had linked their bank account verification through Plaid, this can
verify their bank account and offer validation for a bank account opened from Feb.
15, 2020. Every bank account has to be Plaid verified AND the Bank account
opened before Feb 15, 2020.
i. If the applicant linked their account and Plaid could not verify that the bank
account was opened by Feb 15, 2020, the applicants are asked to upload a
bank statement. Check this statement for verification of:
1. Date: We are looking for a date between December 1st 2019 -
March 31 2020
2. Applicants Name: Matches ID and/or application name
3. Address: A possible match for an address on ID or Address on file
b. These bank statements could include but are not limited to:
i. Major banks
ii. Credit unions
iii. Online banks
c. Alternatives to a Bank Statement as "Proof of Operations" for December 2019 -
March 2020 (these are extremely rare)
i. 1099-MISC December 2019- March 2020
ii. Self Employed Book of Record (CPA Certified) December 2019- March
2020
iii. State Unemployment Insurance Tax Records December 2019-March 2020
2. First, draw the SBA # matches database?
a. A majority of the loans that we are working with are 1st time PPP loan applicants
PPP - 1st Draw Loan Type.
b. If this is a second PPP loan application, the applicant is asked to provide their SBA
Loan number and it will be listed as a PPP - 2nd Draw Loan Type.
i. If you happen to have an error with a PPP - 2nd Draw, it could be an error
in the Loan Number entered. The system will detect that there is an issue
with the 1st Draw SBA # and automatically send the application to
processing upon submitting to the SBA. We will still attempt to submit these
loans to the SBA even if this error code is present.
3. Plaid/GIACT verified?
a. When applying through the initial PPP loan application, the applicant is given the
opportunity to log into their bank account through Plaid, a bank verification system.
This system checks the verification of ownership of the bank account and its
creation date.
b. A few applications will be flagged on the Phoenix view for Bank Account doesn't
show transactions before Feb 15, 2020.
i. In this case, we will need to check the uploaded bank account document. It
does not mean they don’t qualify, just that Plaid/GIACT wasn’t sure. (Refer
back to “Bank Statement Uploaded?” procedures when verifying the bank
account statement.)
4. Driver's license uploaded?
a. Front Picture of any Government-issued ID (Verifying Name and Legitimacy)
i. State Driver’s license (See APPENDIX C)
ii. State Identification Card
iii. Passport (Foreign passports are acceptable if PLAID/GIACT verified)
iv. Military ID
v. Gun Permits
5. Schedule C Uploaded?
a. Clear picture or Uploaded Schedule C Document
b. If the 2019 Tax Document is uploaded, look for the Schedule C Document.
c. Check for the applicant’s name
d. Check Line 7 of the Schedule C document to match the information in the loan
profile. (See APPENDIX B)
e. This could also include a “Draft” Schedule C. ‘I would include some more detail
on “Document” vs “Draft” scenarios. Won’t be a document uploaded if it is a draft,
the draft is completed on the intake form.
6. Loan amount calculation correct?
a. In the Loan Profile, most of the time we will see the sections pre-generated.
b. If there is $0 in the fields, we can check Schedule C Line 7 and input the correct
information.
c. Then enter the additional information manually using the Loan formula (See
APPENDIX B).
Optimizing SalesForce: Tools to help you use SalesForce more efficiently
When viewing the documents under the Documents tab, we see a small version of the
document.
To view within the window:
Click 1 (The menu button) Once.
Click 2 (The view size button) Two times.
This will maximize the view of the document within the window of the Documents tab.
We can use the Open in new tab button. This will open a new tab with a larger view of the
document. Once you have viewed the document, please be sure that you close the tab. We
want to protect our customer’s personal information.
* *Remember to CLOSE the document tab after viewing each document.**
● This will prevent us from viewing the wrong documents for the applicants.
● This will protect the Identity of our customers.
If everything is correct, it is time to click the Submit PPP Loan Application button.
Our system will process, if there are no issues we will see Success!
This loan was successfully submitted to the Small Business Administration
(SBA)!
Sending a Loan Back to Processing
When checking documents, we want to make sure that we can visually verify the information we
are checking.
● Full Name/ Business Name
● Address (Physical Address, P.O. Box is not acceptable)
● Date (Bank account opened between December 1st 2019 and March 31 2020)
This document had a very distorted screenshot of the bank statement. I could not verify the
applicant's name, nor the date of this statement. We want to do our best when verifying these
documents, please try to troubleshoot as best as you can before Sending them Back to
Processing.
To send it back to Processing, we want to make sure that we provide them with enough
information.
1. Click the Sent Back to Processing button, in the Eligibility Verification information
section.
*Note: The Submit PPP Loan Application button is on the left side as well. Please ensure that
you do not mistakenly Submit a Loan that you want to Return to Processing. If this happens,
please notify 2nd tier EVs as soon as possible.
2. This window will appear.
Editing Information in the Loan Application
When going in to check the documents, let’s say that there are some errors or missing
information on the SalesForce system.
The first example, 0’s in the Loan Profile Section.
To edit this area, click on the pencil icon to the left of PhxScheduleCType. That will bring up the
Editing Window.
Cross-check this information with the information in the uploaded Schedule C document. You
can add the income from multiple schedule c’s in the same year if the applicant had different
sources of income and filed multiple schedule c’s.
1. Starting with Schedule C Line 7 - 2019
○ This document had Line 7 listed as $122,616.00.
2. Take this number and divide it by 12 (the number of months in a year).
○ This Average Monthly Payroll is $8,333.00 (do not include decimals).
3. Then multiply the AMP by 2.5 (2 ½ months of payroll).
○ This equals $20,832.00 (do not include decimals).
Once you have all the correct information filled out, at the bottom of the screen you will see the
SAVE button.
Moving on to checking the information on the Driver's License and Bank Statement, let’s say
that you notice a mistake on the address. The wrong state was listed in the Business Details
section.
The information on both the Driver's License and Bank Statement shows the state of Arizona
and the information listed in the Business Details section state Alabama. To fix this mistake,
you want to click on the Pencil Icon to edit the information.
● The edit window will pop-up and you will be able to edit the information.
Once you have entered the correct information click the Save button.
Working Through Loans
This section will briefly detail what you need to be looking for when working on loans. There are
three main things to look for:
Identification: Does the name match the Phoenix Data
We can accept any US Government issued ID whether it be temporary or permanent.
Expired or not.
Any ID must have:
1) Readable name
2) Picture
We can accept:
-City Identification cards
-Correction identification cards
-Cards that say “Not for federal identification purposes”
-Driver’s Licenses that are expired
-Green cards
Check out Appendix D: Fraudulent Identification for questions about fraud
Statements can go into March, but they must have a February date and cannot have an
April date.
What if they add no bank statement? Then we can accept:
● 1099-MISC or 1099-G - Feb 2020. Looks like this:
●Self Employed Book of Record (CPA Certified) - December 1st 2019 -
March 31st 2020
● State Unemployment Insurance Tax Records - December 1st 2019 -
March 31st 2020
How do we release funds? And what kind of statements do we not accept?
● We do not accept prepaid cards because we cannot wire funds to a prepaid account.
● We do not accept Cash App, Vemno, or Paypal Statements.
● We do not accept transaction statements, invoices, or screenshots of bank transactions.
Is this a fraudulent bank statement? Check out Appendix F for more information
Wrapping up for the day
When you leave for the day “release to queue” or finish your loans in your personal queue. Do
not leave loans in your queue because those loans cannot be processed when they are stuck in
your queue? Log out of SalesForce and disconnect from your Virtual Machine.
Do not shut down your Virtual machine; this will destroy your virtual machine. Please
disconnect in the top right with the X or using the “Disconnect” option in the start menu.
Appendices
APPENDIX A: EV FAQ
The EV FAQ is a document produced by Blue Acorn. They provide us with useful
information and updates on loans processing regularly. Be sure to check this document every
day at the start of your shift for updates.
APPENDIX C: ID Check
This is a link to the website that displays each state’s Identification/ Drivers Licenses. Blueacorn
update: Do not use these websites or be expected to check these types of discrepancies.
EVers do not need to scroll through 100s of different possible ID’s or check to see if the
watermarks match.
1. https://www.insider.com/what-drivers-license-looks-like-in-every-state#arizonas-
drivers-license-shows-a-desert-landscape-in-the-background-the-state-has-four-
different-deserts-3
2. dmvnv.com › 50 state dmv list.html 50 State DMV Links
Blueacorn update: We are looking for extremely obvious fraud. Ronald McDonald or 123 ABC
Lane.
Watermarks, font size not aligning, or signature being in an unusual place are extremely
detailed discrepancies that you are not expected to identify.
Look for computer generated images, white-out names, and other obvious fraud.
When checking ID look for obvious clues:
● Type and size of font
● Lining of Text
● Size and Quality of Picture
○ B&W portrait is a byproduct of our cards being printed on polycarbonate (PC)
● Signature on the ID
If the Government issued ID looks like Fraud please flag for fraud. We do not click the return to
processing tab when flagging for fraud. It is an action in its own to flag for fraud.
● Flag for fraud
●
●
3. Blueacorn Tech team has removed the "Other" option for "Flag for Fraud". Loan
processors need to select one
of the options that most
closely aligns with the reason for
flagging for fraud. It should only
come down to a potential issue
with one of the 3 documents.
4. If you get a large PDF like this
one with 157 pages. A quick
shortcut to search for the schedule C’s. Hold down “CTRL F” at the same time on
your keyboard and then type in “Schedule C”. Press enter and keep pressing enter
until you find the schedule C. It is also typically the 6-10th page.
Appendix J: Enhanced Due Diligence (Beginning Jun 11, 2021)
Enhanced Due Diligence is a process that will be mandated for a portion of our applicants in
various “Backoffice” funding stages. They all have been approved initially by the SBA but are
being requested to submit additional documentation.
We have their original documentation on file (ID, Schedule C, Bank Statements) but will be
asking them to submit a fourth document. The EV’s trained to do Enhanced Due Diligence
(EDD) will follow all the normal EV policy for the original documentation. Think of it like double
checking our work. Our goal in EDD is to be as thorough and accurate as possible when
assessing these applications.
The fourth document we are requesting is a full 1040 tax return from either 2019 or 2020.
Similar to the other document requirements, the 1040 must be in the Applicant’s or DBA name.
The 1040 will have to include a Schedule C as well. This will be reconciled against the initial
schedule c data the applicant provided, whether drafted or filed documents were submitted.
If the 1040 does not include a Schedule C then the applicant is not approved. If the Schedule C
on their full tax return shows a significant discrepancy between the initial application (over
$10,000 less income on their filed taxes when compared to the reported income for the loan
amount calculations), the application does not pass Enhanced Due Diligence and will not be
approved. We do not edit the income at this stage because the applicant has already been
approved by the SBA with the previous data. If they make over $100k, the $10,000 rule does
not apply as the applicant already qualifies for the full loan amount.
Exhibit A
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000089
EFiled: Jan 17 2022 01:25PM EST
Transaction ID 67238715
Case No. N21C-12-118 AML
IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
FIN CAP INC. and BLUEACORN )
PPP, LLC, )
)
Plaintiffs, )
)
v. ) C.A. No. N21C-12-118 AML CCLD
)
PAY NERD LLC and PAYNERDIER ) PUBLIC VERSION FILED
LLC, ) JANUARY 17, 2022
)
Defendants. )
COMPLAINT
Plaintiffs Fin Cap Inc. and Blueacorn PPP, LLC (together, “Blueacorn”), by
and through their undersigned counsel, allege as follows against Pay Nerd LLC and
PayNerdier LLC (together, “PayNerd”), based upon personal knowledge as to their
own actions and upon information and belief as to all other matters:
INTRODUCTION
1. Blueacorn is a financial technology company that was founded to help
small businesses—principally individuals and sole proprietorships—obtain loans
under the Small Business Administration’s (“SBA’s”) Paycheck Protection Program
(“PPP”). The PPP is one of the principal programs established by Congress to
address the economic effects of the COVID-19 pandemic. Working as a service
provider to two SBA lenders, Blueacorn offered a technology platform that helped
applicants complete their applications online, and helped the lenders process those
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000090
applications, obtain SBA approval, and make the PPP loans. During the months in
2021 when the PPP was open to applicants, Blueacorn received and processed
hundreds of thousands of loan applications, fulfilling Congress’s intention of putting
needed cash into the hands of truck and taxi drivers, freelancers, and small
merchants, among others.
2. As an incentive for lenders to make affirmative efforts to provide PPP
loans to historically underserved potential borrowers, Congress structured the
program to pay a fee to lenders on every loan extended. As a service provider to
two such lenders, Blueacorn shared in a percentage of those fees.
3. PayNerd served as one of Blueacorn’s non-exclusive “referral agents.”
Like Blueacorn’s other referral agents, PayNerd performed this function principally
by buying online advertising from providers like Google and Facebook that directed
potential applicants to Blueacorn’s website. PayNerd spent substantial sums on this
advertising, and, in return, shared in a percentage of Blueacorn’s revenue. Under
the contracts between Blueacorn and PayNerd, the precise amount of PayNerd’s fee
varied depending on the means by which the applicant reached Blueacorn’s website.
4. Further, based on the volume of business that PayNerd did with
Blueacorn and the revenue sharing model that tied the companies’ fortunes together,
PayNerd’s principals—CEO Matthew Mandell and founder Taylor Hendricksen—
2
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000091
obtained special access to Blueacorn personnel and systems. They participated in
senior executive meetings, interacted with managerial staff, and, as a practical
matter, had the power to direct them to, among other things, generate reports about
Blueacorn’s loan generation activity. Indeed, Mandell installed his longtime
employee Erin Valdes to act as Blueacorn’s payables manager, making her
responsible for outgoing payments from Blueacorn to PayNerd.
5. The scale and speed of PayNerd’s spending on advertising was
significant. As a result, in order to remain solvent and able to continue to provide
referral services, PayNerd made various requests to Blueacorn for interim, estimated
payments of its share of Blueacorn’s revenue, with a final reconciliation to follow.
On those terms, Blueacorn paid PayNerd more than in estimated
payments so that PayNerd could continue to operate.
6. In August 2021, Blueacorn began a final reconciliation and discovered
that PayNerd’s stated estimates of what it had earned were incorrect in a number of
respects. In total, PayNerd had requested and been paid at least more
than it was entitled to under its contracts with Blueacorn.
7. Since the August / September timeframe, Blueacorn has attempted to
engage in discussions with PayNerd aimed at reaching agreement on the precise
amount that PayNerd was overpaid and obligated to return. But PayNerd has refused
3
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000092
to acknowledge any overpayment. This action seeks to compel PayNerd to return
what it improperly claimed and collected from Blueacorn in estimated payments.
RELEVANT PARTIES
8. Plaintiff Fin Cap Inc. (“Fin Cap”) is a Wyoming corporation, with its
principal place of business in Scottsdale, Arizona.
9. Plaintiff Blueacorn PPP, LLC (“Blueacorn PPP”) is a limited liability
company organized under the laws of Arizona, with its principal place of business
in Scottsdale, Arizona.
10. Defendant Pay Nerd LLC, d/b/a “PayNerd, LLC” (“PayNerd LLC”), is
a limited liability company organized under the laws of Delaware, with its principal
place of business in Mountainside, New Jersey.
11. Defendant PayNerdier LLC (“PayNerdier”) is a Wyoming limited
liability company that was converted from a corporation to an LLC in June 2021 and
has its principal place of business in Casper, Wyoming. Prior to being converted to
an LLC in June 2021, PayNerdier existed as a Wyoming corporation that had its
principal place of business in Casper, Wyoming.
JURISDICTION AND VENUE
12. The Court has subject matter jurisdiction over this action as the trial
court of general jurisdiction in suits seeking monetary damages. Delaware
4
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000093
Constitution Art. IV, § 7; 10 Del. C. § 541. This action should be assigned to the
Complex Commercial Litigation Division because Blueacorn’s damages exceed $1
million.
13. The Court has personal jurisdiction over the Defendants. In the two
materially identical contracts at issue, PayNerd LLC and PayNerdier consented to
the jurisdiction of this Court when they agreed “that any suit to enforce any provision
of this Agreement or arising out of or based upon this Agreement or the business
relationship between the parties hereto shall be brought in federal or state court in
Delaware.” This Court also has personal jurisdiction over PayNerd LLC and
PayNerdier pursuant to 10 Del. C. § 3104(c) because, among other things, PayNerd
LLC and PayNerdier each advertised Blueacorn’s services in Delaware to Delaware
residents and charged improperly calculated fees to Blueacorn arising out of loans
to Delaware residents.
14. This Court has personal jurisdiction over PayNerd LLC as a Delaware
limited liability company.
15. The parties elected Delaware law to govern the two materially identical
contracts at issue. The parties agreed that each agreement “shall be governed by and
construed in accordance with the laws of the State of Delaware (irrespective of
choice of law principles).” 6 Del. C. § 2708.
5
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000094
FACTUAL BACKGROUND
Blueacorn’s Business
16. In March 2020, in response to the economic impact of the COVID-19
pandemic, Congress enacted the Paycheck Protection Program. The PPP allowed
lenders approved by the Small Business Administration to offer forgivable loans to
qualifying small businesses to cover various expenses, including payroll. In
February 2021, the PPP was expanded to offer loans to sole proprietorships and
independent contractors, among others.
17. Blueacorn is a financial technology company that provided services to
two SBA-approved lenders (the “Lenders”) in connection with receiving and
processing PPP loan applications. Specifically, Blueacorn’s technology platform
helped guide applicants through a web-based loan application process on
Blueacorn’s website, and collected from applicants the information and
documentation needed to apply for a PPP loan. Once the application information
was collected, Blueacorn assisted the Lenders in evaluating the applications,
submitting them to the SBA, and ensuring that approved borrowers received their
funds.
18. Under the Lender Service Provider Agreements (“LSPAs”) between
Blueacorn and the Lenders, Blueacorn was compensated for its services by sharing
6
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000095
in a portion of the fees that the PPP entitled Lenders to collect from the SBA on each
completed loan.
Blueacorn’s Contracts with PayNerd and Other Referral Agents
19. In order to attract applicants, Blueacorn entered into agreements with a
number of entities to serve as referral agents; namely, to direct potential applicants
to Blueacorn’s website. In total, Blueacorn entered into referral agreements with
approximately 18 entities.
20. PayNerd was one of these referral agents. On February 25, 2021,
Blueacorn (via Fin Cap) and PayNerd (via PayNerd LLC) entered into a Referral
Program Agreement (the “February Contract,” attached as Ex. A) pursuant to which
Blueacorn appointed PayNerd as “a non-exclusive Referral Agent to Blueacorn.”
February Contract § 1. As relevant here, PayNerd’s principal obligation under the
February Contract was to “generate and pay for leads through paid and organic
acquisition channels[.]” Ex. A at Schedule B.
21. Under the February Contract, in exchange for its services, PayNerd was
entitled to a fee on completed loans if those loans were generated in one of three
different ways, with the amount of the fee being determined by which generation
category applied to the loan. Schedule A of the February Contract (Ex. A) defined
7
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000096
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000097
Generated”), PayNerd was entitled to
23. By contrast, where PayNerd had not made a traceable referral—i.e.,
where an applicant was referred by another of Blueacorn’s referral partners or
arrived organically without a traceable referral from any referral partner—
For these loans (defined
in the contracts as “Company Generated”):
24. Finally, for loans generated by Blueacorn’s own “enterprise sales &
marketing efforts” (defined in the contracts as “Blueacorn Generated”),
25. The February Contract also contained provisions regarding when
PayNerd would be paid. Specifically, it provided that “Blueacorn will pay all
9
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000098
amounts due PayNerd via ACH Deposit one (1) day after the SBA fee has been
received.” February Contract, Ex. A at Schedule A.
26. At the time of the February Contract between Blueacorn and PayNerd,
Blueacorn only had a service provider agreement with one of the two Lenders (the
“First Lender”). In April, Blueacorn entered into its LSPA with the other of the two
Lenders (the “Second Lender”).
27. On April 1, 2021, Blueacorn (via Blueacorn PPP) and PayNerd (via
PayNerdier) executed another Referral Program Agreement (the “April Contract,”
Ex. B; and together with the February Contract, the “Contracts”), in part to extend
Blueacorn and PayNerd’s existing arrangement to loans placed with the Second
Lender. The payment terms of the April Contract were the same as those of the
February Contract.
28. Both Contracts required PayNerd “to comply with all applicable laws,
including applicable anti-spam, privacy, advertising, marketing, sales and
telemarketing laws and regulations, in connection with the performance under this
Agreement.” Contracts § 8.
29. Both Contracts further provided that, “[i]n any action arising from the
alleged breach of this Agreement, or to enforce this Agreement, the final prevailing
party will recover its reasonable attorneys’ fees, costs and expenses.” Id. § 10.
10
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000099
Estimated Payments to PayNerd
30. From February through July 2021, Blueacorn assisted the Lenders in
making approximately 700,000 completed PPP loans.
31. One result of the rapidity with which Blueacorn achieved this scale was
that PayNerd immediately incurred substantial costs associated with the cost of
marketing Blueacorn’s services. Beginning in March 2021, in order to provide
PayNerd with the cash necessary to continue its marketing and referral efforts,
Blueacorn and PayNerd agreed that Blueacorn would begin making advance
payments to PayNerd.
32. Initially, Blueacorn’s advance payments took the form of round-
number wire transfers in amounts agreed upon by the parties. But starting in early
April, at the request of PayNerd Chief Executive Officer Matthew Mandell,
Blueacorn agreed that as the First Lender received its lending fees from the SBA,
the First Lender would promptly wire a fixed percentage of those fees—well over
half of Blueacorn’s share—directly to PayNerd. Mandell expressly acknowledged
that this split was an “advance” intended to allow PayNerd to keep operating in the
short term, but that PayNerd and Blueacorn would need to reconcile later based on
a determination of the precise amount that PayNerd actually earned under the
Contracts.
11
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000100
33. Through these mechanisms, by the end of June 2021, Blueacorn had
made estimated, still-to-be-reconciled payments of approximately to
PayNerd in connection with loans issued by the First Lender.
34. Notwithstanding these payments, Mandell reported to Blueacorn in
mid-May that PayNerd was catastrophically low on funds, was in desperate straits,
and was on the verge of having to cease operations. Distraught, Mandell pleaded
for further cash advances from Blueacorn in order to keep operating.
35. Blueacorn accommodated PayNerd’s request by agreeing to advance
estimated payments of PayNerd’s share of fees on loans made by the Second Lender.
36. Around this same time, in connection with creating formulas that could
be applied to Blueacorn’s loan data in order to calculate PayNerd’s share of
Blueacorn’s fees under the Contracts’ three-part fee schedule, an analyst for
Blueacorn sent an email to Mandell on May 1, 2021, explaining that he had
37. In determining which formula to apply, Blueacorn relied on codes that
PayNerd-created automation applied to each applicant’s electronic record when the
12
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000101
applicant first arrived at Blueacorn’s website. Because Blueacorn had multiple
referral partners besides PayNerd—and PayNerd’s own referral services were
actually performed by a variety of subcontractors—PayNerd’s automated coding
was intended to identify and record the specific referral partner that had created the
link that an applicant clicked through in reaching the site. In other words, the coding
was meant to record the referral partner to whom any particular referral could be
traced. When an applicant found the website without clicking through any referral
partner’s link—i.e., arrived at Blueacorn’s website in a way that was not traceable
to PayNerd or some other referral partner—PayNerd’s coding identified the
applicant as “organic.” Blueacorn used PayNerd’s coding to generate reports in its
Salesforce system.
38.
13
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000102
39. On June 1, 2021, following up on Blueacorn’s agreement that it would
advance PayNerd estimated fees on loans made by the Second Lender, PayNerd
submitted to Blueacorn an invoice based on approximately 180,000 loans made by
the Second Lender. In direct contravention of the Contracts’ terms—
—PayNerd improperly calculated its fees
on nearly 86,000 organic loans by using the more generous “PayNerd Generated”
formula. In total, PayNerd requested approximately .
40. Based on Mandell’s repeated entreaties that PayNerd was desperate for
cash in order to continue operating, and with the parties’ understanding that the true
amount owed to PayNerd would be determined and settled later, Blueacorn
immediately paid PayNerd the that it needed, processing wires on
June 2, 3, and 4, 2021. In addition, on the same understanding, Blueacorn continued
to make further estimated payments to PayNerd in June, sending PayNerd
on June 10 and on June 16, each time noting
on the wire transfer that the amounts were estimates of fees owed to PayNerd.
41. On July 7, 2021, PayNerd sent Blueacorn two additional invoices, each
only a single page long and purporting to be only an “interim reconciliation.”
14
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000103
42. One of the invoices related to the First Lender. That invoice stated that
the fees already paid to PayNerd through June 28 on loans issued by the First Lender
was , the amount PayNerd had supposedly earned was
, and, accordingly, the amount that PayNerd was owed was
. The one-page invoice contained no backup or calculations beyond
these three high-level numbers.
43. On the basis that it was an interim, non-final estimate with a final
reconciliation still to come at a later date, and in light of PayNerd’s continuing cash
crunch, Blueacorn promptly paid PayNerd the full requested amount of
on July 16.
44. Unbeknownst to Blueacorn, between the delivery of the invoice and
Blueacorn’s payment of it, the First Lender made another of its estimated payments
to PayNerd, in the amount of . PayNerd said nothing, simply
double-collecting and keeping that amount.
45. The other July 7 invoice related to the Second Lender. That invoice
stated that the fees already paid to PayNerd through June 28 on loans issued by the
Second Lender was , the amount PayNerd had supposedly earned
was , and, accordingly, the amount that PayNerd was owed was
15
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000104
. The one-page invoice contained no backup or calculations beyond
these three high-level numbers.
46. On the basis that it was an interim, non-final estimate with a final
reconciliation still to come at a later date, and in light of PayNerd’s continuing cash
crunch, Blueacorn promptly paid PayNerd the full requested amount of
on July 16.
PayNerd Massively Misstated What It
Has Earned and Refuses to Return the Money
47. In August 2021, Blueacorn discovered and preliminarily communicated
to PayNerd that PayNerd’s interim reconciliations were wrong and that PayNerd had
massively overcharged Blueacorn. Thereafter, Blueacorn did its own reconciliation,
with the assistance of an accounting firm, and determined that PayNerd’s interim
reconciliations overstated the amount that PayNerd had earned in at least the
following ways:
a. PayNerd improperly calculated the fees that it had earned on
organic loans by using the more favorable “PayNerd Generated”
formula rather than the applicable “Company Generated”
formula, even though, as Mandell himself had already
recognized, organic loans are
under the Contracts’ terms.
16
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000105
b. PayNerd improperly calculated the fees that it was owed based
on money that Blueacorn has not yet received from the Lenders.
Both Lenders hold back a small percentage of the fees that
Blueacorn has earned on every loan until certain conditions are
met; principally, that the loan has either been paid off by the
borrower or forgiven by the SBA (“Holdback Amounts”).
Although the Contracts provide that PayNerd is only to be paid
a share of fees “received by Blueacorn,” PayNerd calculated the
amount it was owed based not just on fees that Blueacorn had
received, but also on the Holdback Amounts that Blueacorn has
not yet received.
c. PayNerd improperly calculated the fees that it was owed based
on money that Blueacorn has not yet finally earned. Even after
the SBA has approved a loan and paid the Lender its fees, there
are various reasons why a borrower’s loan might not be
completed and the fees might need to be returned to the SBA. In
calculating the amount that it was owed, PayNerd included fees
on loans that were not yet completed.
17
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000106
d. PayNerd improperly failed to update the amount that it had been
paid by the First Lender to include the that the
First Lender paid PayNerd after the interim reconciliation was
issued. Accordingly, when Blueacorn subsequently paid
PayNerd the amount that PayNerd claimed was due in the interim
reconciliation, PayNerd double-collected that amount.
48. Throughout September, October, and November, Blueacorn engaged in
discussions to try to collect the overpayment that PayNerd improperly invoiced and
collected. PayNerd refused to return any of the money. Instead, PayNerd sent
Blueacorn a series of further invoices demanding payment for amounts that PayNerd
has not earned under the Contracts, including another single-page “Interim
Reconciliation” dated October 19, 2021, that apparently repeats the errors described
in the preceding paragraph, claims incorrectly that PayNerd has earned
, and improperly seeks payment of another as the
difference between what PayNerd has supposedly earned and what it has been paid
to date.
49. The amounts in PayNerd’s bogus invoices are wrong. As of
November 30, 2021, Blueacorn’s reconciliation established that PayNerd had earned
no more than , and had been paid approximately ,
18
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000107
for a minimum overcollection by PayNerd of Although that
calculation addresses (among other things) the fact that PayNerd improperly claimed
that “organic” applications were “PayNerd Generated,” Blueacorn is presently
unable to determine how many other loans PayNerd has improperly claimed as
PayNerd Generated, since PayNerd controls the automated coding that was meant to
record whether a particular referral could be sufficiently traced to itself or any other
referral partner. If the other loans that PayNerd has claimed as PayNerd Generated
are not, in fact, sufficiently traceable to PayNerd, then PayNerd would have earned
as little as , for an overcollection by November 30, 2021 of at least
.
50. Since November 30, 2021, the Second Lender has released a Holdback
Amount of to Blueacorn.
.
COUNT I
Breach of Contract
51. The allegations of all preceding paragraphs are incorporated and
realleged herein.
19
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000108
52. The February Contract is a valid, binding, and enforceable contract
between Fin Cap and PayNerd LLC that is governed by Delaware law. The April
Contract is a valid, binding, and enforceable contract between Blueacorn PPP and
PayNerdier that is governed by Delaware law.
53.
54.
This included, without limitation, (a) invoicing Blueacorn for, and
being paid by Blueacorn and accepting payment for, loans that are not traceable to
PayNerd within the meaning of the Contracts; (b) invoicing Blueacorn, and being
paid by Blueacorn and accepting payment, based on fee amounts not received by
Blueacorn; (c) invoicing Blueacorn for, and being paid by Blueacorn and accepting
20
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000109
payment for, loans that were not extended to the borrower; (d) failing and omitting
to inform Blueacorn that invoices in process for payment had already been paid; and
(e) being paid by Blueacorn and accepting double payments, i.e., payments for
amounts that had already been paid in full.
55. The Contracts required PayNerd to comply with all applicable laws in
connection with the Contracts. PayNerd also breached the Contracts because its
false invoicing and collection practices, set forth in the preceding paragraphs,
violated applicable law. For example, the Arizona Consumer Fraud Act provides
that “the act, use or employment by any person of any deception, deceptive or unfair
act or practice, fraud, false pretense, false promise, misrepresentation, or
concealment, suppression or omission of any material face with intent that others
rely on such concealment, suppression or omission, in connection with the sale or
advertisement of any merchandise [i.e., any object, wares, goods, commodities,
intangibles, real estate or services]” is “an unlawful practice.” Ariz. Rev. State. Ann
§ 44-1522. The laws of New Jersey and Wyoming similarly prohibit false and
deceptive trade practices. PayNerd’s false invoicing and collections practices, false
statements in and in connection with their invoices, and omissions (including
omitting to inform Blueacorn when open invoices had been satisfied and therefore
21
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000110
double-collecting) violated these statutory prohibitions, which in turn breached the
Contracts.
56. Blueacorn has been damaged by PayNerd’s breaches, and each of them,
in an amount to be proved at trial.
COUNT II
Breach of the Implied Covenant of Good Faith and Fair Dealing
57. The allegations of all preceding paragraphs are incorporated and
realleged herein.
58. The Contracts are valid and binding contracts governed by Delaware
law. Each Contract includes an implied covenant of good faith and fair dealing.
59. The Contracts expressly set forth payment terms, pursuant to which
PayNerd agreed to be paid, and Blueacorn agreed to pay PayNerd, as and only as set
forth in Schedule A to each Contract.
60. As set forth in Count I, PayNerd breached the express terms of the
Contracts. In addition and in the alternative to Count I, PayNerd’s practices as set
forth in the preceding paragraphs and herein breached PayNerd’s implied obligation
under each Contract not to invoice and seek payment on a basis not set forth in
Schedule A.
61. PayNerd materially breached the implied covenant
22
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000111
This included, without limitation, (a) invoicing
Blueacorn for, and being paid by Blueacorn and accepting payment for, loans that
are not traceable to PayNerd within the meaning of the Contracts; (b) invoicing
Blueacorn, and being paid by Blueacorn and accepting payment, based on fee
amounts not received by Blueacorn; (c) invoicing Blueacorn for, and being paid by
Blueacorn and accepting payment for, loans that were not extended to the borrower;
(d) failing and omitting to inform Blueacorn that invoices in process for payment
had already been paid; (e) being paid by Blueacorn and accepting double payments,
i.e., payments for amounts that had already been paid in full; and (f) failing to repay
any and all overpaid or wrongly paid amounts.
62. In the alternative to Count I, to the extent any or all of these practices
is deemed not to be prohibited by the express terms of the Contracts, had the parties
considered the possibility that PayNerd would seek and obtain payment in this
manner and outside of what Schedule A provides, Blueacorn alleges that the parties
would have expressly prohibited each of these practices and would have expressly
imposed on PayNerd an obligation to repay any wrongfully paid or otherwise
overpaid amount, and that the Contracts implicitly require the same.
63. Blueacorn has been damaged by PayNerd’s breach in an amount to be
proved at trial.
23
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000112
COUNT III
Unjust Enrichment
64. The allegations of all preceding paragraphs are incorporated and
realleged herein.
65. PayNerd received an unjust and unauthorized financial benefit as a
result of Blueacorn’s overpayment to PayNerd set forth in the preceding paragraphs.
PayNerd has accordingly been unjustly enriched at the expense of and to the
detriment of Blueacorn.
66. In addition to and in the alternative to Counts I and II, PayNerd is liable
to Blueacorn for unjust enrichment. It would be unconscionable and against the
fundamental principles of justice, equity, and good conscience for PayNerd to retain
the monies that it has received from Blueacorn in excess of what it is owed under
the Contracts.
67. Blueacorn has been and continues to be damaged by PayNerd’s unjust
enrichment in an amount to be proved at trial.
COUNT IV
Promissory Estoppel
68. The allegations of all preceding paragraphs are incorporated and
realleged herein.
24
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000113
69. Blueacorn agreed to make estimated payments to PayNerd to ensure
PayNerd had access to the liquidity necessary to pay its third-party advertising
partners. Blueacorn did this in reliance on PayNerd’s promise that, after a full
reconciliation, Blueacorn would be reimbursed for any overpayment. PayNerd
reasonably expected that its promise would induce Blueacorn to make estimated
payments to PayNerd, and Blueacorn would not have made estimated payments to
PayNerd but for PayNerd’s promise that it would not be prejudiced by doing so
because it would ultimately be reimbursed for any overpayments.
70. Blueacorn detrimentally relied on PayNerd’s promise. As a result of
Blueacorn’s reasonable reliance, it has been damaged in an amount to be proved at
trial. Injustice can only be avoided by compensating Blueacorn for the money
damages it sustained because of PayNerd’s promise.
COUNT V
Declaratory Judgment (10 Del. C. §§ 6501 and 6502)
71. The allegations of all preceding paragraphs are incorporated and
realleged herein.
72. There are a substantial number of pending loans that are still being
processed and for which Blueacorn has not yet received SBA fees. Fees that are
paid to Blueacorn for these loans will be shared with PayNerd pursuant to the
Contracts.
25
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000114
73.
74. Accordingly, there is an actual controversy between the parties, as it
involves the rights and legal relations of the parties under the Contracts; the claim is
asserted against the Defendants, who have an interest in contesting the claim; the
controversy is between the parties whose interests are real and adverse; and the
issues involved in the dispute are ripe for judicial determination.
75. Blueacorn seeks a declaratory judgment that organic loans issued to
PPP applicants that arrived at Blueacorn’s website from a non-traceable source
COUNT VI
Violation of the Arizona Consumer Fraud Act
(Ariz. Rev. Stat. Ann. §§ 44-1521, et seq.)
76. The allegations of all preceding paragraphs are incorporated and
realleged herein.
77. The Contracts govern PayNerd’s sale of advertising services to
Blueacorn, which constitute “merchandise” as defined in A.R.S. §44-1521.
26
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000115
78. The conduct described in the preceding paragraphs of this Complaint
constitutes deception, deceptive or unfair acts or practices, fraud, false pretenses,
false promises, misrepresentations, or concealment, suppression or omission of
material facts with intent that others rely on such concealment, suppression or
omission, in connection with the sale or advertisement of merchandise in violation
of A.R.S. § 44-1522, including:
a. PayNerd submitted invoices to Blueacorn that falsely
categorized organic loans as “PayNerd Generated” loans.
PayNerd knowingly and intentionally misrepresented the
treatment of these loans on its invoices,
. Blueacorn has been consequently and
proximately injured as a result of its reliance on PayNerd’s
willful fraud and deception.
27
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000116
b. PayNerd submitted invoices to Blueacorn, and accepted payment
from Blueacorn, for fees that Blueacorn has not yet received
from the Lenders. Although the Contracts provide that PayNerd
is only to be paid a share of fees “received by Blueacorn,” and
PayNerd was aware that the Lenders retain Holdback Amounts
on every loan, PayNerd invoiced Blueacorn for Holdback
Amounts on each loan. In reliance on these invoices, Blueacorn
substantially overpaid PayNerd by including the Holdback
Amounts in its payments. Blueacorn has been consequently and
proximately injured as a result of its reliance on PayNerd’s unfair
invoicing practices.
c. PayNerd submitted invoices to Blueacorn, and accepted payment
from Blueacorn, for fees associated with loans that have not been
extended to the borrower, for which Blueacorn has not yet earned
SBA fees. Although PayNerd was aware that there are various
reasons why a borrower’s loan might not be completed and the
fees might need to be returned to the SBA, PayNerd invoiced for
fees on loans that were not yet completed. In reliance on these
28
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000117
unfair invoicing practices, Blueacorn overpaid PayNerd and has
been consequently and proximately injured as a result.
d. PayNerd concealed and failed to inform Blueacorn that invoices
in process for payment had already been paid, and concealed and
failed to inform Blueacorn that it accepted double payments, i.e.,
payments for amounts that had already been paid in full, for
certain loans paid under the Contracts. Blueacorn concealed and
omitted these material facts with the intention that Blueacorn
double-pay PayNerd for certain loans eligible for fee sharing
under the Contracts. In reliance on these concealments and
omissions, Blueacorn double-paid PayNerd for certain loans and
has been consequently and proximately injured as a result.
e. With the intention of inducing Blueacorn to advance estimated
payments to PayNerd to ensure PayNerd had access to the
liquidity necessary to pay its third-party advertising partners,
PayNerd falsely promised Blueacorn that, after a full
reconciliation, Blueacorn would be reimbursed for any
overpayment. Blueacorn relied on PayNerd’s false promise, and
would not have made estimated payments to PayNerd but for
29
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000118
PayNerd’s promise that it would not be prejudiced by doing so
because it would ultimately be reimbursed for any overpayments.
Blueacorn has consequently and proximately been injured as a
result of PayNerd's false promise.
79. Blueacorn has been damaged by PayNerd’s violations of the Arizona
Consumer Fraud Act, and each of them, in an amount to be proved at trial.
PRAYER FOR RELIEF
WHEREFORE, Blueacorn respectfully requests that this Court enter
judgment in its favor awarding to it:
A. Compensatory damages sufficient to compensate Blueacorn in an
amount to be proved at trial but not less than
B. Declaratory relief;
C. Attorneys’ fees, costs and expenses, pursuant to the Contracts and
otherwise to the full extent permitted by law;
D. Pre- and post-judgment interest; and
E. Such other and further relief as the Court may deem just or proper.
30
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000119
/s/ Michael A. Barlow
OF COUNSEL: A. Thompson Bayliss (#4379)
Michael A. Barlow (#3928)
Michael A. Levy Adam K. Schulman (#5700)
Charlotte K. Newell (#5853) ABRAMS & BAYLISS LLP
Katelin Everson 20 Montchanin Road, Suite 200
SIDLEY AUSTIN LLP Wilmington, Delaware 19807
787 Seventh Avenue (302) 778-1000
New York, New York 10019
(212) 839-5300 Attorneys for Plaintiffs
Christopher M. Egleson
SIDLEY AUSTIN LLP
555 West Fifth Street
Los Angeles, California 90013
(213) 896-6000
Dated: December 17, 2021
31
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000120
Blueacorn Group
January 1, 2021 - February 28, 2022
Total
Income
Fees (Cap Plus) $385,907,385.42
Fees (Prestamos) $700,145,194.84
Total Income $1,086,052,580.26
Cost of Affiliate Partner Marketing Services
Marketing Affiliate Partner Payouts (PayNerdier) $428,833,304.84
Marketing Affiliate Partner Payouts (PayNerd) $237,575,945.81
Marketing Affiliate Partners (Other) $15,794,312.90
Total cost of Affiliate Partner Marketing Services $682,203,563.55
Gross Profit $403,849,016.71
Expenses & Payouts
Contracted Services
Technology $51,597,240.00
Customer Service & Support $8,103,229.87
Eligibility Verification $13,713,563.35
Fraud Prevention $8,682,207.70
Management (Net Intercompany) $16,788,462.36
Other G&A $1,721,438.66
Total Contracted Services $100,606,141.94
Staffing
Wages & Salaries (Non-Officers) $837,275.51
Payroll taxes $64,554.94
Employee Reimbursable Expenses $51,519.37
Payroll Processing Expenses $8,876.35
Total Staffing $962,226.17
Accounting $225,701.93
Legal $8,216,282.03
Bank Service Fees $2,026.59
Office Supplies & Equipment $11,357.85
Technology Software Subscriptions $36,754.33
Marketing Expense $777,968.38
Insurance $117,917.17
Interest Expense $9,000.00
Meals & Entertainment $159.03
Redemptions/Payouts $258,137,457.31
Total Expenses & Payouts $369,102,992.73
Net Operating Income $34,746,023.98
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000121
Other Income
Interest Income $3,575.04
Total Other Income $3,575.04
Net Income $34,749,599.02
CONFIDENTIAL TREATMENT REQUESTED BY BLUEACORN PPP, LLC BA-SSCC-0000122
CDC Response00041
CDC Response00042
CDC Response00043
CDC Response00044
CDC Response00045
CDC Response00048
CDC Response00049
CDC Response00050
CDC Response00051
CDC Response00003
CDC Response00004
VIPPP Partner Office
Partner Code: vippp
(Probably create a "bapartners.com" email or something to show separation from Blueacorn
Name Email Blueacorn Co Assistant ProcPer Deal Commission
Partner - PrimaStephan e Reis @blueacorn.co 20%
Assistant 1 blueacorn.co $75 per funded loan** (amount paid per oan is t ered based on total number of funded loans, starting at $75 up o 500 funed loans)
Assistant 2 @blueacorn.co $75 per funded loan** (amount paid per oan is t ered based on total number of funded loans, starting at $75 up o 300 funed loans)
*** The VIPPP Partner Office has Agents & Affiliates
1 Agents - Originate & Structure dea s. They pay my office a fee to process the app ications they originate.
2 Aff liates - Give us referrals (names and phone numbers). For every referral that gets funed, I pay affiliates a flat referral fee.
1 Agents
Own the records they originate into the Blueacorn System.
Agent Code Partner Code Agent Name Agent Email Agreements NNotes Blueacorn Co Commission Paid to Agent on Fees Collected directly from Business
Default owner vippp VIPPP Stephan e Hoc vippp@blueacoPartner/Agent if no agent cod 0% 0%
ac-lmaf1 VIPPP @ Agent Stephanie 0% 0%
ac-pci VIPPP @accrediteAgent Stephanie 0% 0%
ac-pcie VIPPP @accr Agent Stephanie 0% 0%
fastlane VIPPP Nate Re s mail. Agent Stephanie 0% 0%
destiny VIPPP @bluea Affil ate Stephanie 0%
atran VIPPP @bAgent Stephanie 0% 20%
cody VIPPP @blueaco Agent Stephanie 0% 80%
ac-klwww VIPPP r20 Affil ate Stephanie
surjen VIPPP @strayanAffil ate Stephanie
jsax VIPPP @totsquad. Affil ate Stephanie
te12 VIPPP @Affil ate Stephanie
hr3 VIPPP @Affil ate Stephanie
ac-tp2nd VIPPP @ge Affil ate Stephanie
ac-jmg VIPPP @mitchel Affil ate Stephanie
QWK E ev8 M chael Cota @qua i Agent Cota will no longer be a sales off ce, but an agent who can sell and originate deals under Elev8 so there's processing support & a funnel of trust in the deals
bzwr E ev8 @busin Affil ate Adam (elev8)
hownd E ev8 @how Affil ate Adam (elev8)
AC-I5SW3 E ev8 Adam Spence @ lev8w Partner/Agent first agent code issued for bw/elev8
AC-NRBA8 E ev8 Michael (Adam elev8)
AC-XIO75 E ev8 @busin Affil ate first agent code issued for bw/elev8
jh ZEN @blueacorn.co Jack
Can t be the emkay ZEN @blueacorn.co Jack
PC- 6WVA E ev8 M chael Michael (Adam elev8)
spncr E ev8 Adam Spence ev8w Partner/Agent Adam (elev8)
2 Affiliates The d scussion is around the Affilia e being related to an Agent and/or an Affil ate logging in to see their referred deals (Don't want to over complicate this with the relat onships)
Affiiates are always attached to an agent. They shou d never own a record. (The related agent own the record of these deals)
** NOTE: Currently, my aff liates have agent codes, not a filiate codes. Oops! So sorry!! Here's how to change this:
Current Agent Code Reassign Age Reass gn Aff liate Code to: Affiliate NameAffiliate Email Referral Fee Per Referral Fee % (of total revenue)
ac-klwww vippp ac-kwww 200/funded oan
surjen vippp surjen @strayan$100/funded oan
jsax vippp jsax @totsquad.c$100/funded oan
te12 fastlane te12 @$100/funded oan
hr3 fastlane hr3 @$100/funded oan
ac-tp2nd fastlane ac-tp2nd @ge $100/funded oan
ac-jmg cody ac-jmg @m tchel $0
Common Scenario:
Nate gets a referral, I have a code ass gned to my contact/parnter user of fastlane. (partnerCode=VIPPP&agentCode=fastlane
When I don't want the deals o be owned by me but I still want to be compensated for referrals I append the URL to say the following partnerCode=VIPPP&agentCode=atran&affiliateCode=fastlane
Suggested discussion/Solution: A user probably just should have a code and that code could be used for either owner assignment (agentCode) or affi iate user field populat on (affiliateCode) (both being the same partner user account)
User Control / Data Validation:
An underwriter user & owner of the record can never be the same (aud t trail)
An agent and affiliate can be the same, they're just used for tracking compensation
Both Agents and Aff liates will get logins to track their progress and see their commiss ons
Discussion for future:
Where I think the conversation goes into the BACKLOG - Affiliate Codes & Affi iate links are something someone might want many of (campaign manaement).. The way we have it today is fine for a 1 to 1 referral that s related to an agent (Steph's aff lates are related to her VIPPP partnerCode & VIPPP agentCode, but for the long term, I'd want -5 affil ate links based on the medium I'm using.
Full text shows the first 300 of 544 pages; the complete document is the PDF above.File and source
- File
- blueacorn-batched-docs-with-redactions-4899ee3bddef.pdf
- Size
- 82,307,974 bytes
- SHA-256
- 4899ee3bddef11ecb9fd0860fb840e96fb252a34624c719533fb37223f45d7ae
- Original
- No public link identified.