False Claims Act Complaint — Integra Research Group LLC v. B.S.D. Capital, Inc., dba Lendistry

Summary

False Claims Act complaint filed October 30, 2024 in United States ex rel. Integra Research Group LLC v. B.S.D. Capital, Inc., dba Lendistry, No. 1:24-cv-12753-WGY, in the U.S. District Court for the District of Massachusetts, captioned as filed under seal pursuant to 31 U.S.C. § 3730(b)(2). The relator, whose principal is identified as John Griffin, alleges that Lendistry, a fintech lender that originated Paycheck Protection Program loans, failed to confirm borrower certifications and payroll documentation and failed to establish Bank Secrecy Act procedures. It states that a 2023 paper found Lendistry loans had the highest rate of fraud indicators among the top 75 PPP lenders. It seeks treble damages, civil penalties and a relator share under 31 U.S.C. § 3730(d), and demands a jury trial.

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Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 1 of 34

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS

UNITED STATES ex rel. INTEGRA RESEARCH Ppt
GROUP LLC, ae

v. FILED UNDER SEAL PURSUANT

TO 31 U.S.C. § 3730(b)(2)
B.S.D. CAPITAL, INC., dba LENDISTRY,

Defendant.

FALSE CLAIMS ACT COMPLAINT

Introduction

1. Pursuant to the qui tam provisions of the False Claims Act, 31 U.S.C. § 3729-33,
Integra Research Group LLC (“Relator”) brings this action as a qui tam relator on behalf of the
United States against B.S.D. Capital, Inc., dba Lendistry (“Lendistry”), a fintech lender that
originated Paycheck Protection Program (“PPP”) loans, to recover damages, penalties, attorneys’
fees and costs, and other relief.

2. In response to the economic effects of the Covid-19 pandemic, Congress created
the PPP and tasked the Small Business Administration (“SBA”) with administering it. Under the
PPP, more than $793 billion in forgivable loans were issued between April 2020 and May 2021.
SBA did not process and approve PPP loans itself, but rather relied on private lenders to
originate the loans. For each loan originated, SBA compensated the lender with a processing fee
equal to a percentage of the loan amount.

3. In 2023, Relator’s principal, Dr. John Griffin, and two of his colleagues at the

University of Texas published a paper that used statistical analysis to show systemic
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 2 of 34

misrepresentations in PPP loan applications. See John Griffin, Samual Kruger, and Prateek
Mahajan, Did Fintech Lenders Facilitate PPP Fraud?, Journal of Finance, 78(3) 1777-1827
(2023) (“PPP Paper”). The PPP Paper found that loans originated by Lendistry had the highest
rate of fraud indicators among loans originated by the top 75 PPP lenders in terms of number of
loans. This result prompted Relator to investigate Lendistry’s conduct further.

4. Building on the PPP Paper, Relator conducted a multifaceted investigation that
included a revised statistical analysis of data available concerning PPP loans originated by
Lendistry and other lenders, and interviews with former Lendistry employees. Relator’s
investigation found that Lendistry violated PPP lender requirements by (a) failing to confirm the
receipt of borrower certifications contained in PPP applications, (b) failing to confirm the receipt
of information demonstrating that borrowers had employees for whom the borrowers paid
salaries and payroll taxes, (c) failing to review payroll documentation to confirm the dollar
amounts of borrowers’ average monthly payroll costs for the preceding calendar year, and (d)
failing to establish procedures to comply with the Bank Secrecy Act. As a result of these failings,
Lendistry submitted, or caused to be submitted, false claims in the form of forgivable PPP loan
applications and processing fee requests by falsely certifying that Lendistry had (a) “complied
with the applicable lender obligations set forth in paragraphs 3.b(i)-(iii) of the Paycheck
Protection Program Rule” (which states lenders shall (i) confirm the receipt of borrower
certifications, (ii) confirm receipt of information demonstrating a borrower had employees for
whom it paid salaries, and (iii) confirm the dollar amount of average monthly payroll costs)), and
(b) obtained and reviewed the required loan applications, including documents demonstrating

qualifying payroll amounts.
pan

Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 3 of 34

5. Based on Relator’s revised statistical analysis, Relator alleges, on information and
belief, that over 63,000 of the PPP loans that Lendistry originated, or over 30.7 percent of all the
PPP loans that Lendistry originated, were fraudulent. From these loans, borrowers received
approximately $1.3 billion, of which SBA forgave approximately $852 million. Meanwhile,
Lendistry obtained over $159 million in processing fees from SBA on these loans.

6. Corroborating its statistical analysis, Relator’s qualitative investigation found that
Lendistry, which originated almost all of its PPP loans in just one month, May 2021, (1) had a
practice of hiring underwriters who lacked qualifications to evaluate PPP loan applications, and
(2) maintained a high pressure, chaotic work environment which did not prioritize document
verification or fraud prevention. Based on a review of a sample of resumes for underwriters
employed by Lendistry during the period when it was issuing PPP loans, only 27 percent of
Lendistry’s underwriters had any previous underwriting experience, only 37 percent had a degree
in finance, economics, or accounting, and 10 percent had no bachelor’s degree at all. One
California-based underwriter reported to Relator they were paid only $17 per hour, less than half
of the average underwriter wage in California. Furthermore, Relator’s interviews of numerous
former Lendistry employees showed that Lendistry managers pressured staff to approve loans
without verifying supporting documentation or taking other steps to prevent fraud. Among other
things, former employees reported that the company’s payroll verification process often did not
confirm the payroll of borrowers in accordance with SBA requirements for PPP lenders.
According to one former Lendistry employee who was responsible for collecting and verifying
the accuracy of supporting loan documents, “at one point, they didn’t have to have any payroll

amounts in the bank statements they sent us... I could approve [loans] even if there was no
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 4 of 34

evidence of payroll.” Another employee reported that “an excel spreadsheet would suffice” as an
acceptable “form of salary verification.”

7. Lendistry’s lax processes violated PPP lender requirements and enabled
borrowers to obtain loans in amounts for which the borrowers were not eligible. Relator’s data
analysis shows that Lendistry loan amounts were systemically inflated. Specifically, Relator’s
analysis flagged nearly 75 percent of Lendistry’s PPP loans for high implied compensation — i.e.,
per-employee compensation, as derived from loan amount and reported number of employees,
that was significantly higher than the average per-employee compensation in the borrower’s
industry and region — in comparison to only 9 percent of traditional lender loans. Relator also
found that Lendistry gave a high rate of loans to entities that also likely defrauded the Economic
Injury Disaster Loan (“EIDL”) program.

8. Relator is an original source of the complaint allegations.

9. Prior to the filing of this Complaint, Relator made substantive disclosures to the
government of facts and evidence underlying the allegations in this Complaint, in accordance
with the requirements of the False Claims Act, 31 U.S.C. § 3730(b)(2).

10. This action is filed in camera and under seal pursuant to the requirements of the
False Claims Act, 31 U.S.C. § 3730(b)(2).

Jurisdiction and Venue

11. This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and
1345 and 31 U.S.C. § 3732, which confers jurisdiction over actions brought pursuant to 31
U.S.C. §§ 3729 and 3730.

12. This Court may exercise personal jurisdiction over Lendistry, and venue is

appropriate in this Court, under 31 U.S.C. § 3732(a) and 28 U.S.C. § 1391(b), because, as a
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 5 of 34

result of Lendistry originating PPP loans to borrowers in this District, Lendistry transacted
business in this District and a substantial part of the events or omissions giving rise to the claim
occurred in this District.

The Parties

13. Relator is a Texas limited liability company with its principal place of business in
Austin, Texas. Relator specializes in using statistical analysis to uncover and prove fraud.

14. Defendant B.S.D. Capital, Inc., dba Lendistry, is a Delaware corporation with a
principal place of business at 767 S. Alameda Street, Suite 340, Los Angeles, California 90021.
Lendistry issued over 207,000 PPP loans in an aggregate amount of over $4.7 billion. In terms of
loans issued, Lendistry ranked 11th among all PPP lenders.

Legal Background
A. The False Claims Act

15. The False Claims Act provides, in pertinent part, that any person who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for

payment or approval; [or]

|

(B) knowingly makes, uses, or causes to be made or used, a false record or

statement material to a false or fraudulent claim; .. .

is liable to the United States Government for a civil penalty of not less than

$5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties

Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-410 [1]),

plus 3 times the amount of damages which the Government sustains because of

the act of that person.

31 U.S.C. § 3729(a)(1).
16. For purposes of the False Claims Act, “the terms ‘knowing’ and ‘knowingly’...

mean that a person, with respect to information . . . (i) has actual knowledge of the information;

(ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 6 of 34

disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b)(1)(A). No proof of
specific intent to defraud is required. 31 U.S.C. § 3729(b)(1)(B).
B. The CARES Act and the PPP

17. Congress created the PPP under section 7(a) of the Small Business Act as part of
the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), Pub. L. No. 116-136
(Mar. 27, 2020). The PPP, which SBA administered, provided emergency relief to small and
medium-sized businesses affected by the COVID-19 pandemic. See 15 U.S.C. § 636(a)(36). The
program initially provided $349 billion of forgivable loans. When the program ended, it had
issued over $763 billion in forgivable loans.

18. Under the first round of the PPP, an eligible business could apply for a loan of up
to 2.5 times its average monthly payroll in 2019 subject to a maximum amount of $10 million.
See 15 U.S.C. § 636(a)(36)(E). In December 2020, Congress enacted the Economic Aid to Hard
Hit Small Businesses, Nonprofits, and Venues Act, Pub. Law 116-260, Div. N, Tit. III, which,
among other things, provided for eligible small businesses to obtain a second round PPP loan.
An eligible business could apply for a second round PPP loan of up to 2.5 times its average
monthly payroll during 2019 or 2020, subject to a maximum amount of $2 million. 15 U.S.C.

§ 636(a)(37)(C). The PPP required that borrowers ignore annual salary amounts in excess of
$100,000 when calculating average monthly payroll. See 15 U.S.C. § 636(a)(36)(A)(viii)(I)(bb).

19. The PPP also provided for full forgiveness of a loan so long as the borrower used
the loan proceeds in accordance with the PPP rules and did not reduce the number of its
employees. See 15 U.S.C. § 636m. To the extent a borrower reduced the average number of its
employees in the months after receiving the loan, the PPP provided a formula for reducing the

loan forgiveness amount accordingly. See 15 U.S.C. § 636m(d)(2).
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 7 of 34

C. Applicable PPP Lender Requirements

20. | Under the PPP, SBA did not make PPP loans directly. Rather, the CARES Act

provided for private lenders, such as Lendistry, to make PPP loans pursuant to PPP requirements.

§ 636(a)(36)(B). To participate in the PPP program, a lender must either have been an approved
SBA 7(a) lender or have filed an SBA Form 3507 for approval. See 15 U.S.C. § 636(a)(36)(F)Gi-
iii). Lendistry was already an approved SBA 7(a) lender when the pandemic began, making it
eligible to process and approve PPP loans.

21. | The PPP required lenders to: (a) “[c]onfirm receipt of borrower certifications,” (b)
“(confirm receipt of information demonstrating that a borrower had employees for whom the
borrower paid salaries and payroll taxes on or around February 15, 2020,” and (c) “[cJonfirm the
dollar amount of average monthly payroll costs for the preceding calendar year by reviewing the
payroll documentation submitted with the borrower’s application.” 85 Fed. Reg. 20811, 20815
(Apr. 15, 2020). SBA advised that “[I]enders are expected to perform a good faith review, in a
reasonable time, of the borrower’s calculations and supporting documents concerning average
monthly payroll cost.” SBA PPP FAQ #1 (Apr. 3, 2020). In particular, the CARES Act required
that, “[i]n evaluating the eligibility of a borrower for a covered loan . . ., a lender shall consider
whether the borrower . . . was in operation on February 15, 2020; and... had employees for
whom the borrower paid salaries and payroll taxes; or . . . paid independent contractors, as
reported on a Form 1099—MISC.” 15 U.S.C. § 636(a)(36)(F)(ii)(II).

22. As the PPP was established under section 7(a) of the Small Business Act, PPP
lenders were required to conform with the overall requirements of the Act to the extent they did

not conflict with PPP program requirements. See 85 Fed. Reg. at 20815.
te

Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 8 of 34

23. To obtain a loan guarantee from SBA for each processed and approved PPP loan,
a lender would submit SBA Form 2484. In that form, the lender would certify that it had (a)
“complied with the applicable lender obligations set forth in paragraphs 3.b(i)-(iii) of the
Paycheck Protection Program Rule,” and (b) “obtained and reviewed the required application
(including documents demonstrating qualifying payroll amounts) of the Applicant and will retain
copies of such documents in the Applicant’s loan file.” SBA Form 2484, Lender Application
Form — Paycheck Protection Program Loan Guaranty (April 3, 2020). The “applicable lender
obligations” required lenders to (i) “[cJonfirm receipt of borrower certifications contained in
[the] Paycheck Protection Program Application form issued . . .,” (ii) “[c]onfirm receipt of
information demonstrating that a borrower had employees for whom the borrower paid salaries
and payroll taxes on or around February 15, 2020,” (iii) “[c]onfirm the dollar amount of average
monthly payroll costs for the preceding calendar year by reviewing the payroll documentation
submitted with the borrower’s application,” and (iv) [flollow applicable BSA requirements.” 85
Fed. Reg. at 20815.
D. SBA Processing Fees

24. Under the PPP, SBA paid lenders a fee for processing and approving each loan.
See 15 U.S.C. § 636(a)(36)(P). The fee was 5 percent for loan amounts up to $350,000, 3 percent
for loan amounts between $350,000 and $2,000,000, and 1 percent for loan amounts greater than
$2,000,000. See id. For loans of not more than $50,000, made on or after December 27, 2020, the
SBA paid a processing fee equal to 50 percent of the loan value or $2,500, whichever was less.
See SBA Procedural Notice, No. 5000-20091 (Feb. 8, 2021). To receive PPP processing fees, the

PPP required lenders to submit SBA Form 1502. See 85 Fed. Reg. 26321, 26323 (May 4, 2020).
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 9 of 34

Form 1502 required a lender to confirm that “all the information” in each Form 1502 was “true
and correct.” SBA Procedural Notice, No. 5000-20028 (May 21, 2020).
The PPP Paper

25. In their 2023 PPP Paper, Dr. Griffin and his co-authors focused on four primary
indicators of potentially fraudulent PPP loans: “[1] nonregistered businesses, [2] multiple loans
at a residential address, [3] abnormally high implied compensation relative to industry by core-
based statistical area (CBSA) averages, and [4] large inconsistencies (as large as 10-fold)
between the jobs reported by borrowers on their PPP application and jobs reported to another
contemporaneous government program application [e.g., EIDL] with a different incentive
structure.” PPP Paper at 1778.

26. | The PPP Paper found that, of the top 75 PPP lenders by number of loans issued,
Lendistry had the greatest proportion of loans flagged with any of these four primary indicators
of fraud. Specifically, the authors of the PPP Paper flagged over 33.8% of Lendistry-originated
PPP loans with at least one of the fraud indicators.

27. The PPP Paper also found that the four primary indicators were much more
prevalent among loans issued by fintech lenders when compared to non-fintech lenders. See id. at
1778-79 (“FinTech loans are 3.23 times as likely to have at least one primary indicator of
misreporting compared to traditional loans and 6.52 times as likely to have a primary indicator
that is confirmed by an additional primary, secondary, or external indicator.”). For this reason,
Relator used non-fintech lenders (referred to herein as “traditional lenders”) as a benchmark.

Overview of Relator’s Data Source and Statistical Analysis
28. During the period from April 3, 2020, through June 30, 2021, 4,409 lenders issued

over 11 million PPP loans in an aggregate amount of over $796 billion. For each of these loans,
Case 1:24-cv-12753-WGY Documenti- Filed 10/30/24 Page 10 of 34

the SBA PPP dataset includes information on, among other things, borrower name, address, jobs
reported, industry, business type, loan amount, date of loan approval, and lender.

29. To identify potentially fraudulent loans in the SBA PPP dataset, Relator slightly
altered the analysis in the PPP Paper and focused on the following two below-described primary
indicators, or “flags,” of PPP loan fraud: (1) High Implied Compensation, and (2) EIDL > PPP
Jobs.

30. High Implied Compensation Flag. Because borrowers could receive loans for 2.5
times their average monthly payroll cost in 2019, and because the PPP dataset includes the loan
amount and the number of employees reported by each borrower, Relator could estimate each
borrower’s per-employee compensation amount, or “implied average compensation,” using the

following formula:

12 Loan Amount
25° Jobs Reported

Implied Average Compensation =

Using the United States Census Bureau’s 2019 County Business Patterns data and Nonemployer
Statistics, Relator then compared each borrower’s implied average compensation against the
average per-employee compensation for other businesses in the same industry (i.e., same four-
digit North American Industry Classification (NAICS) code) and same region (i.¢., same Core
Based Statistical Area). In its analysis, Relator flagged loans where the borrower’s implied
average compensation was more than three times greater than the average per-employee
compensation for other businesses in the same industry and region.

31. EIDL> PPP Jobs Flag. Under the EIDL program in 2020, a business could obtain
a forgivable advance of $1,000 per employee, up to a maximum of $10,000. Thus, for employers
with less than 10 employees, there was an incentive to inflate the number of employees — up to a

maximum of 10 — on their EIDL applications. By contrast, there was no incentive to inflate the

10
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 11 of 34

number of employees on a PPP loan application since PPP loan amounts were based on total
payroll as opposed to the number of employees reported.

32. For each borrower that obtained both a PPP loan and an EIDL advance, Relator
used the PPP dataset and the EIDL dataset to compare the number of employees the borrower
reported on its PPP loan application with the number of employees the borrower reported on its
EIDL advance application. Because a discrepancy in the number of employees reported on a
borrower’s EIDL application and the same borrower’s PPP loan application was a signal of
unscrupulousness and willingness to defraud taxpayer funded programs, Relator flagged
borrowers who reported at least three more employees on their EIDL applications than they
reported on their PPP loan applications.

Factual Allegations
A. Summary of Relator’s Findings on Lendistry

33. Asnoted above, Relator found that one or both of its fraud indicator flags applied
to over 63,000 PPP loans originated by Lendistry. On these loans, SBA paid out approximately
$1.3 billion in loan proceeds to borrowers and approximately $159 million in processing fees to

Lendistry. Table 1 shows a summary of Lendistry loans that Relator flagged.

Table 1. Summary of Lendistry Loans Flagged ($ in Millions).

Suspicious Criteria Count Initial Forgiven Fees Pct*
High Implied 58,718 $1,242 $787 $147 75%
Compensation

EIDL > PPP Jobs 8,306 $169 $117 $21 42%
Any Flag 63,576** $1,335 $852 $159 31%

*4s a percent of possible loans
** Because some loans had both tags, the total number of flagged loans is less than the sum of the
numbers of loans with each flag

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Case 1:24-cv-12753-WGY Document1_ Filed 10/30/24 Page 12 of 34

34. As Figure 1 below shows, Lendistry’s 31 percent rate of flagged PPP loans puts it
first among the top 75 PPP lenders, including among other PPP lenders that already have been

the subject of public fraud investigations.

Figure 1. Percentage of PPP Loans Flagged by Lender — Top 75 PPP Lenders

8

GD Lendistry
0: Lenders Subject to Public Fraud Investigations

to
a

---- Average of Traditional Lenders (3.4%)

8

om

Percentage

| faa tO T q EGE TT

Harvest

Fountainhead

Kabbare. Inc.

B. High Implied Compensation

35. As Table 1 above shows, Relator flagged nearly 75 percent of Lendistry-
originated loans for High Implied Compensation. As Figure 2 below shows, this was, far and
away, the highest rate of flagging for High Implied Compensation among the top 75 PPP lenders,
including Kabbage, which has admitted to having inflated its borrowers’ compensation amounts

on PPP loan applications.

12
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 13 of 34

Figure 2. Percentage of Loans Flagged for High Implied Compensation, by Lender

GG Lendistry
19: Lenders Subject to Public Fraud Investigations
---- Average of Traditional Lenders (8.6%)

Percentage

Baw 2 8 3

3

Capit

Meanwhile, Relator flagged just 8.6 percent of traditional lenders’ PPP loans for High Implied
Compensation.

36. | Given the prevalence of Lendistry loans to borrowers with High Implied
Compensation relative to other businesses in the same industry and region, Relator alleges, on
information and belief, that Lendistry did not have sufficient procedures in place to “confirm
receipt of information demonstrating a borrower had employees for whom the borrower paid
salaries” or to “confirm the dollar amount of average monthly payroll costs,” as PPP rules
required. See 85 Fed. Reg. at 20815.

37. Innotable contrast to borrowers who obtained PPP loans from Lendistry, PPP
borrowers from traditional lenders had implied average compensation that closely matched the
industry-region average compensation. Figure 3 below shows the distribution of the borrowers’

implied average compensation minus that of the industry-region average for loans from

13
Case 1:24-cv-12753-WGY Documenti_ Filed 10/30/24 Page 14 of 34

traditional lenders (blue) and Lendistry (red) to PPP borrowers where the industry-region
average compensation was at or below $33,333.!

Figure 3. Implied Average Compensation Minus Industry-Region Average Compensation,
Lendistry Loans vs Traditional Loans

(7) Traditional Lenders A

=
o
1

Percentage

40,000 -20,000 0 20,000 40.000 60.000 $0,000 100.000
Implied Average Compensation Minus Industry-Region Average Compensation

38. As Figure 3 indicates, for PPP borrowers where the industry-region average
compensation was at or below $33,333, their implied average compensation tended to be very
close to the industry-region average if they obtained their loans from traditional lenders. By
contrast, approximately 71 percent of Lendistry-originated loans had implied average
compensation that was more than $60,000 higher than the average per-employee compensation

for the relevant industry and region. Given this pervasive deviation from the norm, Relator

' Because the PPP maximum average compensation was $100,000 and because Relator only
flagged loans with implied average compensation that was at least three times the industry-
region average, Relator did not flag any loans to borrowers where the industry-region average
compensation was greater than $33,333.

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Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 15 of 34

alleges, on information and belief, that Lendistry knowingly failed to confirm borrower payroll
information.

39. Relator also determined that Lendistry commonly approved loans based on
implied average compensation of near $100,000, the maximum allowed under the CARES Act.
Figure 4 below shows that, for Lendistry-originated PPP loans to borrowers where the industry-
region average compensation was at or below $33,333, approximately 64 percent of the
borrowers had implied average compensation over $95,000, whereas only about 4 percent of the
analogous borrowers who obtained PPP loans from traditional lenders had implied average
compensation at that level.

Figure 4. Distribution of PPP Borrowers’ Implied Average Compensation, Lendistry vs.
Traditional Lenders

~—> $33,333 Average Comp.
$100,000 Average Comp.

Traditional Lenders

(0 Lendistry

&

305

Percentage

20.000 40.000 60.000 $0,000 100,000
PPP Implied Average Comp.

40. Table 2 below provides examples of Lendistry-originated PPP loans where the
borrowers had improbably high implied average compensation per employee given their industry

and region.

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Case 1:24-cv-12753-WGY Document 1

Filed 10/30/24

Page 16 of 34

Table 2. Examples of Lendistry PPP Loans Flagged for High Implied Compensation ($ in

Thousands)
Loan Implied ust:
Borrower _ City NAICS Jobs Amoun Fee Average ceion
Average
t Comp. Cc
omp.

Stephen Worcester, 485310 (Taxi and
Wirtz MA Ridesharing) 1 $20.8 $2.5 $100.0 $22.8
Donna Pittsfield, 812112 (Beauty
Crittendon MA Salons) 1 $20.8 $2.5 $100.0 $26.6
Christian Chicopee, 812111 (Barber
Edwards MA Shops) 1 $20.8 $2.5 $100.0 $27.6
Daviston Dorchester, 561720 (Janitorial
Jackson MA Services) 1 $20.8 $2.5 $100.0 $32.7

. 485410 (School
Chassity Dorchester 24 EmployeeBus 1 $20.8 $2.5 $100.0 $31.3
Corbin Center, MA .

Transportation)

Juliana Springfield, 812113 (Nail
Rosado MA Salons) 1 $20.8 $2.5 $100.0 $27.6

41. For non-profit entities that obtained PPP loans through Lendistry, Relator

separately compared the employee compensation they reported on their Internal Revenue Service

(“IRS”) Forms 990 with their implied compensation from the PPP loan data. As Figure 5Error!

Reference source not found. below shows, Relator found that 20.7% of Lendistry’s PPP loans

to non-profits were based on implied average compensation that was at least $2,500 per

employee greater than the compensation the borrowers reported on their tax returns. By contrast,

at traditional lenders, only 2.4% of PPP loans to non-profits were based on implied average

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Case 1:24-cv-12753-WGY Document1_ Filed 10/30/24 Page 17 of 34

compensation that was at least $2,500 per employee greater than the borrowers reported on their
tax returns.

Figure 5. Non-Profit Borrowers’ Implied Average Compensation Minus Form 990 Average
Compensation, Lendistry vs Traditional Loans

oq Implied Avergae Compensation is
30 5 Over $2,500 Greater than Form 990
(7 Traditional Lenders
5 4 15 Lendistry

» 207 |
S j5¢ lB Over 20.7% of Lendistry loans imply an average
x | compensation $2,500 greater than that reported
on the borrowers’ tax returns, compared to
10 4 only 2.4% for that of traditional lenders.

-30,000 -20,000 -10,000 0 10,000 20.000 30.000
PPP Implied Average Compensation Minus Form 990 Average Compensation

42. Furthermore, as Figure 6 below shows, this rate (i.e., Lendistry’s 20.7 percent rate
of PPP loans to non-profits with implied average compensation over $2,500 greater than their

Form 990 average compensation) is by far the highest among 75 PPP lenders.

17
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 18 of 34

Figure 6. Percentage of PPP Loans to Non-Profits with an Implied Average Compensation

Over $2,500 Greater Than the Borrower’s Form 990 Average Compensation, by Lender —
Top 75 PPP Lenders

0.0 4 Ge Lendistry
9: Lenders Subject to Public Fraud Investigations

---- Average of Non-Fintech Lenders (2.4%)
15.0 4

10.0 5

Percentage

154

=

Lendistry
Fountainhead
Prestamos CFDI

Kabbage. Inc.

43. Table 3 below lists examples of Lendistry PPP loans that Relator flagged for
disparities between the total employee compensation that the non-profit borrowers reported to
the IRS (i.e., salaries, other compensation, and employee benefits (Form 990 Part I, line 15)) and

the implied total compensation from their PPP loan applications.

18
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 19 of 34

Table 3. Examples of Lendistry Loans to Non-Profits with Reported Compensation
Disparities ($ in Thousands)

Loan . Form 990 2019

Borrower Name Approval Cane ction Total rom oe 2020 ti
Amount P Compensation otal Lompensanion

Kimpatorin Aid Inc $104 $500 $93 $78

Jewish Foundation of Ventura

County $149 $715 $363 $341

CSA Belvedere $104 $500 $219 $314

Armenian National Committee $21 $100 $13 $13

Wiseplace $222 $1,066 $704 $676

Aramaic Broadcasting

Network $83 $400 $261 $217

Cc. EIDL Jobs > PPP Jobs

44. Asnoted above, Relator applied the EIDL > PPP Jobs flag where borrowers
claimed to have at least three more employees on their EIDL advance applications than they
claimed on their PPP loan applications. Relator found that this flag applied to 8,306 PPP loans
that Lendistry originated, or about 41% of the PPP loans that Lendistry originated for borrowers
who also obtained EIDL advances. Given the prevalence of such loans by Lendistry, Relator
alleges, on information and belief, that Lendistry did not have processes in place to appropriately
“confirm receipt of borrower certifications” or to adequately follow Bank Secrecy Act
requirements, as the PPP rules required. See 85 Fed. Reg. at 20815

45. Figure 7 below shows that, of the Lendistry-originated loans that Relator flagged
for EIDL > PPP Jobs, 53.1 percent also met the criteria for High Implied Compensation. Not
surprisingly, as Figure 7 also shows, Relator found that the likelihood of both flags applying to a
Lendistry-originated PPP loan increased as the disparity grew between the number of employees

reported on the EIDL advance and PPP loan applications. For example, for PPP loans where a

19
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 20 of 34

borrower had reported having at least nine more employees on its EIDL advance application than
on its PPP loan application, approximately 80 percent also had a flag for High Implied
Compensation.

Figure 7. Percentage of Loans Flagged for High Implied Compensation, by Difference
Between Number of Employees Reported on EIDL Advance and PPP Loan Applications

SO > GED Flagged for EIDL Jobs > PPP Jobs
70 4

5307

=

40 5

Percentage

30 5

Flagged

Z

EIDL Jobs Minus PPP Jobs

46. Figure 8 below shows that, of borrowers who obtained PPP loans from Lendistry
and who also obtained EIDL advances, over 30 percent reported having just one employee on
their PPP applications and at least 10 employees on their EIDL advance applications. By
contrast, at traditional lenders, the vast majority of borrowers with EIDL advances reported on
their PPP applications that they had the same, or nearly the same, number of employees that they

reported on their EIDL advance applications.

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Filed 10/30/24

Document 1

24-cv-12758-WGY

Case 1
Case 1:24-cv-12753-WGY Documenti_ Filed 10/30/24 Page 22 of 34

Figure 8. Comparison of Lendistry to Traditional Lenders — Distribution of Difference in
Number of Employees Reported by Recipients of EIDL Advances and PPP Loans

70 4

(7) Traditional Lenders
60 4
50 5
2 407
5
2
x w4
10 5
0 es =

-3orLess 2 -! 0 | 2 3 4 > 6 ft 8 9
EIDL Jobs reported minus PPP jobs reported

47. In other words, as Figure 9 below shows, a large number of entities that likely
defrauded EIDL by inflating their employee counts by nine or more also were able to get PPP
loans from Lendistry, while far fewer of such entities obtained PPP loans from any single

traditional lender.

yA
Case 1:24-cv-12753-WGY Document1_ Filed 10/30/24 Page 23 of 34

Figure 9. Comparison of Lendistry to Traditional Lenders — Number of PPP Loans to
Borrowers that Reported at Least Nine More Employees on Their EIDL Advance
Applications (“EIDL 10 PPP 1 Borrowers”)

O Traditional Lenders

6,000 4
5,000 5
4,000 5
3,000 4

2.000 5 fe)

Loans to EIDL 10 PPP | Borrowers

1,000 5

fe)
04 © © 0 arm %0000 MPoacd 2 co 00

4

10
Loans to Borrowers who Received an EIDL Advance

5
10°

48. Lendistry’s willingness to ignore indicators of fraud thus reveals itself in the stark
contrast between Lendistry and traditional lenders in terms of their propensity to approve PPP
loans to borrowers that likely also defrauded the EIDL program.

49. Table 4Error! Reference source not found. below lists examples of Lendistry-
originated PPP loans that Relator flagged because the borrower reported having at least four

more employees on its EIDL advance application.
Case 1:24-cv-12753-WGY Document 1

Filed 10/30/24

Page 24 of 34

Table 4. Examples of Lendistry PPP Loans Flagged for EIDL > PPP Jobs. (S in Thousands)

EIDL

Borrower Borrower Approval Business Type PPP Jobs Job EIDL
Name City Amount yP Reported ons Advance
Reported
Annie Dorchester Sole
Center, $20.8 . . 1 10 $10 $2.5
Lopes MA Proprietorship
. New
Chrisla Bedford, $208 ‘SH 4 10 $10 «$2.5
Gedeon MA Proprietorship
Edson Everett, Sole
Lestin MA $20.8 Proprietorship ; 10 $10 $2.5
Stephen Mansfield, Sole
Towne MA $20.8 Proprietorship ; 10 $10 $2.5
Carlos Lunenburg, Sole
Terrero MA $20.8 Proprietorship I 10 $10 $2.5
Steven Lawrence, Sole
Morillo MA $20.8 Proprietorship I 10 $10 $2.5

D. Other Problematic Loans

50.

In addition to the categories of likely fraudulent loans described above, Lendistry

also approved many other loans that, on information and belief, Relator alleges to have been

fraudulent. For example, as Table 5 below shows, on May 22 and 23, 2021, Lendistry approved

21 loans to borrowers that shared an address at 1317 Edgewater Drive, Orlando, Florida, where

an entity called “PhysicalAddress.com” rents out addresses.

23
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 26 of 34

51. Table 6 below shows an example of five PPP loans that Lendistry issued to
borrowers who all shared the same residential address located at a three-bedroom house in
Sunland, California.

Table 6. Examples of Lendistry-Originated PPP Loans to the Same Residential Address

Approval . Business

Borrower Name Amount Address City State NAICS Type
Avetis Markarian $20,833 10311 Sherman guiteng ca 7220511 Sele

Grove Ave Employed
Siranush 10311 Sherman Self-
Melkonyan $20,833 Grove Ave Sunland CA = 722511 Employed
Nune 10311 Sherman Self-
Khachatryan $20,833 Grove Ave Sunland CA = 722511 Employed
Marina 10311 Sherman Self-
Markarian $20,833 Grove Ave Sunland CA = 722511 Employed

Grove Ave Employed

52.

Similarly, Table 7 below shows an example of four PPP loans (each with an

implied average compensation of at least $100,000) that Lendistry issued to borrowers who

shared the same residential address at a house in East Patchogue, New York.

Table 7. Examples of Lendistry-Originated PPP Loans to the Same Residential Address

Approval . Business
Borrower Name , ount Address City State NAICS Type
Guillaume Regis $20,833 46Corbin Ave East Ny 485310 Sole.
Patchogue Proprietor
. . East Independent
Stanley Regis $20,833 46 Corbin Ave Patchogue NY 485310 Contactor
Lucknor ; East Sole
Guilloutte $20,833 46 Corbin Ave Patchogue NY 485310 Proprietor
Ashley Dianna — 959.933 46Corbin Ave FASt NY 453998 Sole |
Regis Patchogue Proprietor

25
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 27 of 34

E. Lendistry’s Systemic Failure to Perform a Good Faith Review of PPP Loan
Applications

53. Many former Lendistry employees reported to Relator that, during the short time
Lendistry was processing PPP loans, it had poor documentation requirements, a chaotic work
environment, quotas for loan approvals, and a lack of fraud prevention training.

54. Table 8 below provides a sample of notable quotes from former Lendistry
employees.

Table 8. Lendistry Former Employee Interview Quotes

Employee Title Quote

“The applicants had to have a business bank account. That was one of the
documents I had to approve. The policies changed frequently. At one point, they
didn’t have to have any payroll amounts in the bank statements they sent us. It
could be blank and I could approve it.”
“No payroll documents were required. When I was there, I didn’t have to look at
A Underwriter payroll. They were sole proprietors and used SSN as EIN. We didn't have to pay
attention to payroll.”
“No, we did do corporate loans as well but didn’t focus on the payroll. Any
A Underwriter income at all would suffice. I did work on corporate loans, but payroll was not
required.”

A Underwriter “Yes, I could approve it even if there was no evidence of payroll.”

“It seemed a little suspect that an excel spreadsheet would suffice. They would
B PPP Business Support _ accept this as a form of salary verification. I would just send it up to the next
level and it would get accepted.”
“A simple Excel spreadsheet with the payroll numbers was accepted. That
seemed very odd to me.”
“A list of employee names ... who knows if they were family members or
friends. ] wasn’t there to verify it, but just made sure it was submitted correctly.
There seemed to be no way to verify if they have employees based on the
documentation.”
“Pressure to push through loans, absolutely. They were adamant about the loans
going through. You could pretty much tell everything they were doing was

A Underwriter

B PPP Business Support

B PPP Business Support

Cc pusines Sales 8 ae fraudulent. Apparently this one individual already had multiple loans. The reason
ysts it took so long is because the documents weren't correct. They made sure that
loan went through.”

Cc Business Sales Support “You never knew what was going on and [there was] a lot of confusion.”
Analyst, Loan Processor

Cc Business Sales Support “Team leaders constantly changed, and it was really confusing. It got to the point
Analyst, Loan Processor _where we were just winging it. Very confusing and frustrating.”

Cc Business Sales Support “Most of [the applicants] had bogus businesses. I know they had given out loans
Analyst, Loan Processor to people that didn’t deserve it.”

Cc Business Sales Support “[I was] just collecting the documents, not verifying.”

Analyst, Loan Processor

26
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 28 of 34

Business Support

D Underwriter, Closing “There was a time frame for each loan — 15 minutes.”
Team
“I had a daily quota; it was 125 when I started. I was closing and just sent out the
E Closing Specialist document to sign. I had to send out 125 DocuSigns per day. We didn’t have time
to verify everything.”
E Closing Specialist “[ They] just told me to make sure it gets closed by any means necessary.”
E Closing Specialist “In terms of training, [I was] not trained to detect fraud.”
E Closing Specialist “The leadership was disorganized and did not know what they were doing.”
F SBA Underwriter “Professionalism was lacking.”
. “When I was working there, I notified my supervisor of a lot of uncovered
F SBA Underwriter mistakes related to cash flow and SCR formulas (how company is doing).”
G Business Development —«) definitely feel like [it] was kind of like the wild, wild, west.”
Specialist
G Business Development “Nonprofits were especially difficult for us. They had to have some certain
Specialist revenue amount.”
G Business Development “The file went to underwriter, and they used VeriFax. I think it is an IRS
Specialist program that sent a transcript of the filed return.”
G Business Development “The system would alert me if there was a duplicate. A little notification/banner
Specialist at the top of the screen that would say it’s a duplicate.”
H COVID Grant “By the time it got to us, we verified their address and Googled to see if that
Underwriter business was really there.”

55. The experiences of former Lendistry employees are not surprising, given that

Lendistry originated nearly 200,000 PPP loans in just the month of May 2021. As Figure 10

below shows, of the total of approximately 207,000 PPP loans that Lendistry originated,

approximately 96 percent of those originations occurred in May 2021, the last month of the PPP.

By comparison, traditional Error! Reference source not found.lenders originated only about 2

percent of their PPP loans in May 2021.

27
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 29 of 34

Figure 10. Percentage of Loans Approved By Month, Lendistry vs Traditional Lenders

100 4
GG Traditional Lenders
GG Lendistry
$0 5
60 5
2
40 >
20 4
0- — T
Apr May Jun Jul Aug Jan Feb Mar Apr May Jun
2020 2020 2020 2020 2020 2021 2021 2021 2021 2021 2021

Month Approved

56. Relator also collected resumes of 69 individuals who worked at Lendistry during
the time period when it was approving PPP loans. Table 9 below provides a summary of

Lendistry employee titles and qualifications for these individuals.

Table 9. Lendistry Resume Summary Stats

Lendistry Title

. . Business Title with “Senior” or
Employee Experience All Underwriters — “Lead”
All Employees 69 30 15 9
No Fin/Econ/Acct %3 19 7 1
Degree
No Bachelor’s Degree 11 3 2 2
No Underwriting Exp. - 22 - -
No Financial Industry 45 11 B )
Exp.

28
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 30 of 34

Most notably, of the 30 individuals in this group who worked as Lendistry underwriters, 22, or

73 percent, had no prior experience in underwriting, and 19, or 63%, did not have a degree in

finance, economics, or accounting.

57.

Table 10 below lists specific former Lendistry employees, including their jobs

before and after working at Lendistry. By way of example:

Employee I does not have a bachelor’s degree and was employed by the Smithsonian
Zoo and a wax museum before being hired as a loan processor by Lendistry. While at
Lendistry, she “developed and implemented underwriting policies and procedures.”
After Lendistry, this individual worked as a security officer.

Employee II worked in sales at Menchies Frozen Yogurt and James Avery Jewelry
before being hired as a loan officer/underwriter at Lendistry to “analyze client credit
data and financial statements” and “approve and close loan documents.”

Employee IH does not have a college degree and worked as a cook and cashier at a
Sonic restaurant and as an in-store shopper at an Albertsons supermarket before being
hired by Lendistry to be an underwriter. According to her resume, while at Lendistry,
she helped to “evaluate borrower creditworthiness by preparing thorough
underwriting calculations and worksheets.” Lendistry paid Employee III just $17 per
hour for her role as an underwriter and loan officer. According to Indeed data for
California as of May 31, 2024, the average underwriter hourly wage is $45.09 for an

underwriter and $42.25 for a loan officer

29
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 31 of 34

Table 10. Lendistry Resume Examples

Second Preceding : : Lendistry .
Experience Preceding Experience Experience Subsequent Experience
Employee Degree Employer Title Employer Title Title Employer Title
Smithsonian Retail Tussauds Guest Loan Signal 88 Security
| No National Photo Wax Experience Processor Securi Officer
Zoo Associate M Associate ° Y
useum
Menchies James Loan Officer Del Sol
Il Frozen Sales Avery Sales Medical Registrar
Underwriter
Yogurt Jewelry Center
. Cook/ In-Store :
lit No Sonic Cashier Albertsons Shopper Underwriter - -
IV Stifel Under- Blooming- Sales Associate Loan BYN Data
Financial writer dale’s Specialist Melon Analyst
. . Business The
Vv True Food Server Little Pine Server Support Cheesecake Server
Kitchen Restaurant
Consultant Factory
Seasonal Set and :
VI No AMS Global Staff Ready Merchandising Underwriter CVS Customer
Winterfest : Specialist Health Care Rep
Member Services
VII Tafoya Manager Village Inn Hostess Underwriter - -
5 Star : Happy Chief
VIII Wedding & event st Sutera Spa _— Receptionist creat Hours Yacht
Events P ¥ Yachting _—‘ Stewardess
Hampton Business The Server/
IX No Chick-Fil-A | Manager —‘ Tedder Planner Support Whisper Barback/
Electric Analyst House Host
Azusa .
Pacific Duciness Youth and Youth
x - - Undergrad Peer Educator u : Education
Loan Family vo
Enrollment wae Specialist
Servi Specialist Collab.
ervices
Business
XI No - - NBR Telemarketer Analyst, - -
Underwriter

58. _ Given the limited experience and qualifications of Lendistry employees,
combined with the frantic pace at which employees were required to process applications,
Relator alleges, on information and belief, that Lendistry did not (i) confirm the receipt of
borrower certifications contained in the PPP application, (ii) confirm the receipt of information

demonstrating that a borrower had employees for whom the borrower paid salaries and payroll

30
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 32 of 34

taxes, (iii) confirm the dollar amount of average monthly payroll costs for the preceding calendar
year by reviewing the payroll documentation, and (iv) follow applicable Bank Secrecy Act
requirements, as the PPP rules required. See 85 Fed. Reg. at 20815.

Count I: False or Fraudulent Claims
(31 U.S.C. § 3729(a)(1)(A))

59. Relator repeats and realleges each allegation in each of the preceding paragraphs
as if fully set forth herein.

60. During the period from March 27, 2020, through the present, Lendistry knowingly
presented, or caused the presentation of, false or fraudulent claims for payment or approval, in
violation of the False Claims Act, 31 U.S.C. § 3729(a)(1)(A). These false or fraudulent claims
included: (1) fraudulent PPP loan applications that Lendistry knowingly approved; (2) fraudulent
PPP loan guarantee requests to SBA; (3) applications by borrowers to SBA for forgiveness of
PPP loans that were issued based on fraudulent loan applications that Lendistry knowingly
approved; and (4) claims by Lendistry to SBA for processing fees on PPP loans that Lendistry
knowingly originated based on fraudulent loan applications.

61. By virtue of the false or fraudulent claims Lendistry knowingly presented, or
caused to be presented, the United States has suffered actual damages and is entitled to recover
treble damages plus a civil monetary penalty for each false claim.

Count II: False Records and Statements
(31 U.S.C. § 3729(a)(1)(B))

62. Relator repeats and realleges each allegation in each of the preceding paragraphs
as if fully set forth herein.
63. During the period from March 27, 2020, through the present, Lendistry knowingly

made, used, or caused to be made or used false records or statements — including fraudulent PPP

31
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 33 of 34

loan applications, SBA Forms 2484 for guarantees of PPP loans that Lendistry knowingly
originated based on fraudulent loan applications, applications by borrowers to SBA for
forgiveness of PPP loans that were issued based on fraudulent loan applications, and SBA Forms
1502 for processing fees on PPP loans that Lendistry knowingly originated based on fraudulent
loan applications — material to false or fraudulent claims, in violation of the False Claims Act, 31
U.S.C. § 3729(a)(1)(B).

64. By virtue of the false records or statements Lendistry made, used, or caused to be
made or used, the United States has suffered actual damages and is entitled to recover treble
damages plus a civil monetary penalty for each false claim.

Prayer for Relief
WHEREFORE, Relator demands and prays for the following relief:

1. That judgment be entered in favor of the United States for the amount of its
damages, trebled as required by law, and such civil penalties as are required by
law, together with all such further relief as may be just and proper;

3. An award to Relator of a percentage of the proceeds of the action in accordance
with 31 U.S.C. § 3730(d);

4, An award to Relator of its costs and reasonable attorneys’ fees for prosecuting
this action; and

5. All other relief as may be required or authorized by law and in the interests of
justice.

Demand for Jury Trial

Relator hereby demands a trial by jury.

32
Case 1:24-cv-12753-WGY Document1 Filed 10/30/24 Page 34 of 34

Dated: October 30, 2024

Respectfully submitted,
INTEGRA RESEARCH GROUP LLC

By its attorney

Gregg hs (BBO No. 642069)

Gregg Shapiro Law, LLC

101 Federal Street, Suite 1900
Boston, MA 02110

Tel: 617-582-3875
gshapiro@greggshapirolaw.com

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