KServicing, the small business credit services company better known as Kabbage, announced that it filed for Chapter 11 bankruptcy on Monday.
The bankruptcy filing is followed by news that he is under investigation by the US Department of Justice (DOJ) under the False Claims Act.
The investigation focuses on the Paycheck Protection Program (PPP) credit approval practices.
KServicing Files Chapter 11 Bankruptcy Proceedings
In a statement, KServicing said it filed for bankruptcy to give the company the flexibility and protections to allow it to phase out its operations and resolve issues with stakeholders and resolve outstanding disputes.
KServicing has filed an application under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court for the District of Delaware. The company, formerly known as Kabbage, had processed more than $7 billion in Paycheck Protection Program (PPP) loans before the company’s technology and part of its team were acquired by American Express and holding company KServicing Administration left behind remaining portfolio of $1.3 billion of COVID relief loans.
“The actions we are taking today are consistent with KServicing’s mission of assisting PPP borrowers in their loan forgiveness process, providing loan processing services to partner banks and reducing the company’s existing loan portfolio,” said Laquisha Milner, Chief Executive Officer.
KServicing has filed a number of standard first-day filings with the bankruptcy court. This includes seeking permission to continue operations while simultaneously seeking relief in Chapter 11 cases to continue paying all active employees in the normal course. This relief includes all wages, compensation and other benefits, including health care.
In May 2022, the SBA’s Office of Inspector General (OIG) released a report on more than 70,000 loans totaling over $4.6 billion in potentially fraudulent PPP loans.
To address the rising instances of PPP fraud, the Biden administration appointed a special prosecutor for PPP fraud in March. These and other similar actions have helped bring more individuals and companies to justice in the more than 1,000 criminal cases and over 200 civil investigations against 1,800 individuals and organizations suspected of involving billions of dollars in fraud since May 2021.
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