Why We Should Be Repaid by Our Bank – PPP Loan & Settlement Meeting?

Tonight at 5PM at the Ranch Clubhouse is another meeting about the PPP Loan situation. It’s a follow up to the December 7th standing room only board meeting about it.

I’m curious what others would like to ask of the board?

Here’s what I’d like to know.

I’d like an update on if the Association board has asked our bank, First Citizens, about contributing meaningfully if not paying all of our $500K penalties and fines and the $200K in legal fees for the specialty lawyers the Association consulted when the DOJ threatened suit last year.

I’m not throwing out recriminations. What’s done is done. But I believe First Citizens should contribute to the penalties, fines and legal fees, if not cover all of them.

First Citizens, our bank, reviewed, submitted and processed the PPP loan with the government. First Citizens took a fee from the government for submitting the loan. So they had a financial incentive and conflict of interest when it came to the Association applying for a PPP Loan and them submitting that application to the SBA.

Courtney LeBeau wrote us in November saying “our commercial banker was not aware of any disqualifying factors for our organization, and the bank had multiple levels of reviewers and approvers for our loan, further indicating a lack of awareness of any ineligibility. ” I don’t see how that is plausible or possible.

First Citizens knew or should have known that the loan application was incorrect when it submitted an application that checked the box “C-corporation” for the Association’s status. The bank knew we were a 501(c)(4), and had been for many decades, not a C-corporation. They had to know. We had a bank account with them, and you can’t open a bank account without giving your organizational documents. Here’s proof of that from the bank’s own website https://bit.ly/4aQqCMp

The bank was also the expert in dealing with PPP Loans. PPP Loans were not applied for directly with the SBA. You had to apply through your bank. That’s the way the process worked.

Banks also got paid a commission of 1-5% of the PPP Loan amount for processing the application and handing out the money. So First Citizens actually made money for submitting the Association’s PPP Loan. Could that explain why they were willing to submit a PPP Loan application they knew had false statement about corporate status?

Then the bank did it all over again in December 2020 when the association applied for forgiveness of the loan.

The Dept of Justice has gone after banks that knew or should have known their customers weren’t eligible under the False Claims Act.

In November, I brought this to the Association’s attention, even giving them the DOJ’s settlement with a Texas bank with a similar scenario – submitting a loan for an ineligible customer they knew or should have known was ineligible https://bit.ly/47qDINz. At the Dec 7th meeting, I followed up and a Board member told me it was “being looked at.”

Last issue – if the bank can hide behind the safe harbor rule.
https://bit.ly/3NVjHYy is a top law firm in April 2020 explaining that the SBA limited banks’ due diligence requirements but also explaining that banks still had potential liability if they shirked minimal duties when they submitted a PPP Loan application. Because we had an account with First Citizens and they knew we were not a C-corporation, this is a no-brainer. They failed on their responsibility to duty explained this way – lenders must continue to comply with the BSA/AML compliance protocols, including Know Your Customer processes.

The SBA’s Lender Application Form requires a lender to certify that it has “complied with the applicable lender obligations,” summarized above, and that it has “obtained and reviewed the required application (including documents demonstrating qualifying payroll amounts) of the Applicant.”

I never applied for a PPP Loan and I’m no expert on this. Everything I’ve said here I learned from reading online which is why I included so many web links. If I’m incorrect on anything, please add that to the discussion. I’d like to know what others think.

What is the status of the Board’s discussions with the bank? This is what I’d like them to answer tonight