Kabbage Inc., a small-business credit platform that sold most of its assets to American Express Co. in 2020, filed for bankruptcy facing federal investigations and private lawsuits for its alleged mishandling of thousands of Paycheck Protection Program loans, WSJ Pro Bankruptcy reported. The Federal Reserve Bank of San Francisco declared Kabbage in default last week on a federal liquidity facility for PPP lenders, according to bankruptcy papers filed by the company on Tuesday. Its chapter 11 filing on Monday covers the remnants of Kabbage’s business that were left behind after the October 2020 sale of most of its assets — but not its existing PPP loan book — to Amex. Kabbage, which does business as KServicing, isn’t affiliated with Amex and has continued to service PPP loans that it originated for itself and its partner banks. It has been winding down its operations, but ran out of time and money as federal prosecutors, congressional investigators and other authorities probe its PPP lending and loan-servicing practices. The Atlanta-based company’s restructuring adviser, Deborah Rieger-Paganis, said in a sworn declaration Tuesday that Kabbage is embroiled in costly investigations and litigation despite its adherence to Small Business Administration guidance about the popular relief program. The Justice Department has been cracking down for years on alleged fraud in COVID-19 relief programs, especially the PPP, which issued forgivable, government-guaranteed business loans to keep checks flowing to American workers during the COVID-19 pandemic. U.S. attorneys in Boston and Houston have been investigating whether Kabbage improperly approved fraudulent PPP loans, as well as the company’s fraud and money-laundering controls, court papers show.
