Bloomberg Businessweek - USA (2020-10-12)

◼ FINANCE Bloomberg Businessweek October 12, 2020

26

● ScammerswhotappedPPPfunds

likedusingonlinelenders

Fast Loans, Fraud,

And Fintech

InAprilthePaycheckProtectionProgramwasunder

fireformovingtooslowlyandleavingtoomanypeo-

pleout.Partofthe$2trillionCaresAct,it wasset

uptoofferforgivableloanstosmallbusinessessuch

asrestaurantsandhairsalonsthatwouldhelpkeep

themafloatthroughtheCovid-19lockdownsinthe

U.S.Bankswereinitiallyinchargeofadminister-

ingthegovernment-backedpayments.Inaneffort

todistributethedesperatelyneededmoneyfaster,

web-basedcompanieswerelaterallowedintothe

program.Gratefulbusinessespraisedtheirspeed.

It turnsoutscammersfoundthemuseful,too.

Financialtechnologycompanieshandled75%of

theapprovedPPPloansthathavebeenconnectedto

fraudbytheU.S.DepartmentofJustice,a Bloomberg

analysisofmorethan 100 loansatthecenterofthe

casesshows.Thefintechcompaniesarrangedjust

15%ofPPPloansoverall.TheyincludeKabbageand

THEBOTTOMLINE InvestorsmaynotloveeverythingaboutJoe

Biden,buthisrecentstrengthasa candidateis makingthemless

worriedabouta contestedelection.

BlueVineCapital,aswellasbanksandnonbank

lendersthatworkwithsuchcompanies,including

CrossRiverBank,CelticBank,andReadyCapital.

Inmanycases,a simpleGoogleorstaterecords

searchwouldhavesuggestedanapplicant’sbusiness

didn’texistorwasdormant.Oneborrowerfacing

chargesallegedlygotapprovalfor$3millionfrom

ReadyCapitalCorp.fora businessinBeaumont,

Texas,eventhoughthecompanyhadnowebsiteor

presenceonsocialmediaandthebusinessaddress

provided,accordingtoGoogleMaps,wasfora single-

family residence. (Investigators intervened before the

loan was funded.) Another borrower in Little Rock,

Ark., received almost $2 million from Kabbage Inc.

and BlueVine Capital Inc. for businesses that weren’t

in good standing with the secretary of state.

Borrower fraud doesn’t mean lenders broke

the rules of the program, and they haven’t been

VIX contracts rise as they cover dates further into

the future. When plotted on a graph, this produces a

gently rising curve. There’s a simple logic to explain

why: If you’re buying insurance on your house, you

would expect to pay more for a policy that covers

six months than for one that covers only one month.

Yet these aren’t normal times. Now, the VIX curve

has been signaling something else. Investors are

increasingly skittish about the 2 ½ months from the

Nov. 3 election to inauguration, so they’re paying up

to protect themselves during that period. November

futures, designed to protect against expected volatil-

ity through late December, are the most expensive.

“I’ve been describing these things as well-known

risks,” Arone says. “Nonetheless, I think that the mar-

ket will continue to have these kinds of bouts of volatil-

ity.” He sees demand being high for haven assets such

as Treasuries and gold until the outcome is settled.

Still, Joe Biden’s recent strength in the polls is

starting to change some investors’ calculations.

Hedge fund EIA All Weather Alpha Partners recently

unwound some trades made to protect against mar-

ket swings due to a contested election, says the firm’s

chief macro strategist Naufal Sanaullah. “The one-

two punch of debate, plus Covid diagnosis, makes

that risk lower,” he says, pointing to the fundraising

boostDemocratsgotafterthedebateonSept.29.

A moreconventionalquestionis whowouldbe

betterforstocks:thetax-cutting,regulation-shredding

Trump or Biden, who wants to raise the corporate

tax rate and has been more cautious about reopen-

ing the economy while the pandemic still rages?

James McDonald, chief executive officer of Hercules

Investments, thinks the prospect of higher taxes and

other elements of Biden’s platform may cause institu-

tional investors to start moving out of riskier assets.

Others, such as Sanaullah, believe a Biden win and a

Democratic sweep of both houses of Congress would

be the most bullish outcome because it would pro-

duce the largest stimulus bill as concerns grow about

a second Covid wave.

The market may continue to bet on a more resound-

ing victory by Biden, which would lessen the chance

of a contested election, according to Christopher

Smart, global chief strategist and head of the Barings

Institute. “Having said that, we are in truly uncharted

territory,” he says. And if a week is a lifetime in poli-

tics, he adds, we have a few lifetimes to go between

now and Election Day. �Michael P. Regan