- Key insight: Prosecutors say the bank sought forgiveness for loans originated by a manager it had already fired for suspicious activity.
- What’s at stake: KeyBank faced civil liability because it bypassed internal controls and pursued forgiveness for 40 loans tied to the fraud ring.
- Expert quote: “This resolution holds KeyBank accountable for submitting forgiveness claims it had compelling evidence were fraudulent,” a senior counsel said.
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Key Bank has agreed to pay more than $7.7 million to settle allegations that it submitted loan forgiveness applications for Paycheck Protection Program loans it knew were likely fraudulent.
The settlement regards the bank’s civil liability related to a fraud ring facilitated by Tommy Hawkins, a former branch manager at the bank’s location in Conshohocken, Pennsylvania.
During the COVID-19 pandemic, Hawkins worked with six others to secure approximately $6 million in fraudulent PPP loans for shell companies, according to a Wednesday press release from the U.S. Attorney’s Office for the District of New Jersey.
Hawkins earned a cut of the proceeds from the scheme, and the loan approvals also earned him incentive compensation from KeyBank.
Federal prosecutors said KeyBank, which identified some of Hawkins’ loans as suspicious and thus terminated him, faced liability for its decision to then pursue forgiveness for the fraudulent loans.
“This resolution holds KeyBank accountable for submitting forgiveness claims it had compelling evidence were fraudulent,” said Philip Lamparellom, senior counsel for the U.S. Attorney’s Office for the District of New Jersey, in the Wednesday release.
KeyBank did not immediately respond to a request for comment.
KeyBank cooperated with the investigation and did not admit liability in the case, according to prosecutors. As part of the total $7.7 million settlement, KeyBank will pay $6.2 million in restitution.
The KeyBank settlement highlights that, for years, banks will continue to face liability claims related to pandemic-era fraud against the SBA.
Although the SBA stopped accepting PPP loan applications more than four years ago, the statute of limitations for fraud involving the program lasts 10 years, giving prosecutors until the early 2030s to bring charges.
How KeyBank ended up civilly liable in the case
The PPP fraud scheme that originated this case operated between January and May 2021.
Hawkins bypassed KeyBank internal controls to submit fraudulent PPP loan applications to the Small Business Administration, or SBA, according to court documents.
These applications included false claims about employee counts and payroll expenses of shell companies, backed by faux tax returns and fabricated bank statements.
Hawkins worked with co-conspirators to recruit individuals who owned these shell companies, and he opened business bank accounts for these recruits at his branch.
In opening these accounts, Hawkins often violated KeyBank policies regarding “Know Your Customer” protocols and the borrower’s physical proximity to the branch, according to prosecutors.
Eventually, KeyBank detected “suspicious patterns” in Hawkins’ account origination in the spring of 2021, according to the settlement agreement with the bank.
KeyBank conducted an internal investigation, flagged 18 potentially fraudulent loans Hawkins had secured from the SBA and terminated him in May 2021.
Months later, in late 2021 and early 2022, KeyBank submitted forgiveness applications to the SBA for these same loans and others that Hawkins had facilitated.
The bank submitted these applications “despite having concerns about the origination of many of the loans,” said Patricia Tarasca, special agent in charge at the FDIC Office of Inspector General, in the press release.
In the end, the bank sought forgiveness for 40 of the loans tied to the scheme and applied for guaranty purchase on the remaining eight. Because each loan was for less than $150,000, the SBA granted forgiveness on all of them on an expedited basis.
Prosecutors say KeyBank’s actions demonstrated an “insufficient response to Hawkins’ bank fraud scheme,” according to the settlement agreement.
Criminal prosecutions against connected individuals
Federal prosecutors charged a network of individuals who conspired with Hawkins to fabricate the documents submitted in the PPP loan applications.
Hawkins himself pleaded guilty to bank fraud conspiracy and received a sentence of 65 months in prison in October 2024.
Eric Rivera of Norcross, Georgia allegedly acted as a ringleader, recruiting business owners to apply for loans. Prosecutors indicted Rivera on counts of bank fraud conspiracy, wire fraud conspiracy, and money laundering in April 2024.
Lisa Smith of Cornelius, North Carolina pleaded guilty to conspiracy to commit bank fraud in July 2024. According to court filings, Smith prepared fraudulent applications and fabricated bank statements.
James Wessels of Middletown, Delaware faces indictment for allegedly creating the fake tax returns used to substantiate the inflated payroll numbers.
Other recruits involved in the scheme who entered guilty pleas include William Ingram of Haddonfield, New Jersey; Yasha Barjona of Phoenix, Arizona; and Sieff Robert Sargeant of Island Park, New York.
Prosecutors also indicted Adrienne Ponzo of Dallas, Georgia for her alleged role in a parallel scheme involving Economic Injury Disaster Loans.
