Japanese Company With Ties To Chinese Government May Have Profited From PPP Scheme (Exclusive).

The alleged fraud perpetrated by the company appears to have deepened beyond the over $5 million it took for itself, sources told The Messenger.

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By Aneeta Mathur-Ashton.

AJapanese company with ties to the Chinese government may have profited from fraudulent Paycheck Protection Loans greenlit by a company a House Committee report said was responsible for a significant portion of fraud, according to documents reviewed by The Messenger.

The revelation is the latest in a string of allegations facing the fintech Womply, which found itself the subject of a scathing House committee report and an exclusive report from The Messenger detailing its schemes within the government program.

But with new documents coming to light, the alleged depth of the fraud perpetrated by the company appears to have deepened beyond the over $5 million it took for itself, sources told the Messenger.

Foreign Money In Womply

Documents obtained by The Messenger are now shining light on the ownership of Womply and who invested in it.

According to them, 18 percent of the company is owned by CEO Toby Scammell and five percent is owned by co-founder Cory Capoccia. In addition, 77 percent of the company is split between three private equity firms all labeled as major investors during three rounds of fundraising. The companies are Merus Capital, Sageview Capital, and Rakuten.

While Merus Capital and Sageview Capital are both American companies based in California and Connecticut respectively, Rakuten stood out as a foreign company and subsequently raised red flags.

Womply and Rakuten

Rakuten Group Inc. is a Japanese technology conglomerate that is based in Tokyo and was founded in 1997. With a focus on the online retail marketplace Rakuten Ichiba, Rakuten’s business portfolio is vast, including Viber, Rakuten Mobile, and Pinterest, according to its website.

Rakuten’s major shareholder is the Chinese company Tencent, which invested 65.7 billion Yen, or $442 million USD, for an estimated 3.7 percent stake in it. Tencent rose to national prominence as the owner of TikTok amid the government debate over banning it after it was revealed the Chinese government bought stakes to give it special rights over certain business decisions. The stakes, known as “special management shares” usually involve a one percent holding and allow the government greater control over the technology sector and the content it gives to those inside the country.

The investment raised concerns for both the Japanese and U.S. governments, prompting both to jointly monitor Rakuten out of fears that customer data could fall into the hands of the Chinese government.

US Money — **Stack of $100 bills.**Getty Images

The documents given to The Messenger revealed that in 2020, Rakuten expanded its portfolio when it added Womply into the mix. The conglomerate invested an estimated $15 million in the fintech during the company’s round C of funding, making it the lead investor for that round. Yet despite the heavy investment, Womply remained off Rakuten’s FY financial results for all quarters between 2020 and 2021.

The documents also reveal that Rakuten received profits from Womply during a liquidity event held at the end of 2021.

Unlike Sageview and Maris who no longer hold shares in the company, it is unclear whether Rakuten still maintains a hold over its shares.

The relationship between the two companies deepened further after Naseer Mandozai, the former senior vice president of corporate development for Rakuten, joined Womply’s board of directors sometime between 2020 and 2021.

Privacy issues quickly became a problem for Womply, as seen through a privacy disclaimer on Womply’s now-defunct website shows an offer to “promote certain card-linked offers (“Card-Linked Offers”) to your in-store customers through Womply’s relationships with third parties (“Third-Party Networks”) including without limitation the Rakuten In-Store Network (“RISN”).” Customers who used Womply’s services and chose to opt in effectively signed away the right to their sensitive information, which was then given to Rakuten.

Concerns about Womply’s handling of sensitive user data were later flagged to the House committee behind the report, We Are Not The Police: How Fintechs Facilitated Fraud In the Paycheck Protection Program, writing that Womply later transferred the data to their successor company Solo Global, which is also now defunct.

“This change gave Mr. Scammell, Mr.Capoccia, and their new business access to “over 2 [million] tax documents, over 1.5 [million] bank accounts from applicants, and over 1 [million] completions of various KYC/CIP/KBA inquiries,” from small businesses and sole proprietors who had used Womply to apply for federal relief benefits.”

Congressional Reaction And Beyond

In the report released in June by the Small Business Association’s Office of the Inspector General, Inspector General Hannibal Ware made the house committee aware that “…certain lenders added to the fraud risks by prioritizing quickness and potential profit over a thorough review of applicant eligibility for government aid” and assured the Committee a report on the matter is forthcoming.

Rep. Roger Williams, R-Tx., the chairman of the House Committee on Small Business, told The Messenger in a statement his committee is “well aware” of the accusation.

“In our oversight and investigatory efforts, this Committee has engaged closely with the SBA’s Office of Inspector General on their ongoing investigation into the fintech industry’s involvement in pandemic lending fraud and other troubling allegations,” said Williams.

“We are eagerly awaiting the results of this thorough investigation and look forward to shining a light on problems that allowed bad actors to take advantage of these small business relief programs.”

Rep. Shri Thanedar, D-Mich., a member of the same committee, told The Messenger in a statement the allegations regarding Womply’s foreign ownership are “troubling” and called for an investigation, saying, “I fully support any efforts to bring transparency and justice to this situation.”

For those who have been monitoring the rampant fraud and the effort to uncover the extent, the news is shocking but not surprising.

Nick Schwellenbach, a senior investigator at the watchdog group Project On Government Oversight, who testified before the Senate Committee on Small Business and Entrepreneurship on the role that fintechs played in PPP fraud, told The Messenger “this is yet another example showing how SBA oversight fell far short as an unprecedented avalanche of cash was pushed through the agency.”

Samuel Kruger, an assistant professor of finance at the University of Texas at Austin who helped author a study in 2021 detailing the fraud created by the fintechs told The Messenger, “our research finds that fraud was widespread in the Paycheck Protection Program, and Womply stands out for having a particularly high rate of suspicious loans.”

On July 14, SBA confirmed it opened an investigation into the five financial technology companies included in the House report and that Womply was among the five. A full report is expected to be released by the federal agency.

In a letter to the SBA Inspector General Hannibal Ware, Sen. Rick Scott, R-Fla., made specific mention of Womply and requested to know if Ware’s office had determined the amount in finding these companies received “in fraudulent tax dollars,” how much funding the SBA expects to “claw back” from the companies, and when his office expects to finalize the investigations into each of the companies.

Ware then sent Scott a response, saying his office is currently finalizing an audit report, Risk Associated with the SBA’s Oversight of PPP Loans Processed by Fintech Companies, that covers the situation that will go out on “no later than the second quarter of FY 2024.”

Ware added that his office is not involved in “flagging potential claw backs nor projecting claw back estimates” and that it cannot determine a timeline for its investigations because it includes “partnerships with the Department of Justice and many federal law enforcement organizations.”