Capital Plus Financial Funding of PPP Loans Class Action

Many businesses were put under severe financial strain due to the Covid-19 pandemic. To help alleviate the situation, Congress passed the CARES Act, which, among other things, provided emergency help to small businesses, sole proprietorships, and nonprofits through the Paycheck Protection Program (PPP). But the complaint for this class action alleges that Capital Plus Financial, LLC (CPF) and its corporate parent, Crossroads Systems, Inc., took PPP applications and accepted PPP fees but did not dispense the actual PPP loans.

The class for this action is all persons or entities in the US who, in 2021, timely applied for PPP loans with CPF as the lender, and whose loans were approved by SBA but who did not receive the PPP loan proceeds.

The CARES Act, among other things, provided money for forgivable loans to small businesses, sole proprietorships, and nonprofits, to help them pay up to eight weeks of payroll and other permitted expenses. The PPP was administered by the Small Business Administration (SBA).

Because the loans were sorely needed by businesses and their employees alike, the complaint alleges that lenders were supposed to fund PPP loans within ten days of getting SBA approval. Lenders earned money on fees the SBA paid for each loan processed. It increased these fees in 2021.

CPF was an authorized lender for the PPP program. In fact, the complaint claims that CPF processed more than 472,000 loans, or “the second most PPP loans by any lender in 2021, and more than the total number of PPP loans made in 2021 by Bank of America, PNC Bank, TD Bank and Wells Fargo combined.” This earned CPF and/or Crossroads some $930 million. This was so significant an amount that Crossroads, a publicly-traded company, accounted for the sum in its quarterly report filed with the Securities and Exchange Commission (SEC).

“In flagrant disregard of its contractual obligations to Plaintiff and other eligible class member borrowers, however,” the complaint alleges, “CPF failed to actually fund those borrowers’ SBA-approved PPP loans.”

In contrast, the complaint alleges that parent company Crossroads exploited its control and ownership of CPF and “received hundreds of millions of dollars in PPP loan fees—including fees on PPP loans CPF never funded—and, in turn, distributed millions of dollars in such fees to its corporate insiders who, collectively, owned 66% of Crossroad’s equity.”

According to the complaint, on July 8, 2021, Crossroads told its shareholders that it was “now overcapitalized” and paid them a dividend of $40 per share.

The complaint claims that CPF also received advances under a PPP Liquidity Facility program totaling millions, and still did not fund all of its outstanding PPP loans.

Article Type: Lawsuit
Topic: Government Programs or Benefits, Loans
Tags: Covid-19 Related, Loan-Related Unfair Practices, Provisions of Government Programs