Adam Zaki was a Reporter at deBanked. Articles by Adam Zaki
Adam is a Reporter from Long Island and graduate of Brooklyn College.
PPP Fraud Case Reports Collusion Between Loan Broker and IRS Supervisor
February 2, 2022
In a PPP scheme that saw twenty-two people get brought up on charges like conspiracy and wire fraud, a federal indictment also alleges collusion between a Supervisory Individual Tax Advisory Specialist with the IRS named Melissa Myrick, and an Atlanta business loan broker named Mark Mason, who was president of Atlanta Business Capital.
According to the DOJ, Mason and Myrick worked together to falsify PPP applications by leaving sections like average monthly payroll and number of employees blank. Between May 12 and May 26 of 2020, Myrick signed off on over $280,000 in altered loan applications while also being an active employee with the IRS.
The indictment also says that merchants who received the funding were in on the scam. “Purported business owners communicated with Mason about the fraudulent PPP loan applications, as well as the amounts to include on the Forms 941 and purported payroll spreadsheets submitted with the applications.”
Mason pleaded guilty on January 4 to one count of wire fraud and one count of money laundering in connection with his involvement with the PPP fraud mentioned in the indictment.
The report claims that on top of altering documents to get the government-backed funds, Mason charged ‘success fees’ to the merchants he was working with. While pleading guilty, Mason admitted to funneling fraudulent deals totaling between $3.5M and $9.5M
Mason seemed to attract clients with notoriety onto his scam. Public figures mentioned in the indictment include actress Ion Overman who appeared in Desperate Housewives, music producer Carlos “Clos” Stephens who has worked with hip-hop guru Master P, and actor Dale Godboldo who appeared in The People v. O.J. Simpson.
With Latest Merger, Walmart is Set for its Launch into Financial Services
February 2, 2022
Walmart-backed fintech startup Hazel announced that it plans to acquire the fintechs Even and ONE, setting the stage for Walmart to open up financial services and products to its 1.6 million U.S. associates and 100 million plus customers. The company plans to bring on Omer Ismali as CEO of the merger under the ONE brand.
Ismali climbed the ladder at Goldman Sachs in both investment and consumer banking prior to becoming the CEO of a NewCo backed by Ribbit Capital, the leading investor in Hazel.
“Consumers everywhere are being left behind by the world of financial services,” said Ismail. “Our vision is clear, build on Even and ONE’s success to offer a product that offers consumers the best way to spend, the best way to access their wages, and helps millions save and grow their money. I’m looking forward to partnering with two stellar leaders in Brian and David to improve the financial lives of tens of millions of consumers.”
David Baga and Brian Hamilton are the former CEO and Co-founder of Even and ONE respectively. The two will remain in leadership roles at ONE according to a press release from Walmart.
The merger will form a company of over 200 employees whose CEOs and upper management will also remain in lateral positions. The release also says that ONE will get their balance sheet stuffed with $250M to “fund future growth.”
“Walmart is constantly looking for new ways to deliver on our core mission of helping our customers save money and live better,” said John Furner, President and CEO of Walmart U.S. and board member of the reemerged ONE. “Customers have made it clear that they want more from us in the financial services arena.”
“Creating a simple, personalized app that allows users to manage their money in ONE place is the natural next step toward fulfilling that,” Furner continued.
Judging by the release, it looks as if Walmart is planning to market this both internally and externally. As America’s largest employer, they could easily become a player in financial services if they hosted the technology to manage the accounts of their employees alone.
Furner spoke further on the intentions of Walmart to offer up financial services to the seemingly underbanked. “We couldn’t be more excited about what this will mean for Walmart customers, associates and consumers everywhere as we try to help empower millions to improve their financial lives.”
Funding Circle Partners With Nationwide in Mutual Referral Program
February 1, 2022
Denver-based small business lender Funding Circle announced a partnership with Nationwide Insurance, in a move designed to improve access to capital for businesses that use Nationwide as their insurance providers. The move is a continued trend in the small business financing industry to create access to resources surrounding business financing in places that merchants are interacting with on a daily basis.
“Funding Circle is thrilled to partner with Nationwide to offer essential resources that seamlessly supplement our customers’ business needs and set them up for success in a competitive market,” said Vipul Chhabra, Managing Director of Funding Circle US.
“This first-of-its-kind partnership with one of the country’s leading insurance and financial services providers embodies our core values,” said Chhabra. “[Our values are] to truly support American small business owners in accomplishing their goals, especially among underserved populations that banks typically are not incentivized to reach.”
On top of access to funding, the partnership offers access to resources surrounding small business financing to Nationwide customers. According to a press release by the companies, this is the first merger of a top insurance company with an online lending platform.
“Today’s hardworking business owners have a variety of insurance and financial needs. They are looking for innovative ways to have those needs met so they can focus on running their companies,” said Kasey Ketcham, Associate Vice President of Commercial Digital Enablement at Nationwide.
“This partnership with Funding Circle is another example of Nationwide’s commitment to addressing the challenges small business owners are facing,” said Ketcham. “[Nationwide is] offering expert guidance and comprehensive insurance and lending resources hand-in-hand to help them make informed decisions to fortify their business and livelihoods.”
According to Nationwide, the partnership will be a mutual referral program, where Funding Circle customers will be exposed to Nationwide products, and Nationwide customers will be exposed to Funding Circle products. Nationwide representatives explained the partnership exclusivley to deBanked.
“Exactly what is provided through Nationwide.com or the app is a link to Funding Circle,” said a Nationwide representative. “Once there, the user can complete an application for loan coverage, but are not granted special exception because they came from Nationwide.”
“They would still go through the loan application and underwriting for funds and vice versa,” said the representative. “The Funding Circle website/app is providing a link to Nationwide that the user can ‘learn more’ through the Coverage Assistant page, or “get a quote” using Nationwide Business Express.”
Flash Loans: The Seemingly Risk Free, Instantly Repaid Lending Trend Taking Over DeFi
January 27, 2022
It’s a loan that can never be defaulted on, is paid back in seconds, and brings massive return potential. There are no qualification minimums for the borrower, no collateral needed, and minimal risk for the lender. That’s because the loan is funded and repaid in the same transaction.
This type of lending is highly prevalent in the NFT market, where JPEGS are being bought and sold for hundreds of thousands, sometimes millions of dollars, according to a source close to deBanked.
The source, who recently made the switch from nearly a decade in traditional finance to being a major proponent in the web3 online community, said that this type of funding is particularly dominant with the purchasing of CryptoPunks— a collection of ten-thousand NFTs that can cost upwards of $10 million each.
A flash loan is atomic, meaning that it is indivisible. In computer science, things are atomic when they must be executed in full in-order for a particular thing to take place.
Due to the way smart contracts on the blockchain work, if the contract is broken, it’s nulled. With flash loans being written on smart contracts, the funds are immediately sent back to the lender if anything out of the ordinary occurs in the funding process. Thus, the loan can never be defaulted on.
A hypothetical real-world example of this could be an auto dealer flipping vehicles. If a dealership borrows money to purchase two-million dollars of inventory that they already have buyers for, they could work it into the contract with the lender that the only way the funds would be released is if every car in that inventory is sold for a predetermined amount. If the lender, dealer, and buyers all hold up their end of the deal, the funding can instantly take place and then be repaid.
In what some have called ‘lending on steroids’, the movement of money in flash loans is tremendous. According to Aave, an open source and non-custodial liquidity protocol, flash loans as high as $200,000,000 have been reported as funded and repaid.
It’s seemingly a lender’s dream, a set-it and forget-it smart contract that does all the work without risk. But the purpose of the loan may not be known. For example, a flash loan for $532 million last October had the appearance of being used to finance the most expensive NFT purchase in history. The problem? Both the borrower and the lender were the same person.
Which all begs the question, why is a loan necessary in the first place if the borrower can repay it in the same transaction? Perhaps because it eliminates counter-party risk in a type of transaction considered among the most risky, crypto. The cost of a flash loan, borrowing funds for mere seconds, is probably more attractive than a flash loss, in which the other side doesn’t live up to the terms of the deal and in a flash… is gone.
As Alternative Finance Leaves NYC, Long Island May Be The Next Best Option
January 26, 2022
As things like cost of rent, remote work, and incoming disclosure laws cause uncertainty in the hub of alternative finance, many in the industry have decided to leave New York City. Some however, say the perception of a mass exodus is false, and it is Long Island that checks all the boxes for alternative finance’s new home.
“My company started on Long Island and it’s where most of our staff is from, so logically it made sense to keep it there in the beginning of [our] journey,” said Jared Weitz, CEO of United Capital Source. “It’s close to people’s homes so the commute is less for staff and the office space can be 10 to 40 percent less on cost and your loss factor on space is less so the space you do rent, you actually get to use more of.”
According to Weitz, employees in the industry lost a desire to commute during the pandemic. When transitioning from in-person work to remote and then back to in-person, it seems like a commute to Manhattan was a tough sell.
“During [the pandemic], a ton of larger companies who had massive offices in Manhattan ticked it down,” said Weitz. “Staff also didn’t want to commute anymore and so many offices in the city have either moved out to Long Island or stayed in [New York City] to smaller offices and did [remote work] with employees.”
When asked about the value of a Downtown Manhattan address on a business card, Weitz abruptly dismissed the notion that names like Wall, Rector, and Pine still hold the same prestige as it did in years past.
“No, no, no, no one looks at that anymore,” Weitz said. “Most often people are focused on client experiences, so reviews online, time in business, online presence, what can be found about them.”
Weitz spoke on the quality of employees that come from the New York area, and how their work ethic and work experience are some of the best the industry has to offer.
“Look, I’m from New York so I’m partial and I can see why people say [this]. New York [workers] have a certain grit, and a certain fight with laser focus determination.”
“I think there are people who are smart and who hustle anywhere,” Weitz continued. “While southerners may have a laid-back lifestyle, I know plenty who hustle hard, [but] I do think you can always tell the difference from a New York sales rep versus another.”
El Salvador Partners with DeFi Lending Platform for Bitcoin-Backed SMB Loans
January 21, 2022
El Salvador continues to be an unprecedented experiment of mainstream crypto use. The small Latin American country that shifted its national currency to Bitcoin alongside the US dollar in June is now partnering with Acumen, a DeFi lending platform, to power Bitcoin-backed loans.
“Basically what we are doing is an alliance with the government,” said Andrea Maria Gomez, a Project Manager for Acumen. “[The government] is not backing anything. They are just giving us the channels for which we will reach the small and medium enterprises.”
CONAMYPE, an acronym in Spanish that represents the national commission for medium and small enterprises, already offers business financing. Rates for this are generally high, and just like in the US, the qualifications to get financing are extensive. With Bitcoin-backed loans, it seems that the funding process will be the thing that affects El Salvadoran merchants the most.
“We work through a stable doc so investors put their crypto in there, we convert it into a stable coin, and what we eventually loan out to the end user is dollars,” said Gomez. “So we don’t give Bitcoin or Solana or anything like that, we give them dollars.”
“For [merchants], it’s easier,” Gomez continued. “You are not depending on the volatility of a coin, you just have dollars.”
Just like in the US, funders borrow money at high rates from banks, resulting in the cost of financing being pushed down to the final borrower. In a government that has Bitcoin as an official currency, Acumen can lend Bitcoin backed dollars at a lower rate than what’s already being offered in the marketplace.
“What we are doing, this is like an initial run, is we are going to contribute one fund to CONAMYPE for them to be able to [lend] at a lower rate,” said Gomez. “We can provide at a lower rate because in crypto, the capital is loaned at a lower rate.”
When asked about the lack of digitally-native people in El Salvador, Gomez stressed that the application process doesn’t require a crypto-enthused business owner. “Business owners don’t need to understand the tech or go to a wallet to ask for the loan. It’s a regular loan to them. The difference is, the source of the funds is coming from this protocol.”
The El Salvadoran government is confident that these loans will open up access to capital to small businesses who would have no alternative source for funding. Mónica Taher, Technological & Economic International Affairs Director at Government of El Salvador, shared her thoughts with deBanked about the vision for this plan down the line.
“The Bitcoin small loans for Salvadoran businesses will re-energize the economy by allowing the unbanked to have the opportunity to have access to digital money and create a credit history,” said Taher.
Fountainhead Hires Former SBA District Director as SVP
January 21, 2022S
mall business lender Fountainhead has hired former US Airforce Veteran and SBA District Director Joseph Amato as their new Senior Vice President. Amato served for four years as the District Director of the SBA’s Nevada District Office prior to taking his new position at FountainHead.
“Joe’s strong work ethic and extensive knowledge base will be an invaluable asset to Fountainhead, as we build on our past success as the largest nonbank SBA lender in the Southeast and execute our nationwide growth strategy,” said Fountainhead CEO and Founder Chris Hurn.
Amato assisted Nevada’s SBA program in the implementation of stimulus programs that helped keep many Nevadan businesses afloat during pandemic-induced lockdowns. Many of these stimulus programs have been credited to keeping places alive, like the businesses on the Las Vegas strip, for example.
“I’m eager to leverage my experience with the SBA and beyond to help Fountainhead drive financing opportunities and support to millions of small businesses across America,” said Amato.
This Just In: Crypto Transactions Aren’t Tax Free
January 20, 2022
Patrick White, CEO, Bitwave“I don’t always believe people that say they are surprised about having to pay taxes on crypto. There’s a field on your tax form to say where you’ve made money doing illegal things. If you sell drugs, there’s a place to report how much money you’ve spent selling drugs. The IRS doesn’t care. Everything is taxed in this country.”
There is no such thing as too many crypto transactions when it comes to accounting purposes according to Patrick White, CEO of Bitwave. Bitwave operates the software that does the accounting for major blockchain companies and retailers who have taken crypto as payment.
White says that the high volume of crypto transactions aren’t coming from individuals sending digital assets back and forth, but rather from the companies that host the infrastructure of these transactions.
“It’s not just trading, trading is fun and we all love the rat race that is trading, but where it’s a lot more interesting is how some of our customers who are in the NFT space are seeing millions of revenue transactions a month.”
These sites like OpenSea, a client of Bitwave, are seeing sky high amounts of these types of transactions. When asked about the cost of accounting for an individual doing ten-thousand trades a month, White laughed.
“Ten-thousand trades a month is nothing,” he said.
White spoke of an instance which is seemingly a common occurrence in the crypto world. “We had a customer who when we were running their [transactions], I couldn’t figure out [an issue] with one of their months. I went to go look at the data, and they had turned on a Binance bot and without even realizing it, they didn’t know this, they accidentally had 200,000 trades in a month. The volume is incredible.”
When asked about how digital assets have impacted the accounting world, White stressed that the amount of transactions have resulted in companies appearing larger than they are from a transactional-perspective. According to him, some of his clients are doing as many transactions as some of the largest companies in the world.
“[One client] is a one-year old company that is doing the volume of a sixty year-old retail business, it’s unheard of.”
When asked further about the difference of cost in accounting digital assets versus dollars, White explained that it isn’t much different than how larger companies have maintained their books for some time.
“No matter what, if you are a high frequency trader and you’re making hundreds of millions of trades a year, you will need software to deal with that,” said White. “I wouldn’t say that [the amount of transactions] are increasing costs across the board, it is a cost that you would already be expected to [have].”
When asked about the apparent vacuum of crypto-native accountants, White seemed to cast blame on the approach of the information. When hiring, he says he finds more value in people with engineering experience over accounting experience, and blockchain experience over anything else.
“[Other accountants] are trying to apply finance 1.0 things to this crypto world,” said White. “We look for good engineers. A good engineer can figure anything out, a bad engineer with accounting experience can’t. We’re looking for blockchain experience, as blockchain [technology] is more difficult than accounting in many ways.”
While most businesses will file extensions this time around and finish their taxes in October, White believes that blockchain accounting will become more widespread as new firms leverage the infancy of the space and settle into their niches.
“Cottage industries will come up in order to enable the IRS,” said White. “I don’t expect the IRS to build this technology or this understanding in-house. There will be people and businesses that will do it for them.”
With the IRS’ decisions about taxing crypto having the potential to change at any notice, White stressed the necessity for malleability when developing this kind of accounting technology in such an unpredictable space.
“We’ve designed Bitwave from the very beginning to be able to rapidly adjust to the new laws that are coming out,” he said. “Even back then, it was very obvious that we couldn’t build this tech in such a way that it is inflexible.”
