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Benny

It’s a shame our SBA has been corrupted.

Atlantic Diving Supply, a billion-dollar defense contractor, got SBA loans.

A military equipment supplier that has been accused of fraudulently misrepresenting its size in order to benefit from privileges associated with being a small business has received a Paycheck Protection Program small business loan worth at least $2 million, public records show.

Atlantic Diving Supply, a Virginia Beach, Va.-based reseller of specialized military gear, is the latest organization whose receipt of taxpayer-backed loans through the Paycheck Protection Program has raised questions about a program launched in early April to help sustain employment at small companies through the economic crisis.

In late April, the Treasury Department retroactively clarified its rules after well-known restaurant chains, car dealerships and hotel companies reported receiving PPP loans. Several of them returned the loan funds following public uproar; others kept the money. The SBA has said it will audit all PPP loans above $2 million to determine whether the recipients were eligible.

Representatives from the Small Business Administration and Atlantic Diving Supply did not comment on the company’s receipt of SBA loans.

The company’s legal issues are detailed extensively in a report to be released Monday by the nonprofit Project on Government Oversight, known as POGO. A review of business data by POGO and the nonprofit Anti-Corruption Data Collective concluded that ADS was one of at least 27 PPP recipients estimated annual sales of more than $1 billion in 2019. Another 2,068 loan recipients cleared $100 million in sales last year, according to the analysis.

Nick Schwellenbach, a senior investigator at POGO, questioned whether it’s appropriate for ADS to receive small business coronavirus loans. Schwellenbach’s investigation also found that two other firms allegedly tied to ADS ― including one that was named in a settlement with the Department of Justice ― separately received smaller PPP loans.

“It’s important that taxpayer funding reserved for genuine small businesses isn’t siphoned off by companies that are not eligible,” Schwellenbach said. “As a top government contractor with revenues well over a billion dollars a year, it strains credibility that Atlantic Diving Supply is a real small business, especially given several recent settlements and law enforcement outcomes related to their alleged small business contracting fraud.”

Although it received a favorable ruling from the SBA as recently as November 2019, ADS’s small business credentials have long been called into question.

ADS started as a small, family-owned shop focused on the military diving community in Virginia Beach, which includes the Navy Seals. It was transformed under the leadership of long-time chief executive Luke Hillier, winning its first major government contract in 2000. It grew quickly to meet an insatiable demand for military gear of all sorts in the years following 9/11.

That fast growth became permanent business as the U.S. military presence in Iraq, Afghanistan and elsewhere dragged on for nearly two decades.

At one point, ADS filed papers to go public, something that is usually the purview of large corporations. In 2015 it purchased Theodore Wille International, a military food and equipment supplier with offices in seven countries.

Its business has remained healthy despite recent troop reductions. ADS received more than $3 billion in unclassified government contract dollars in 2019, procurement records show. That’s more than some well-known, objectively large government contractors, including Bechtel, KBR and CACI. ADS has already cleared $1 billion in federal contract receipts in 2020 despite the economic crisis.

How did Atlantic Diving Supply manage to maintain its small business status while raking in billions in government contract dollars?

As it has grown ADS’s continued status as a small business status has been critical to its participation in the Defense Department’s Tailored Logistics Support, or TLS program, a lucrative military supply line that is largely restricted to SBA-approved small and disadvantaged businesses.

In recent years, ADS’s official headcount has teetered close to the SBA’s 500-employee limit for small-company designation, and the company has fought off repeated challenges to its size status. If ADS were declared “no longer small,” it would not only be ineligible for SBA coronavirus assistance, but would also be forbidden from competing on small business set-aside contracts that drive its business.

In 2017, ADS settled federal allegations that it used a network of allegedly-affiliated companies to rig bids and fraudulently misrepresent its size. The Justice Department called the $16 million settlement “one of the largest recoveries involving alleged fraud in connection with small business contracting eligibility.”

Hillier, who has moved on from the CEO role but remained the company’s chairman as of July 20, according to a company filing, separately paid $20 million to settle federal allegations that he “violated the False Claims Act by fraudulently obtaining federal set-aside contracts reserved for small businesses that his company was ineligible to receive.” The settlements resulted from a Qui Tam lawsuit brought by whistleblowers.

Two of the alleged affiliate businesses — Karda Systems and SEK Solutions — were named in a related case in which Ron Villanueva, a former state lawmaker from Virginia Beach, pleaded guilty to federal charges that he conspired to defraud the United States. Villanueva admitted that he and a friend pretended both companies were run by people who qualified for particular grants and drafted a misleading letter to the SBA that mischaracterized the degree to which one firm relied on other suppliers.

ADS briefly lost its small business designation as a result of those allegations when a Defense Department contracting officer, concerned by ADS’s settlement, requested a formal SBA review of the company’s size status and its degree of affiliation with other companies named in the whistleblower lawsuit, according to documents obtained by The Washington Post. That SBA review determined that ADS was “other than small,” which temporarily blocked the company from bidding on set-aside contracts. But ADS successfully appealed that ruling, which was reversed because it relied on old financial records.

Today the company continues to receive federal contracts designated for small firms. Because the settlements arrived at by ADS and Hillier did not include a determination of liability, the company has been allowed to keep benefiting from the SBA’s various small business programs. Its most recent size determination was finalized in November 2019.

Benny

More about questions surrounding SBA’s administration of the loans.

Small Businesses Got Emergency Loans, but Not What They Expected

For nearly 70 years, the Small Business Administration’s disaster relief program has helped companies recover from catastrophes including wildfires, hurricanes and earthquakes. But it has never faced anything like the coronavirus crisis.

Besieged by more than eight million applicants — and operating in the shadow of the hastily assembled Paycheck Protection Program — the disaster relief effort has given out more money in the past few months than it had in its entire history.

But the demand has created a problem that is hobbling hundreds of thousands of applicants: The agency, afraid of running out of cash, capped its coronavirus loans at a fraction of what companies can normally borrow — even though the program has handed out less than half the $360 billion it can lend.

Caroline Keefer, a clothing designer in Los Angeles, had expected to qualify for a loan of at least $500,000 based on a complex formula devised by the agency. But when her loan offer arrived in May, it was for $150,000 — the ceiling the S.B.A. quietly put in place that month. Qualified companies can usually take loans of up to $2 million.

“Without the extra capital, it will be very difficult for us to survive,” she wrote in a direct appeal to Jovita Carranza, the agency’s administrator, and James Rivera, the head of the agency’s disaster office.

The limit has crimped Ms. Keefer’s efforts to salvage a business that did $2 million in sales last year. Her company, River + Sky, sells directly to merchants like boutiques, department stores and hotel spa shops. In the space of just a few days in March, as virus shutdown orders cascaded throughout the country, nearly $700,000 in orders — all of her spring and summer season — evaporated. She was left with a pile of unpaid bills for inventory that she suddenly had no place to sell.

Six days after she wrote to the agency, representatives there acknowledged that she had run up against the cap. Officials “do not anticipate increasing loans above this amount,” the representatives said in an email.

Ms. Keefer is grateful for the help she received, but irked by what she sees as an arbitrary, poorly explained limit that was put in place after other businesses got bigger loans early in the crisis. Data released by the agency last month showed that it had made at least 20,000 disaster relief loans for more than $150,000. Its largest was for $900,000 in early April.

Nearly 400,000 businesses have run into the $150,000 limit, according to the agency’s data. S.B.A. representatives declined to comment on the cap or why it was imposed.

The cap has been just one problem with the disaster program, officially called the Economic Injury Disaster Loan program. Applicants faced long delays, confusing procedures and communication lapses. And on Tuesday, the agency’s internal watchdog said that hundreds of millions of dollars handed out through the program may have been fraudulently obtained.

Ms. Keefer used some of the disaster loan money to retool her business so she could sell directly to customers. But she’s also had to borrow more money.

The disaster loan program, a core part of the agency’s operations since it was founded in 1953, is more flexible. The program offers companies with 500 or fewer employees low-interest loans for terms of up to 30 years, which can be used for nearly any business purpose, including buying protective equipment and keeping up on debt payments.

Since March, it has lent out $164 billion in EIDL (pronounced “idle”) loans, more than twice what it previously distributed in its entire existence, to three million companies. Nearly $200 billion is currently unused.

More than two million other businesses have been offered loans but have not yet accepted them, so much of the unused money could still be lent out. But the agency’s ability to forecast how much money it will distribute may have been complicated by a decision Congress made in March to speed aid.

As the coronavirus pandemic took hold, Congress increased its allocations to the agency, enough to support $360 billion in loans. But it also set aside another pool of money for the S.B.A. to distribute as grants to those who applied to the disaster loan program, whether they received a loan or not. The $20 billion for those grants — up to $10,000 per applicant — ran out last month.

Any business that wanted the grant was part of the applicant pool, even if it had no intention of taking a loan. (Applicants have up to 60 days to make a decision about taking the loan.)

It is not clear what role that uncertainty played in capping loan amounts, and agency officials have offered little clarity to lawmakers about the loan limit.

During a House hearing last month, Ms. Carranza was pressed by representatives from both parties about why the agency has not lifted the $150,000 limit. She said she would “continue assessing it.”

Two senators — John Cornyn, Republican of Texas, and Jacky Rosen, Democrat of Nevada — introduced legislation on July 21 that would provide the agency with billions more for its disaster loan program and prohibit it from capping loans at less than $2 million.

Ms. Rosen said the agency had not explained its “arbitrary” caps. The agency has “refused to publicly request more financial support for EIDL, despite small businesses across the country struggling to cover their operating costs,” she said.

The cap has left many borrowers with loans that they fear will not be enough to keep their businesses afloat.

Nicholas Johnson runs Su Casa, a furniture retailer with four stores in Maryland and Delaware. After all his shops were shuttered in March, he calculated that he would need around $500,000 to keep the company alive.

He got $157,000 in April through the Paycheck Protection Program, which he did not tap into until his stores started reopening in late May and his staff members began to return. Based on his operating costs and revenue, he expected to qualify for a $380,000 disaster loan.

Receiving an offer in May for just $150,000 — less than half of what he had anticipated — was “like a punch in the gut,” he said. He spent many sleepless nights, he said, wondering how he would fill his projected $200,000 shortfall.

So far, Mr. Johnson is managing to survive on higher-than-expected sales from his reopened stores, but he is anticipating rough months ahead. “My supply chains are all but broken,” he said. “At some point, revenue will taper off again because I won’t have anything to sell. I’m trying to build a buffer, because I know there’s more pain to come.”

For some, the cap is a minor impediment: Joy Parisi, the owner of Paragraph, a writers space with two locations in New York City, said her disaster loan was enough to give her breathing room to chip away at unpaid bills and overdue rent.

But others would borrow more from the program if they could. Ms. Keefer also received a $48,000 P.P.P. loan, which she is using to pay two employees, but it did not come close to closing the gap.

With her wholesale business in tatters, she pivoted to consumer sales. The disaster loan paid off her most urgent bills and allowed her to hire an agency to improve her retail website. Then she started buying ads on Facebook and Instagram.

The strategy shift has helped: In June, she more than doubled what she sold directly in all of last year. But that is still only a sliver of what she would usually make. And now Ms. Keefer needs cash to start manufacturing her fall and winter merchandise.

Seeing no other options, she took out an expensive loan from an online lender. It feels, she said, like a payday loan: “You have to start paying it back immediately, and it’s like a trap — you end up borrowing more just to keep up.”

The cash crunch has forced her to manufacture her clothing in smaller, more expensive batches; limit her marketing budget and hold off on rehiring more workers. If she could borrow more money from the government, she said, she would immediately spend it on expanding her company — exactly the kind of economic activity the government wants to encourage.

“The EIDL loan is perfect; it’s exactly what we need to steady our ship,” Ms. Keefer said. “We just need more of it.

polarbear4
polarbear4

while I sympathize with her and wish her well, part of the problem may be that these owners are not considering reducing their prices, making less of a profit. this is a time of learning to live on less. boutique prices are usually insanely high.

jcitybone

jcitybone

polarbear4
polarbear4

Benny

Benny

Benny

@LieparDestin @wi62

Wi61
Wi61

No worries,the mrs.and i just sent for our absentee ballots for the primary and the presidential elections

Benny

I have sent off for my mail-in ballot.

orlbucfan

Request already received for November mail-in ballot. Primary ballot sent and counted. 🙂

Benny

polarbear4
polarbear4

dems always warn threaten cajole but don’t want leaders who will actually fight for tbese things in power.

wi62

You mean fight like they did when obama nominated a judge?

orlbucfan

Sounds like it’s over RBG’s health. She is one tough cookie, and will make it through the general election.

Benny

polarbear4
polarbear4

Benny

I hope Markey wins and I’m glad to see some attention brought to this primary.

Benny

This is what Andrew Yang was talking about during the campaign. It’s not just the manufacturing industry.

polarbear4
polarbear4

Obama has been speaking about how government needs more propaganda, er, celebration in the media. iwish he would just go away. he’s like the hillary you can’t diss.

you notice no call for hand marked paper ballots, no m4a, no gnd.