Loopholes in a federal pandemic reduction program allowed the approval of hundreds of thousands of {dollars} in “small enterprise” help for Chicago-area firms tied to notoriously corrupt suburban contractors, the richest member of President Donald Trump’s cupboard and a rich Republican congressional candidate in subsequent month’s election, a WBEZ investigation has discovered.

In late March, quickly after the coronavirus pandemic led to shutdown orders in a lot of the nation, Congress and Trump started the Paycheck Protection Program. Supposed to avoid wasting jobs, the forgivable PPP loans shortly channeled greater than half a trillion federal taxpayer {dollars} to greater than 5 million firms throughout the nation at a time of spiking unemployment.

Trump and different proponents touted PPP as an effort to assist struggling small companies make payroll. The eligible firms had been outlined primarily as companies with fewer than 500 staff.

The loan-application course of additionally included safeguards to maintain the cash out of the fingers of enterprise homeowners with felony pasts.

However the U.S. Small Enterprise Administration, which administered the large program, faced widespread complaints that company pursuits and politically-connected gamers bought PPP loans, at the same time as minority-owned companies and actually small firms needed to wait longer for the cash — or by no means bought any.

And WBEZ’s investigation discovered the businesses in Illinois that had been authorized for PPP loans included:

  • The Palumbos, a household that was banned from bidding for federally-funded contracts because of corruption convictions in 1999. Now, a Palumbo household enterprise has come up once more in an ongoing authorities corruption investigation.

  • A Chicago tech agency listed for years on the private financial disclosure statements filed by Trump’s training secretary, Betsy DeVos. She has invested in a private-equity fund with an curiosity within the firm.

  • The ice cream store chain of Republican congressional candidate Jim Oberweis — although he has boasted in the course of the marketing campaign that he employed greater than 1,400 folks. The free-market conservative has beforehand spoken out towards sending People extra COVID-19 stimulus checks, although his household’s enterprise took roughly $6 million from a PPP mortgage.

The PPP guidelines are riddled with language that cleared the best way for the approval of these loans and others which may seem to contradict the spirit of the initiative, which was a key a part of the $2 trillion federal coronavirus aid package often known as the CARES Act.

For instance, this system’s utility kind required firms to reveal solely felony convictions in recent times or ongoing felony circumstances involving their homeowners.

Nothing stopped firms which have acquired cash from rich private-equity funds from being authorized for PPP loans.

And there was an extended checklist of exceptions to the cap on the variety of people who PPP recipients might make use of, together with a loophole that opened the best way for even huge restaurant chains to get hundreds of thousands of {dollars} every.

“This system had various loopholes,” says Aracely Panameño, co-leader of the small enterprise lending group and director of Latino affairs for the Heart for Accountable Lending, a nationwide group primarily based in North Carolina.

She famous that lots of the smallest companies encountered nice problem accessing PPP loans as a result of they lacked preferential standing with the banks processing functions for the funding. That was very true in the course of the essential first few weeks after the shutdowns started and this system went into impact.

The principles allowing comparatively huge firms to take part in this system additionally had been dangerous to many companies that haven’t any staff apart from the proprietor and different “microbusinesses” with lower than 20 employees, she mentioned.

“There’s an unfair benefit to those that are well-connected and a drawback to those that don’t have the connections,” Panameño mentioned. “It’s significantly pernicious to enterprise homeowners of colour.”

The SBA has refused to launch the precise quantities of every PPP mortgage within the taxpayer-funded program. However a WBEZ evaluation of SBA knowledge discovered not one of the 250 firms in Illinois authorized for the most important loans — between $5 million and $10 million every — recognized their homeowners as folks of colour.

Out of greater than 1,100 firms within the state that bought PPP loans of between $2 million and $5 million, solely six mentioned they had been owned by African People, six by Hispanics and 6 by Asians, in keeping with the information.

These findings echoed related experiences on the racial inequities in the PPP initiative nationwide.

However the SBA’s regional administrator for the Nice Lakes states, together with Illinois, instructed WBEZ a lot of the information is incomplete and doesn’t mirror the entire loans that went to minority-owned companies.

“May we now have finished a greater job? Yeah,” Robert Scott mentioned Monday. “However the purpose of this system was to get the cash out as quick as doable — save as many companies and jobs as quick as doable.”

Scott famous that this system started taking functions inside every week of getting bipartisan approval from Congress and from Trump.

“We had been flying the aircraft and constructing it on the identical time,” Scott mentioned.

Many guidelines had been added, he mentioned, as this system developed, and that meant some mortgage cash went to companies that ought to not have been eligible for PPP help.

Certainly one of Illinois’ most infamous corruption schemes

The Palumbo household constructed lots of the expressways within the Chicago space however discovered itself on the heart of a infamous corruption case within the late Nineteen Nineties. Three family members — Peter Palumbo and sons Joseph and Sebastian — had been sentenced to jail phrases for fraud after two of the household’s firms admitted overbilling for development supplies on street initiatives.

A state worker additionally bought a jail time period for taking bribes within the scandal, and the Palumbos promised to pay a complete of $15 million in restitution and fines.

When the choose of their case mentioned even these penalties had been too little for what they’d finished, the highest federal prosecutor on the time, Scott Lassar, replied that the plea discount was truly good for the federal government.

That was partly as a result of it averted a prolonged trial, Lassar mentioned. And in keeping with information experiences on the time, Lassar mentioned the Palumbos agreed to a permanent ban from bidding on street initiatives funded with federal cash.

However greater than 20 years after the Palumbos had been convicted and did their time, that ban has not saved the household’s present firms from raking in as a lot as $5.35 million in PPP cash from Washington, in keeping with federal and state paperwork.

Orange Crush LLC has 73 staff and was authorized for between $2 million and $5 million on April 8. The managers of the corporate, which is predicated in west suburban Hillside, embody Sebastian Palumbo, state information present.

A second PPP mortgage of between $150,000 and $350,000 was authorized two days later for Palumbo Administration LLC, which has 16 staff and is in northwest suburban East Dundee. Joseph Palumbo is a supervisor of that firm.

The Palumbos didn’t reply to messages left at their firms.

One other entity involving Joseph Palumbo, PAL Land LLC of East Dundee, additionally has discovered itself on the heart of a burgeoning corruption scandal this yr.

William Helm, a longtime Chicago political operative and metropolis Aviation Division official, has been charged with paying a bribe to a state senator to assist win approval for an East Dundee mission involving Helm’s consulting shopper, PAL Land LLC, in keeping with courtroom information and a supply near the investigation. However the Palumbos haven’t confronted any allegations of wrongdoing within the case.

And neither their previous felony information nor the continuing federal investigation prohibited the Palumbos from getting federal PPP help.

The clean utility kinds for potential PPP debtors state that functions is not going to be authorized if an proprietor of the corporate is “presently incarcerated” for a felony or is presently going through “formal felony prices.”

The one different moral issues that might disqualify an applicant are committing a felony akin to fraud in a federal mortgage program over the last 5 years or getting in bother for some other felony within the earlier yr.

The SBA has rejected WBEZ’s requests for copies of accomplished, profitable functions for PPP loans from Orange Crush and different Chicago-area firms, saying privateness exemptions within the open-records regulation stop higher transparency.

Scott, the SBA administrator, mentioned the foundations limiting the eligibility of ex-offenders had been loosened lately to permit for PPP loans to enterprise homeowners who reformed themselves after felony convictions.

“Our nation, we’re all about second possibilities,” Scott mentioned. “I perceive there’s lots of public corruption circumstances in Chicago and Illinois and elsewhere within the nation. However there’s additionally lots of people who had felonies … that reformed themselves, and began a enterprise, they usually’re profitable now and turned their lives round.”

DeVos’ earnings from Chicago firm

DeVos, the federal training secretary, hardly suits the outline of a struggling small enterprise proprietor.

Her internet value was estimated at $2 billion, which meant she had twice as a lot cash as the remainder of Trump’s cupboard secretaries mixed, in keeping with a 2019 report in Forbes journal.

The daughter of a profitable enterprise proprietor from Holland, Mich., DeVos married into the household that runs Amway, the multilevel-marketing firm headquartered close to Grand Rapids, Mich. Her father-in-law was a founding father of Amway and her husband was its chief government.

After Trump was elected in 2016, he appointed DeVos to guide the U.S. Division of Schooling, and that required her to file an annual public monetary disclosure report.

Betsy DeVos observes a classroom in Phoenix wearing a mask
U.S. Secretary of Schooling Betsy DeVos observes a classroom setting Thursday, Oct. 15, 2020, on the Phoenix Worldwide Academy in Phoenix. Matt York / Related Press

Every year since she joined the Trump administration, she has listed her funding in a private-equity agency in Grand Rapids known as Bridge Avenue Capital Fund I LP. DeVos additionally has disclosed annually that the fund “owns pursuits in” a number of firms, together with Callpod Inc., which is predicated in Chicago’s Greektown. In keeping with DeVos’ statements to authorities ethics officers, Callpod is an organization that “sells common mobile phone adapters, equipment, software program and energy modules.”

DeVos reported investing at least $351,000 and as much as $765,000 within the fund. She mentioned the funding yielded no earnings “or lower than $201” in 2016, 2017 and 2018. However in her newest disclosure kind, filed on Could 14, she mentioned the fund that invested in Callpod had earned her greater than $44,000 final yr.

Callpod was among the many wave of firms that bought assist from the primary spherical of PPP funding. Federal knowledge present Callpod bought authorized for a mortgage of at the very least $2 million and as a lot as $5 million to assist it meet payroll for 138 staff on April 6.

The SBA disclosed that mortgage amongst greater than 27,000 in Illinois when it first supplied some knowledge on the PPP program in July. However in subsequent knowledge launched in August, Callpod was not listed among the many recipients of energetic loans.

No one on the firm would reply questions on its mortgage utility and approval, and federal officers refuse to touch upon particular person circumstances.

However the SBA’s Scott mentioned many companies that had different entry to funding, together with the Los Angeles Lakers basketball group and the Ruth’s Chris Steak Home chain, gave again PPP cash.

“You may’t fault the companies for making an attempt to navigate and making an attempt to seize something that was out there to attempt to preserve their staff paid,” Scott mentioned when requested about Callpod. “However as we issued these guidelines, people started to provide the cash again. … The scenario you supplied me, I’m positive that’s what occurred. I don’t know that for a truth however actually we now have a number of circumstances the place that occurred.”

Darren Guccione is co-founder and CEO of Callpod, and he additionally leads one other firm on the identical deal with and workplace suite the place Callpod is predicated. His different firm, known as Keeper Safety, created “one of the crucial profitable password-security apps on the market” and had “earned millions of dollars in profit,” in keeping with a Crain’s Chicago Enterprise story in 2015.

Via a spokeswoman, Guccione declined to touch upon the PPP utility from Callpod or on the traders in that firm.

The founder and managing director on the Michigan funding administration agency wherein DeVos has a stake didn’t return WBEZ’s calls. The fund started in 2004 with nearly $30 million, information present.

Personal fairness corporations inherently have huge benefits over small companies and the businesses they revenue from shouldn’t have been in a position to faucet PPP funding, mentioned Don Wiener, a researcher with the left-leaning Heart for Media and Democracy in Madison, Wis.

Personal-equity traders “can go into capital markets and lift cash with the big amount of money they maintain as collateral,” Wiener mentioned. “Small companies haven’t any such potential.”

On her disclosure kind, DeVos additionally reported earnings final yr from a agency known as Renaissance Acquisition Firm LLC. That enterprise is in Indianapolis and likewise bought a PPP mortgage for between $2 million and $5 million, in keeping with the SBA knowledge. DeVos’ disclosure assertion described the corporate as “the most important unbiased philanthropic options supplier in North America.”

The Division of Schooling’s media workplace declined to remark “since this pertains to the Secretary’s private funds,” and DeVos didn’t reply to WBEZ.

“The franchise loophole”

Along with his many runs for workplace as a conservative, free-market candidate, state Sen. Jim Oberweis, R-Sugar Grove, is greatest often known as chairman of his household enterprise, Oberweis Dairy.

Now, Oberweis is challenging first-term Democratic U.S. Rep. Lauren Underwood within the November basic election. He once more made reference to his success as a milk and ice cream magnate after winning the seven-way GOP primary within the 14th Illinois Congressional District in March.

In an interview on a conservative radio program on WIND-AM on March 31, Oberweis talked about how he constructed up an funding agency that had “$1 billion underneath administration” and later purchased the household dairy, now primarily based in North Aurora.

“Since then, we’ve grown it from 50 staff to about 1,400 staff,” Oberweis instructed the present’s host, Steve Cortes, who later quit his Chicago talk-radio gig to work for Trump’s re-election marketing campaign.

Eight days after that interview, Oberweis’ dairy enterprise bought authorized for a PPP mortgage, in keeping with federal information. A spokesman for Oberweis has mentioned the mortgage was value between $5.6 and $6 million.

In getting the mortgage, Oberweis Dairy took benefit of what specialists say is probably the most important loophole within the PPP guidelines. Companies which are within the “lodging and meals companies” industries can work across the worker restrict if they’ve “more than one physical location” and have fewer than 500 staff per location.

In keeping with the Oberweis Dairy web site, the chain consists of dozens of places within the Chicago space and extra shops within the suburbs of Detroit and St. Louis.

A hiring sign outside of a Oberweis ice cream and dairy store
A hiring signal is seen outdoors of a Oberweis ice cream and dairy retailer in Rolling Meadows, Unwell., Wednesday, July 29, 2020. Nam Y. Huh / Related Press

Panameño, the advocate for small enterprise lending, mentioned many fast-food chains capitalized on what she known as “the franchise loophole” within the SBA guidelines for PPP loans.

“They’ve entry to capital that microbusinesses didn’t have,” she mentioned. “A Black barbershop, an Asian nail salon, a Latina bodega proprietor who employs their very own family members and a pair different folks from their neighborhood — they don’t seem to be related or affiliated with a big franchise firm that gives entry to capital. These are the people who had been overlooked.”

Like Oberweis Dairy, one other chain firm in Illinois that bought a serious PPP mortgage was Potbelly Sandwich Works LLC of Chicago. The chain of sandwich retailers initially received funding, then gave it back after a public backlash — solely to simply accept $10 million, in any case, on Aug. 7, information present.

The one different firms in Illinois that took benefit of that very same loophole within the guidelines had been three Burger King, Marco’s Pizza and McDonald’s franchisees. On its web site, the McDonald’s franchisees say they personal and function 24 eating places with greater than 1,200 employees.

Scott, the SBA official, defended the loophole, arguing that it helped low-wage employees within the restaurant trade who might have misplaced their jobs.

“The PPP program, when it was supplied to those franchises, was not solely a lifeline to the companies but additionally to these staff,” he mentioned.

Oberweis’ congressional marketing campaign aides say he not takes a wage from Oberweis Dairy and his son runs it. However the candidate is the corporate’s chairman, did obtain earnings from Oberweis Dairy final yr and owns the “Oberweis Truck Barn” in North Aurora, in keeping with his economic-disclosure filings as an Illinois lawmaker.

Aides to Oberweis didn’t reply to WBEZ’s questions on how he would vote on future pandemic-relief proposals, if elected subsequent Tuesday.

However in his radio interview in March, Oberweis mentioned he strongly opposed one other key part of the CARES Act — this system that despatched $1,200 checks from the federal authorities to many People. He instructed Cortes he opposed any help of that kind as a result of he thought federal assist ought to have gone simply to those that are jobless.

“Individuals who have saved their jobs and are persevering with to work are going to be OK,” Oberweis mentioned. “Simply issuing folks checks — I don’t assume that works so properly.”

Disclosure observe: Chicago Public Media, the nonprofit that operates WBEZ, acquired $2.8 million in PPP funding {that a} spokesperson mentioned enabled the corporate to keep away from layoffs or furloughs for the primary few months of the pandemic. Chicago Public Media finally laid off 12 staff.

Dan Mihalopoulos is an investigative reporter on WBEZ’s Authorities & Politics Workforce. Observe him @dmihalopoulos.

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