Founders who arranged PPP loans for more than 3,200 LI firms face 20 years for COVID-19 fraud

The founders of a financial technology firm that arranged pandemic relief loans for thousands of small businesses nationwide — including more than 3,200 on Long Island — are each facing up to 20 years in prison for fraud, prosecutors said.

Blueacorn co-founder Nathan Reis pleaded guilty last week to conspiracy to commit wire fraud by submitting false applications for Paycheck Protection Program loans in 2020 and 2021 on behalf of his own businesses and thousands of others.

Blueacorn earned more than $1 billion from its illegal activity, according to a congressional investigation published in 2022. 

Reis "had the opportunity to help small businesses overcome tremendous financial hardships during a time of national crisis but instead exploited the system to line his own pockets with taxpayer money," said Nancy E. Larson, acting U.S. Attorney for the Northern District of Texas, in announcing Reis’ guilty plea on Aug. 11.

The plea came seven weeks after Reis’ wife and Blueacorn co-founder, Stephanie Hockridge, was found guilty of one count of conspiracy to commit wire fraud by a jury in a Fort Worth, Texas, trial. She was acquitted on four counts of wire fraud.

Reis’ attorney told Newsday he wasn’t available to comment. Hockridge’s attorney didn’t respond to a request for comment.

Reis, 47, will be sentenced on Nov. 21. Hockridge, 42, will be sentenced on Oct. 10, but she has requested an acquittal or new trial, according to filings in U.S. District Court for the Northern District of Texas.

After selling Blueacorn, the couple moved to Rio Grande, Puerto Rico. They founded the company in Scottsdale, Arizona, in April 2020.

Hockridge is well known in Arizona, having spent seven years as a television anchor for Phoenix’s ABC15 before going into business.

The couple allegedly inflated the payroll and revenue of their businesses and those of others to win PPP loans totaling up to $65 million when COVID-19 was at its worst. The government-guaranteed loans, established in spring 2020, were forgivable under certain conditions and meant to help employers survive the economic shutdowns imposed to slow the virus’ spread.

Reis and Hockridge "enriched themselves by submitting and causing the submission of fraudulent" loan applications to lenders with false tax returns, bank statements and other documents, federal prosecutors said.

The couple allegedly charged borrowers a kickback based on the size of their PPP loan.

Blueacorn was hired by two Community Development Financial Institutions — Prestamos and Capital Plus Financial — to collect and review loan applications. CDFIs often support businesses that are owned by members of minority groups or are in poor neighborhoods.

The PPP applications were then submitted for approval to the U.S. Small Business Administration. The CDFIs paid Blueacorn a percentage of the fees they received from the SBA, which oversaw the relief program.

"In order to obtain a greater volume of kickbacks from borrowers and fees from the SBA, Reis, Hockridge and their coconspirators submitted PPP loan applications they knew contained materially false information," according to the indictment.

Together, Bedford, Texas-based Capital Plus and Phoenix-based Prestamos made 3,211 PPP loans on Long Island totaling $46 million, or less than 1% of the regional total of $10.5 billion, according to a Newsday analysis of SBA data.

Spokespeople for Capital Plus and Prestamos didn’t respond to requests for comment. But in December, Capital Plus’ Andy Boian told Newsday the lender "acted in good faith to support ... underserved communities. We expected the same from those with whom we worked."

The SBA ended its relationship with Blueacorn in December 2022 after a congressional investigation into PPP fraud. The probe by the House Select Subcommittee on the Coronavirus Crisis found Blueacorn collected more than $1 billion in loan processing fees paid with government money, Newsday has reported.

Reis’ attorney, Kevin A. Chambers, said in a court filing that the fraudulent PPP loans totaled $130,000, not $65 million as alleged by prosecutors.

Hockridge’s attorney, Gregg Gallian, said in a court filing that his client "lacked knowledge of the unlawful nature of the conspiracy ... was kept in the dark by her conspirators, and tried to prevent fraud."

Prosecutors, in a court filing, said Hockridge "was an active participant in the fraud ... She was not simply a passerby."

During Hockridge’s seven-day trial in June, witnesses described her as "very meticulous and operations oriented" as well as "very demanding." Reis was called "a big thinker" who "wanted to make a lot of money," according to court filings.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.