A Miami lender that was one of the biggest approvers of Paycheck Protection Program loans now finds itself in the crosshairs of a Federal Reserve bank in connection with its lending in the program.
Benworth Capital approved more than $4 billion of the forgivable federal loans designed to keep small businesses afloat during the COVID-19 pandemic, which earned Benworth more than $680 million in fees.
The lender was sued earlier this month by the Federal Reserve Bank of San Francisco, which provided Benworth with the money it used to make its PPP loans. The Federal Reserve bank said that Benworth is in breach of its contract with the bank and is demanding that Benworth immediately repay nearly $67 million the bank says it is still owed.
It appears to be the only lawsuit to date brought by a Federal Reserve bank against a lender in the program.
The lawsuit also says that Benworth fraudulently transferred funds from Florida to Puerto Rico and paid more than $49 million between 2021 and 2024 to the bank’s founder and chief executive officer, Bernie Navarro, who is named in the lawsuit, along with his wife, Claudia.
The politically connected Navarros are longtime friends and financial supporters of U.S. Sen. Marco Rubio and hosted an event for Rubio at their Coral Gables home ahead of his failed bid for the Republican presidential nomination in the 2016 election cycle. The pair have also donated thousands of dollars to support other Florida Republicans, most notably U.S. Sen. Rick Scott.
Bernie Navarro has held numerous civic and professional leadership positions in the past — including as former chair of the Miami Dade College Board of Trustees and former president of the Latin Builders Association — and once even contemplated a run for Miami-Dade County mayor.
The lawsuit comes in the wake of a May ruling by a California arbitrator that Benworth must pay $118 million to an upstart technology company called Womply that it had partnered with on its PPP lending. Benworth told the Federal Reserve bank that it might not be able to pay the technology company what it owes, which ultimately triggered the Federal Reserve’s demand for immediate payment.
The Federal Reserve bank has also filed a motion to intervene in a related lawsuit between Womply and Benworth, arguing that it has a priority over Womply to collect what it is owed first.
In a statement, Benworth said “we categorically deny these allegations” and that the company “has always upheld its legal and ethical requirements under the law and in all its dealings.”
The Federal Reserve Bank of San Francisco declined to comment on the lawsuit.
Benworth’s prolific lending in the federal program was driven by its partnership with Womply, which automated the PPP approval process, allowing the lender to process hundreds of thousands of applications quickly.
But Benworth and other lenders who worked with the technology company ultimately came to doubt Womply’s vetting of applicants, and Womply was accused in a congressional report of contributing to “rampant fraud” in the program.
“Unfortunately, these lenders are still dealing with the aftermath that Womply has caused to our businesses,” Benworth said in its statement, attributing the lawsuit by the Federal Reserve bank to Womply’s actions.
Benworth also told the bank that it hasn’t been able to get reimbursed by the U.S. Small Business Administration for thousands of PPP loans it approved because Womply has failed to turn over documentation for those loans, according to the lawsuit.
In spite of Womply’s alleged failings, Benworth and other lenders who partnered with Womply were required to turn over the bulk of the fees they earned on PPP loans to the technology company, under the terms of their contracts.
Benworth has already paid Womply nearly $465 million, which is over two-thirds of the more than $680 million in fees it earned from approving PPP loans, according to court records.
In May, a California arbitrator ruled that Benworth owes Womply $118 million more, as per the terms of their original contract.
The Federal Reserve bank’s lawsuit came after Benworth told the bank that it might not have enough cash to pay Womply what it owes.
The lawsuit says that the Navarros established a Puerto Rican offshoot of Benworth in 2021 and moved most of their Florida business there. Benworth’s Florida entity transferred more than $50 million to the Puerto Rican entity, according to the lawsuit, “which left Benworth FL unable to pay its debts as they came due, insolvent, and with inadequate capital.”
Benworth’s Florida entity is completely owned by Bernie Navarro, while the Puerto Rican entity is 99% owned by Claudia Navarro, according to the complaint, which notes that Bernie Navarro has been accused in the past of moving assets to his wife to avoid paying debts.
Benworth also transferred more than $49 million to Bernie Navarro between 2021 and 2024 in the form of dividends, according to the lawsuit.
Billions of fraudulent loans
The Paycheck Protection Program was created as part of the March 2020 Coronavirus Aid, Relief and Economic Security, or CARES, Act. While the $800 billion loan program undoubtedly kept thousands of businesses afloat during the early days of the COVID-19 pandemic, the program was also beset with fraud from the outset.
Last year, the Small Business Administration’s Office of the Inspector General estimated that $64 billion worth of potentially fraudulent PPP loans were disbursed through the program.
Womply and other financial technology, or fintech, companies were accused of facilitating extensive fraud in the program through lax anti-fraud controls, according to a scathing congressional report release in late 2022.
Following the congressional investigation, which was triggered in part by the Miami Herald’s reporting, Womply was barred from doing business with the Small Business Administration, which oversaw the program, a suspension that the agency said is still in effect.
Womply also recently reached a settlement with the U.S. Federal Trade Commission, agreeing to pay $26 million in response to a complaint that it had falsely promised to obtain PPP loans for millions of small businesses that never materialized and that it would process those applications within 24 hours, which the company failed to do in numerous instances.
Another fintech company featured in the congressional report, Kabbage, agreed to a settlement in May of up to $120 million with the U.S. Department of Justice in response to allegations that it had submitted applications with inflated loan amounts and had insufficient anti-fraud controls.
Source Agencies
