Is Fraud Contagious? Social Connections and the Looting of COVID Relief Programs

Abstract

Fraud indicators within the Paycheck Protection Program (PPP), a major COVID relief program, are highly geographically concentrated. ZIP codes and counties with high rates of suspicious PPP loans are strongly social connected, with evidence that fraud spreads spatially over time through social networks. Individuals in suspicious social media groups have higher rates of PPP fraud, and socially connected ZIP codes frequently use the same specific FinTech lenders, consistent with social networks influencing detailed loan decisions. Our findings suggest that more proactive data analysis is needed for fraud prevention, detection, and prosecution to prevent the social spread of fraudulent schemes. (JELG21, G23, G28, H12)