At least $63 billion in improper payments, much of it fraud, have been distributed by the Federal government since the pandemic struck in March 2020. In California alone, state officials admitted that as much as 27% of unemployment benefits payments may have been fraudulent.
“Unemployment insurance fraud is probably the biggest fraud issue hitting banks today,” says Naftali Harris, co-founder and CEO at San Francisco’s SentiLink, which just closed a $70 million round of venture capital to expand its business of helping financial institutions detect fake and stolen identities for new account applications.
Craft Ventures, a San Francisco-based venture firm, led the Series B round which brings SentiLink’s total capital raised to date to $85 million. Felicis, Andreessen Horowitz and NYCA also joined SentiLink’s latest capital infusion.
SentiLink plans to use the capital raised to continue to help institutions with this recent increase in fraud instances spurred by the CARES Act. They also plan to expand their fraud toolkit to prevent other types of scams, such as “J1 fraud” and “same name” fraud, and investigate new ones.
Harris’ team has seen a huge uptick in fraud rates affecting their clients, as high as 90% among new applications, associated with the CARES Act COVID relief. Fraudsters have been using the same name, social security number or date of birth in several applications, filing in high volumes in several states.
According to Harris, his team is currently verifying around a million account openings per day, and is working with more than 100 financial institutions – due to a non-disclosure agreement Harris could not comment on which financial institutions his company serves.
The company says that beyond simply using artificial intelligence to detect fraud, they have a risk operations team that catches in real time cases of synthetic fraud – a form of identity theft in which the defrauder combines a stolen Social Security Number (SSN) and fake information to create a false identity – that would normally go unnoticed by their clients.
Harris discovered this type of fraud when he was working as a data scientist at Affirm in 2017. At the time, synthetic fraud was relatively unknown, so when he saw that crooks were creating brand new identities instead of stealing existing ones to apply for credit, he founded SentiLink to focus on tackling this new scam. “We realized this was a really big issue and that nobody in the financial services industry was talking about it,” says Harris.
Now, criminals are creating new identities or stealing existing ones to tap into unemployment benefits. Harris says the problem is not only them stealing from the government, but uncovering the tactics they use to deposit the stolen funds.
“What a lot of people don’t realize is that as a fraudster you have to be able to use the money stolen, and put it into the financial system,” Harris says.
To Harris, the biggest differentiation in SentiLink’s approach is how much it emphasizes “deep understanding of fraud and identity in our models.”
“We have a team of fraud investigators that manually review applications every day looking for fraud, and we use their insights and discoveries in our fraud models and technology,” he told TechCrunch. “This deep understanding is so important to us that every Friday the entire company spends an hour reviewing fraud cases.”
SentiLink, Harris added, focuses on “deeply” understanding fraud and identity, and then using technology to productionalize these insights. Those discoveries include the deterioration of phone/name match data and uncovering “same name” fraud. “This deep understanding is so important that SentiLink employs a team of risk analysts whose full time job is to investigate new kinds of fraud and discover what the fraudsters are doing,” the company says.
SentiLink, like so many other startups, saw an increase in business during the COVID-19 pandemic. “The various government assistance programs were rife with fraud. This had a cascading effect throughout financial services, where fraudsters that had successfully stolen government money attempted to launder it into the financial system,” Harris said. “As a result we’ve been very busy, particularly with checking and savings accounts that until now have had relatively little fraud.”
The startup plans to use its new capital to build out its product suite and do some hiring. Today it has 25 employees, with five accepted offers, and expects to end the year with a headcount of 45-50.
I’m an assistant editor at Forbes covering money and markets. Before joining Forbes, I worked at NextEra Energy, Inc. developing and implementing successful media relations and public relations campaigns in the energy industry.
I graduated from Stetson University with a degree in Finance, and have a master’s degree in Journalism and International Relations from New York University, where I worked as a staff writer for Latin America News Dispatch and New York Magazine’s Bedford + Bowery.
Brazil’s leading cryptocurrency exchange, Mercado Bitcoin raised $200 million from the SoftBank Latin America Fund, Mercado’s parent company 2TM Group announced today. The investment values 2TM Group at $2.1 billion and is SoftBank’s largest capital injection in a Latin America crypto company.
“This series B round will afford us to continue investing in our infrastructure, enabling us to scale up and meet the soaring demand for the blockchain-based financial market,“ says Roberto Dagnoni, executive chairman and CEO of 2TM Group. “We want to be the main solution provider for corporate players.”
The São Paulo-based exchange aims to increase the number of listed assets (the exchange currently lists approximately 50 tokens) and grow its 500-member team to 700 by year’s end. Further plans involve regional expansion with focuses on Mexico, Argentina, Chile and Colombia and growth acceleration across 2TM Group’s portfolio, which also include digital wallet provider MeuBank and digital custodian Bitrust (both are subject to regulatory approval).
Founded by brothers Gustavo and Mauricio Chamati in 2013, Mercado Bitcoin has become the largest cryptocurrency exchange in the country. In January, it scored its first financing round co-led by G2D/GP Investments and Parallax Ventures with participation from an array of other investors.
Over the same period, trade volume on the exchange had increased to $5 billion, surpassing the total for its first seven years combined. “Every single month [of this year], we are trading the full volume of 2020,” says Dagnoni.
“Mercado Bitcoin is a regional leader in the crypto space and the leading crypto exchange in Brazil. They are tapping into a huge local and regional addressable market measured by potential use cases for crypto,” says Paulo Passoni, managing partner at SoftBank’s SBLA Advisers Corp. (which manages the SoftBank Latin America Fund).
“At SoftBank we look to invest in entrepreneurs who are challenging the status quo through tech-focused or tech-enabled business models that are disrupting an industry – Mercado Bitcoin is doing just that.”
Despite the rapid growth of the local crypto market, Brazilian regulators have been lagging behind. In 2018, Brazilian antitrust watchdog, the Administrative Council for Economic Defense (CADE), opened an investigation into the country’s largest banks for allegedly abusing their power by closing accounts of crypto brokerages. The probe was ongoing as of last year.
In April 2020, Senator Soraya Thronicke proposed an extended set of rules for Brazil’s “virtual asset” businesses, custodians and issuers, consumer protection, crypto taxation and criminal enforcement, however no apparent action has been taken on the bill so far. Nonetheless, Dagnoni says the nation’s regulatory environment is favorable, and the company is closely working with regulators “to build a consistent framework for alternative digital investments in Brazil, in line with its vision of a convergence of the traditional and blockchain-based financial markets.”
I report on cryptocurrencies and emerging use cases of blockchain. Born and raised in Russia, I graduated from NYU Abu Dhabi with a degree in economics and Columbia University Graduate School of Journalism, where I focused on data and business reporting.
SoftBank Group Corp. is a Japanese multinational conglomerateholding company headquartered in Minato, Tokyo. The Group primarily invests in companies operating in the technology, energy, and financial sectors. It also runs the Vision Fund, the world’s largest technology-focused venture capital fund, with over $100 billion in capital, backed by sovereign wealth funds from countries in the Middle East.
The company is known for the leadership by its founder and largest shareholder Masayoshi Son. It operates in broadband, fixed-line telecommunications, e-commerce, information technology, finance, media and marketing, and other areas.
SoftBank was ranked in the Forbes Global 2000 list as the 36th largest public company in the world, and the second largest publicly traded company in Japan after Toyota.
Sherika Wynter was on a roll. Since releasing an insulated luxury tote bag for professionals in 2018, and subsequently selling out three times, her Maryland-based research and development company Thomas & Wynter had been featured in British GQ and the International Business Times and on several local news segments.
She walked into February 2020 with more notches on her belt: a Google small-business award and a joint venture deal with a prominent Black law firm to create another product for professionals.
“We were growing exponentially,” says Wynter, a Black entrepreneur who, with cofounder Shallon Thomas, started the business in 2014.
As the coronavirus threat escalated in early March, their sales declined, nearly hitting zero by April. That same month, Wynter laid off almost every member of her five-person team, save for one contract worker.
“Right now, we’re treading water and have applied for ten different grants with no success. It’s a little daunting, but we’re trying to carry the company on our backs,” Wynter says.
It’s no exaggeration to say that the pandemic has decimated small businesses and early-stage ventures, especially those owned by women and people of color. Black women sit at this juncture, bearing a disproportionate share of the virus’ impact.
For years, Black women have created new businesses at a rapid clip, far outpacing other racial and ethnic groups. But strong financial headwinds from the pandemic and a lack of access to new funding sources threaten to wipe out decades of economic progress, leaving Black female business owners in a state of perpetual uncertainty, waiting for relief they fear will never come.
The face of female entrepreneurship overall is becoming a lot less white. Black women represent 42% of new women-owned businesses—three times their share of the female population—and 36% of all Black-owned employer businesses.
High levels of educational attainment, coupled with overcoming barriers to corporate advancement, have prompted Black women to pursue entrepreneurship, where they’ve become a potent economic force. Majority Black women-owned firms grew 67% from 2007 to 2012, compared to 27% for all women, and 50% from 2014 to 2019, representing the highest growth rate of any female demographic during that time frame.
“There’s this assumption that entrepreneurship is a tech startup that’s venture-capital-funded because we see so much about Mark Zuckerberg and Elon Musk. People discount informal entrepreneurship and part-time business creation, which creates a narrow view of entrepreneurship,” says Donna Kelley, who has led research on the rate of Black entrepreneurship and serves as a professor of entrepreneurship at Babson College.
But the decade-long boom in Black business creation masks deep inequities in access to the financial resources needed to create businesses that reach maturation, which is widely recognized as past the five-year mark. There are fewer established Black female business owners relative to their high rate of entrepreneurship, Kelley says. “This is persistent over time, which tells us that fewer of them are sustaining their businesses into maturity.”
In America’s business ecosystem, it’s not uncommon for companies to operate in the red for years before becoming profitable. Their lasting power is often made possible because of outside investors or their ability to secure loans from commercial banking institutions or credit unions. But Black entrepreneurs have historically been locked out of these funding opportunities.
“A commonality for Black people, especially women, is that it takes longer to obtain capital, and so they have to put in a lot more sweat equity,” says Laquita Blockson, director of social innovation at Agnes Scott College and co-investigator on a study about the success of African American women-led entrepreneurial ventures.
The lack of access to capital also dictates, in part, to which industries Black women flock. “If you don’t have the personal resources to get your business up and running, you may pick businesses that are easy to get off the ground, but that are crowded with competition for similar products and services, and less opportunity for differentiation,” Kelley says.
Many of those businesses are in industries that have been severely affected by the pandemic, with about 40% of revenue generated by Black-owned businesses in the hardest-hit sectors, including leisure, hospitality, transportation and retail.
“Hair salons, catering, restaurants or anything related to events . . . all of that shut down, and so the success of business owners in those industries depends on how much they have in reserves or were able to get from the federal government—both of which pose challenges for Black entrepreneurs,” says Jeffrey Robinson, founding assistant director of The Center for Urban Entrepreneurship and Economic Development at Rutgers Business School.
When Sundrae Miller was forced to close the doors to her Adara Spa on March 26, she immediately sought out new funding sources. She received $2,300 under the Paycheck Protection Program, a $64,000 Economic Injury Disaster Loan and deferred her spa’s mortgage payment for one month. The Small Business Administration covered the next six months.
“That was my saving grace. If I hadn’t received that mortgage break, I’m afraid I’d be out of business,” says the Raleigh, North Carolina, resident.
Adara Spa reopened to the public on May 22, but business remains slow, and she fears a second state-mandated closure as winter approaches. In November, she’ll have to restart her mortgage payments.
Hunting for business grants has become like a full-time job for Miller, who often finds herself searching and applying for sources of capital until 2 a.m. She has applied for 21 grants to date, securing $23,000 from five of them. While the additional funding may seem sizable, Miller says she lost $20,000 each month her spa was closed and is losing $10,000 monthly since reopening at half-capacity. “I have a few grant applications out right now and I’m thinking to myself, ‘Okay, Lord, please let something come through,’” she says.
Little of the $670 billion PPP funding reached Black business owners, largely due to built-in structural limitations, such as stipulations around minimum headcounts and revenue requirements. When Wynter received a $1,000 PPP loan for her research and development company, she laughed. “They said, ‘Here’s a 30-year loan for $1,000,’ and I said, ‘What am I supposed to do with this?’ It was a slap in the face.”
Others had some success. The majority Black-owned architecture and engineering firm Sabir, Richardson & Weisberg (SRW) received a $150,000 Economic Injury Disaster Loan and a $280,000 PPP loan less than one month after applying for each.
“We usually have far under three months of runway. Without the PPP loan, we would have had to lay people off and not take a salary,” says Yvette Richardson, one of the company’s four partners, three of whom are Black.
Access to capital is a major predictor of business success and Black entrepreneurs find it difficult to weather economic duress, reach scalability and pivot away from unsustainable business models without financial backing.
“A lot of Black businesses will not survive this pandemic without more help. That is the sobering truth,” says Asahi Pompey, president of the Goldman Sachs Foundation.
Black business owners who apply for funding have a rejection rate three times higher than that of their white counterparts, according to a Goldman Sachs 10,000 Small Businesses report that surveys participants in a program bearing the same name.
Some 43% of Black-owned businesses in Goldman Sachs’ entrepreneurial program say they are likely to lose their cash reserves by the end of 2020, versus 30% of the overall program’s population, and 31% say less than 25% of their pre-Covid revenue has returned, compared to 16% of the overall population. The report defines growth-oriented entrepreneurs as individuals with businesses that have revenues of around $150,000 and two to six employees.
“This data lays bare the structural inequities Black people face and that’s born out in their entrepreneurial endeavors,” Pompey says. Already, Covid-19 has shuttered 41% of Black-owned businesses, compared to just 17% of white-owned businesses.
Blockson warns that not only will Black female entrepreneurs find it difficult to survive this period of economic downturn, but also that those who temporarily close shop will find it far more challenging to reopen.
“It will be a huge shock in the economic system, and it is raising alarms,” she says. “But I am also very hopeful and optimistic that this could be a great opportunity for those who are positioned for it and able to make a shift.”
Some Black businesses are getting creative and diversifying their offerings to stay afloat. SRW, for example, has sought out more healthcare projects and is dabbling in HVAC technology, anticipating the services clients will need as the demand for indoor ventilation systems grows.
However, many small businesses aren’t easily adaptable without a massive infrastructure overhaul, which requires a significant financial investment. And most Black and women-led businesses only have a few weeks to a month of cash flow.
“This is a critical moment in time that is going to set us on a trajectory that could certainly be problematic in terms of the state of Black businesses for years to come,” says Goldman Sachs’ Pompey.
When small businesses flourish, so do their communities, and Black business owners often intentionally locate themselves in Black and Brown spaces, acting as economic spigots in these neighborhoods. Their erasure comes with far-reaching consequences, including the loss of jobs, community development and new economic opportunities for residents of underserved areas.
Nearly 75% of Black business owners in Goldman Sachs’ survey say they recently mentored others in their communities, compared to 50% of white business owners.
“It’s not just that it’s a single business that shuttered. It’s that it’s a pillar of the community and someone who’s a leader or a mentor. The blast radius impact of the pandemic on Black communities is something that can’t be overstated,” Pompey says.
The pandemic’s paradoxical silver lining is that it has brought increased attention to revitalizing small businesses, which provide almost half of all jobs in the U.S. At the same time, a resurgence of the Black Lives Matter movement has generated an influx of support for Black-owned businesses and corporate grants that cater to Black entrepreneurs.
Wynter is capitalizing on this surge in public interest and has seen a spike in online sales since the national reckoning on racial injustice began in June. Sales jumped from 7 orders in May to 87 in June, she says. “People have really been a free marketing mechanism for small businesses, which has been a blessing.”
Even still, she and her cofounder are wary about the longevity of their company. They tapped into their savings in September, putting a combined $8,000 into the business, and are raising new funds through a friends and family round.
“As a business owner, you plan and you try to bob and weave through things,” she says. “But there is no way to bob and weave this pandemic. You have to take its hits and hope that you don’t get knocked out.”Follow me on Twitter. Send me a secure tip.
I’m a reporter covering the various aspects of diversity and inclusion in business and society at large. Previously, I was a reporter at CNBC, where I focused on leadership and strategic management. I’ve also dabbled in video journalism, working as a breaking news digital producer for New York Daily News, followed by a yearlong stint as a producer at Rolling Stone. My work has been featured on New York Daily News, Yahoo Finance and Time Out. I’m a proud alumna of Columbia University Graduate School of Journalism, receiving honors for my investigative thesis on the alarming number of physicians dying by suicide. Tweet me @ruthumohnews or send tips to firstname.lastname@example.org