For a few months this year, a U.S. government aid program meant for struggling small-business owners was handing out $10,000 to just about anyone who asked. All it took was a five-minute online application. You just had to say you owned a business with at least 10 employees, and the grant usually arrived within a few days.

People caught on fast. In some neighborhoods in Chicago and Miami, it seemed like everyone made a bogus application to the Small Business Administration’s Covid-19 Economic Injury Disaster Loan program. Professional thieves from Russia to Nigeria cashed in. Low-level employees at the agency watched helplessly as misspent money flew out the door.

Even after the $20 billion in funding for grants dried up in July, the fraud continued, as scammers looted a separate $192 billion pot of money set aside for loans. “I’ve never seen anything like it,” said an SBA customer-service representative who spoke on the…

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