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Fraud Friday – Frank Dinsmore’s $6 Million Payday

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February 7, 2014

By Bob Coleman
Editor, Coleman Report

FrankDinsmoreOkay, okay, I start with all the usual “alleged statements” caveat, and the “everyone is presumed innocent” statement, but SBA is certainly not using those terms in their 44 page enforcement action seizing SEM Resource Capital’s license and 504 loan portfolio.

SBA uses terms as “substantial law violations” and “serious compliance problems,” but that is getting ahead of the story.

SBA’s dispute with SEM lies in three areas; failure to fund its loan loss reserve requirements, its affiliation with EDF Resource Capital, a CDC with a revoked license, and failure to send SBA $6 million the agency is owed on property sold by SEM but retained by a Frank Dinsmore affiliated company to pay bills and fund law firm retainers.

Let’s follow the money on the third issue.

It’s pretty simple. According to SBA, the agency made a protective bid on a hotel via Frank Dinsmore’s CDC that was servicing Michigan’s loans. Frank then sold the hotel, and his affiliated company pocketed the entire sale amount without sending SBA a single dime – about $6 million, so says SBA.

Here are the players.

EDF Resource Capital, the CDC seized by SBA in December 2012 is operated by Frank Dinsmore and based in California.

SEM Resource Capital is the CDC sezied by SBA last week. It is operated by Frank’s wife, Marlies Dinsmore and based in Michigan, although her office is in the same building as EDF Resource Capital in California.

Again, to reiterate, all of the following statements come directly from SBA’s enforcement action pulling SEM’s license. If the Dinsmores have a problem with any of SBA’s statements, I will publish any amplification or clarification they wish to provide.

Here goes.

  • In December 2006 SEM approves a $2 million PCLP 504 loan to Green Road Hotels, a Hawthorne Suites hotel in Ann Arbor, Michigan.
  • Zions Bank is the third party lender at $4.3 million.
  • SEM contracts with EDF to service the loan.
  • In April 2009, Zions forecloses.
  • On June 10, 2009 SBA issues a check to Zions for $4.4 million to allow SEM’s servicer, EDF to purchase the first lien. Zions assigns the loan docs to EDF.
  • On June 16, 2009, EDF assigns the loan docs to Redemption Reliance, a for-profit loan servicing company owned 100% by EDF’s CEO, Frank Dinsmore.
  • On June 10, 2009, SBA issued another care and protection of collateral check for $623,000 payable to EDF for the payment of delinquent property taxes and hotel flag fees. EDF transfers the funds to Redemption.
  • In April 2010, Redemption takes title to the property by foreclosure sale.
  • In February 2012, Redemption sells the property for $5.6 million. (EDF is to remit the funds to SBA within 15 days says SBA.)
  • In September 2012, Redemption receives additional liquidation proceeds of $278,000 from the Receiver.
  • SBA Revokes EDF’s CDC license and seizes its 504 loan portfolio in December 2012.
  • “SBA made repeated demands on SEM’s affiliated servicer, EDF, and related party, Redemption, for remittance of the Green Road Hotels Loan liquidation proceeds and the unused CPC funds. Additionally, in a March 15, 2013 letter, SBA demanded that SEM immediately turn over to SBA all liquidation proceeds and unused CPC expenses for this loan and provide SBA with the certain reports relating to the loan including a detailed accounting of the liquidation recoveries. SEM failed to turn over the liquidation recoveries to SBA and failed to provide the requested information. While acknowledging its obligation on the Green Road Hotels Loan, SEM asserted that it cannot obtain any information or the funds relating to this loan.”
  • “It is SBA’s understanding that SEM’s related party, Redemption, transferred some or all of the proceeds of the sale of SBA’s collateral and the Receiver’s distribution to SEM’s affiliated servicer, EDF, in December, 2012. It is also SBA’s understanding that SEM’s related party, Redemption, continues to hold the approximately $623,547 in unused CPC funds in a Redemption bank account. Further, it is SBA’s understanding that SEM’s affiliated servicer, EDF, dissipated a substantial portion of the proceeds of the sale of SBA’s collateral by using the funds to pay EDF’s general creditors and by transferring funds to several law firms as retainers.”

SBA does not speculate if the retainers were for civil, or criminal matters.

 

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