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Fraud Friday Special Report — SBA, DOJ Announce Settlement with Frank Dinsmore, EDF Resource Capital for $6 Million

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August 28, 2015

Fraud Friday Special Report — SBA, DOJ Announce Settlement with Frank Dinsmore, EDF Resource Capital for $6 Million


EDF RESOURCE CAPITAL INC. AND CEO TO PAY $6 MILLION FOR ALLEGED VIOLATIONS RELATED TO SMALL BUSINESS ADMININSTRATION LOAN PROGRAM

WASHINGTON – EDF Resource Capital Inc. and its CEO, Frank Dinsmore, have agreed to resolve allegations that they violated the False Claims Act and otherwise failed to remit payments owed to the Small Business Administration (SBA) under the 504 loan program, the Department of Justice announced today. Under the settlement agreement, EDF and Dinsmore have agreed to make payments and turn over certain assets to the United States for a total settlement of approximately $6 million.

“Today’s settlement demonstrates our commitment to ensure that companies and individuals who elect to participate in federal programs live up to their statutory and contractual commitments, play by the rules, and deal honestly and openly with the federal government,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “The Department of Justice will continue to work side-by-side with the Small Business Administration to ensure that fraud committed by SBA program participants is thoroughly investigated and, where appropriate, vigorously prosecuted.”

The SBA 504 loan program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. Under the program, local lenders like EDF are responsible for arranging, servicing and collecting on these small business loans, which are guaranteed, in part, by the SBA. In return for the authority to make determinations on 504 loans without prior SBA approval, EDF was required to bear a share of any losses suffered by the SBA on such loans and to maintain a loan loss reserve fund (LLRF) to help ensure payment of its loss-sharing obligations.

Today’s settlement resolves claims that EDF and Dinsmore violated the False Claims Act in connection with EDF’s failure to maintain adequate reserves in its LLRF. EDF allegedly was required to fund its LLRF at a level determined by the riskiness of its 504 loan program portfolio yet knowingly concealed from the SBA hundreds of troubled loans to avoid its obligation to fully fund its LLRF.

The settlement also resolves a lawsuit filed by the United States against EDF and a related entity, Redemption Reliance LLC, alleging that EDF failed to remit required payments to the SBA to satisfy its loss-sharing obligations. The lawsuit also alleges that the SBA agreed to advance funds to EDF in connection with certain defaulted 504 loans but that, after EDF assigned the loan documents for these loans to Redemption Reliance, neither EDF nor Redemption Reliance remitted the monies owed on these loans to the SBA.

“The 504 Loan Program provides small businesses with access to the capital they need to start, grow and succeed,” said General Counsel Melvin F. Williams Jr. of the SBA. “SBA has no tolerance for fraud, waste, or abuse by participants in the 504 Loan Program. Working with the attorneys at the Department of Justice and SBA’s Office of Inspector General, this settlement marks the successful conclusion of a major enforcement action.”

“The defendants’ misrepresentations to SBA knowingly put the taxpayer’s money at risk,” said Inspector General Peggy E. Gustafson of the SBA. “As stewards of the taxpayers’ money, the SBA must guard against losses within its loan portfolios. In this instance, the actions of the defendants did not allow SBA to protect taxpayers from such losses. I want to thank the Department of Justice and our investigative partners for achieving this settlement.”

The settlements were the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch, the SBA’s Office of General Counsel and the SBA’s Office of Inspector General Los Angeles Field Office’s Counsel Division and Investigations Division.

The lawsuit is captioned United States v. EDF Resource Capital, Inc., et al., Case No. 13‑cv-389 (E.D. Cal.). The claims resolved by the settlement are allegations only, and there has been no determination of liability.

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Read our past reporting here

SBA Moves to Seize EDF Resource Capital, Second Largest 504 Lender.

Former Employees Win Back Pay Judgments against EDF Resource Capital

SBA Hot Topic Tuesday — SEM Resource Capital Revocation Notice

Resource Capital Seeks TRO against SBA Today, Frank Dinsmore Blasts SBA Action as Politically Motivated with a Personal Vendetta

Fraud Friday – Frank Dinsmore’s $6 Million Payday

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