June 9, 2015
By Bob Coleman
Editor, SBA OIG Report
OIG’s April 2015 was posted last Thursday, and it never fails to impress.
“What were they thinking?” “What was their exit strategy?” as well as “The bank did what?” are my most common non-vulgar thoughts.
Here’s a quick summary, or read the entire report here.
Business Loans Co-Owner and CFO of New Hampshire Steel Fabricator to Forfeit Nearly $1.3 Million
On April 6, 2015, the indictment in Vermont of the co-owner and chief financial officer of a New Hampshire steel fabricator was unsealed. He had been indicted for making false statements and reports as well as overvaluing property to a bank.
The steel fabricator had relied on financing from an FDIC-insured savings bank in Vermont. By the end of 2010, the bank had extended $10 million in line-of credit financing based on the value of the firm’s key assets, including accounts receivable, inventory, and work in progress. The bank’s loans were so large that it needed two other FDIC-insured banks to share in the lending. In December 2010, the savings bank also funded a $2 million loan guaranteed by the SBA, bringing the total borrowing to over $12 million.
The steel fabricator’s co-owner made false statements and reports in connection with the bank loans by manipulating the value of the firm’s assets, including the value of its inventory and work in progress, in order to maintain and expand its bank borrowing.
Real Estate Agent Pleads Guilty for Involvement in Large-Scale, Long-Term Profit Scheme
On April 17, 2015, a real estate agent and wife of the owner of a Denver, CO, investment firm pled guilty to violating the Colorado Organized Crime Control Act. She was sentenced the same day to three years of probation and advised that her Colorado real estate license may be revoked with this felony conviction. All other counts against her were dismissed.
The real estate agent was originally indicted with her husband and four other family members in a 37-count indictment filed in September 2014. The indictment included charges of violating the Colorado Organized Crime Control Act; committing forgery and making false statements to SBA, the state of Colorado, and various lenders; attempting to influence a public servant; criminal impersonation; conspiracy; and theft.
The investigation showed that her husband had obtained a $2.32 million SBA guaranteed loan to refinance his office building and other existing debt. To obtain the loan, he concealed his extensive criminal history and the fact that he was on probation. He also falsified documents related to his debts and the taxes owed to the state of Colorado. It was also discovered that the woman, her husband, and four other family members created a criminal enterprise using their status as real estate professionals to execute a large long-term fraud for profit scheme.
This scheme primarily centered on mortgage fraud, including but not limited to the manipulation of multiple real estate transactions through fraudulent statements, material omissions, false identification and notary commissions, and “straw buyers” to buy and sell real estate.
This case was initiated after SBA OIG received a referral from a California bank.
Washington Man Sentenced to 30 Months’ Imprisonment for Bank and Wire Fraud Exceeding $1.3 Million in Credit and $600,000 in Actual Loss
On April 21, 2015, a Washington State man was sentenced to 30 months of imprisonment and 5 years of court supervision following his release from prison. The court also ordered him to pay $379,143 in restitution and $900 in court fees. The man had previously been found guilty of bank fraud, conspiracy to commit bank fraud, and wire fraud. The total amount of fraud exceeded $1.3 million in credit and approximately $600,000 in actual loss divided disproportionately among three financial institutions.
The charges originated from an investigation of a $50,000 SBA Business Express loan in his wife’s name for her computer company. The couple had submitted false and fraudulent information to a credit union to receive a line of credit which was 50 percent guaranteed by SBA.
The investigation immediately uncovered a check kiting scheme targeting multiple financial institutions, as well as the man’s involvement in additional credit and loan kiting schemes. This included eight collateralized loans from the credit union, two mortgage loans from a major bank, and multiple credit lines from another major bank. All credit was approved in a complex scheme utilizing hoax national and international business income, inaccurate financial documentation, and falsified balloon payment earnest money, all of which was fashioned by the couple.
One of Six Men Pleads Guilty to His Involvement in Chicago Area Gas Station Fraud Scheme
On April 23, 2015, the former market president of an Illinois bank pled guilty to committing bank fraud. He was one of several Chicago-area individuals indicted as part of an ongoing investigation. A second man had been charged with committing bank fraud, bribing a bank official, and filing a false tax return. Two other men, including an accountant, were charged with committing bank fraud. A fifth man was charged with failing to file a tax return, and a licensed appraiser was charged with evading income tax.
Two of the men actively conspired with the bank official and others to “flip” gas stations to unqualified buyers financed by SBA-guaranteed loans made by the bank. The official and one of the men utilized the accountant to create the false tax returns needed for the loan files. The two men provided the bank official with “kickbacks” exceeding $150,000 in return for his actions in getting the loans approved.
The bank official also fraudulently instructed the bank to pay the brother of one of the men over $340,000 in broker commissions for multiple SBA loans, even though the brother had no involvement with the loans. After accepting these commission payments, the brother then failed to file Federal tax returns to report the income.
In addition, the bank official utilized the appraiser for every fraudulent SBA loan that he approved.