December 14, 2018
By Dominic J Bartolone
Contributing Editor, Fraud Friday
Fraud Friday — $4.5 Million Fake SBA Biz Aq Loans Gets Arizona Man 30 Months in Jail
The former CFO and CEO of an Arizona medical equipment company were sentenced in federal court to more than 30 months in prison, followed by three years of supervised release for both men. The court also ordered them to pay $4,189,482 in restitution. The firm’s former legal counsel, Craighton Boates, 44, was sentenced to five years’ probation and ordered to pay $3,303,889 in addition to the other fine.
Alexander Schaap, 62, and Harold Halman, 58, were principals in a now-shuttered company known as Global Medical Equipment of Arizona (“GMEA”). They were found guilty of defrauding the Small Business Administration, Metro Phoenix Bank, and Republic Bank of Arizona by submitting loan applications with false information.
According to court documents, the men submitted false loan applications, including misstating the percentage of ownership in GMEA, their use of funds to satisfy pre-existing debts, they provided forged emails misrepresenting that the down payments had been made by the principals, and concealed a loan kickback.
The defendants ultimately defaulted on $4.5 million in loans.
Schaap and Halman pled guilty to conspiracy, bank fraud, money laundering, and transactional money laundering.
In 2009, Schaap and Halman created GMEA with the assistance of their attorney. Their business model included buying “mom and pop” businesses that were established in the durable medical equipment industry.
The two submitted and obtained three SBA business loans to fund the acquisition of various businesses across the country. One bank approved two of the SBA loans in the amounts of $1,650,000 and $900,000. Another bank approved a loan for $3,631,000.
To obtain the loans the CFO claimed he owned 80% of the company, when in fact, the CEO owned at least 40 percent. They lied about the ownership structure due to the CEO’s adverse credit history. The investigation also showed the men had two sets of purchase agreements – one they sent to the lender and another set that were the actual purchase agreements sent to the sellers.
There was also a seller kickback arrangement in place, where the company would agree to pay more for the business, and receive the overpayment returned to them in cash.
“These loans should have been granted to qualified small business owners. Instead, the defendants effectively denied an opportunity to legitimate small businesses deserving access to capital,” says Elizabeth A. Strange, First Assistant U.S. Attorney for the District of Arizona. “The United States Attorney’s Office will continue to aggressively investigate and seek criminal prosecution or civil remedies when fraud is perpetrated by corrupt borrowers who attempt to obtain financial assistance through the SBA’s guaranteed loan programs. We would like to thank the SBA-OIG, IRS-CID, and the FBI for their thoroughness and dedicated professionalism throughout this investigation.”