November 17, 2023
Fraud Friday – 5 Individuals Indicted for Obtaining SBA Loans for Property Flipping
At the head of this group of fraudsters, Mehul Ramesh Khatiwala is not only being indicted with the others for attempting to obtain over $35 million from financial institutions by providing false documentation for SBA loan applications. He is also being charged by the Financial Crime Kingpin Statute, the first time that this charge has ever been used in the state of Maryland. Rajendra Parikh, Jennifer Watkins, Rebecca Marie Cohn, and Rajnikant Patel are being charged with bank fraud, making false statements to financial institutions, and money laundering.
Spanning from August 2018 to February 2020, the group allegedly conspired to obtain loan proceeds so that they could buy and sell hotels in a hotel flipping scheme. To do this, they make material misrepresentations and omissions to financial institutions during the loan application process. They lied about the identity of the sellers, the familial relationships between the parties, and the nature and amount of the equity injected by the borrowers.
The indictment claims that Khatiwala, Parikh, and Watkins created shell companies using Patel and a co-conspirator as straw owners. Then, they had to sign purchase contracts, operating agreements, and related documentation to buy the hotel properties under the names of the shell companies. At the same time, they allegedly solicited investors, including family members, and they were creating other companies to serve as buying entities so they could resell the hotels at a much higher price.
Khatiwala, Parikh, Watkins, and Cohn collected and submitted documentation to financial institutions to determine if they were eligible for SBA loans. They ensured that they included records proving that the buyers provided sufficient cash upfront to satisfy SBA’s equity injection requirements for 7(a) funding. Cohn maintained the equity injection funds in designated Residential Title escrow accounts pending the loan settlements and kept ledgers to track the use of the escrow funds.
That same group of four individuals allegedly were fraudulently diverting some of the buyer’s equity injections to make down payments on hotels that were under contract to the shell companies. The DOJ is claiming that the group submitted the same wire transfer records and gift letters as support for the equity injections as they did for other SBA loan applications, and they fraudulently submitted falsified bank statements and wire transfers to satisfy the equity injections.
The defendants were alleged to be engaging in roundtrip transactions. They falsely represented to financial institutions that over $1.5 million on deposit in a Residential Title escrow account would be used to satisfy the buyer’s equity injection obligations. Really, the funds were temporarily withdrawn from the account before the loan closings and redeposited after the loan closings.
The government is also claiming that the fraudsters falsely represented to financial institutions that the buying entities purchased the hotels from the shell companies. In reality, the shell companies did not even own the properties. Loan proceeds that were supposed to be used for the buyers were actually used to purchase hotels from the shell companies so that those same companies could first purchase the property, and then flip it to the buyer.