Fraud Friday — Bank Pays DOJ $3 Million to Settle SBA 504 Loan False Claim Act Lawsuit

December 12, 2014

By Bob Coleman
Editor, Coleman Report Afternoon Brief

A Wyoming bank wrote a check to the Department of Justice for $3 million in June to settle a False Claim Act for accepting the proceeds of a $2 million SBA 504 loan to pay down its interim construction loan says the SBA.

To induce the CDC to fund the SBA 504 loan, the DOJ alleged the bank withheld material information and made false misrepresentations regarding the borrower’s financial condition. The bank falsely certified the borrower was current on its interim loan and failed to disclose cost overruns — allegedly.

SBA did not name the lender.

Coincidentally, also last June, Wyoming-based Pinnacle Bank settled a false claim SBA 504 lawsuit.

In 2008, Pinnacle received $2 million from the proceeds of a SBA 504 loan to pay down an interim construction loan. The DOJ alleged the bank bank falsely certified the borrower was current on the interim loan and failed to disclose cost overruns

The terms of that settlement were sealed by the court and are not accessible to the public.

This is what happened says the lawsuit filed by the borrower against Pinnacle Bank.

In 2007, the bank funded a $4.8 million interim construction loan to build a hotel in Laramie, Wyoming.

A nice one touting a western lodge setting featuring a touch of true western elegance and views of the Snowy Range Mountains.

The AmericInn flag property is 1.6 miles from the new University of Wyoming convention center, and minutes from downtown Laramie.

The hotel is three stories on 2.5 acres. There are 59 rooms, including 11 suites with fireplaces and/or a spa.

In the lawsuit, the borrower says the bank made false statements to SBA when it certified there were no material changes in his financial condition. The bank certified the construction loan was not delinquent and there were no cost overruns when the permanent loans funded at the height of the Great Recession in 2008.

The borrower claimed the bank knew he was broke, had no working capital and was delinquent on the construction loan.

The construction loan was taken out by a $2.8 million Pinnacle Bank first lien loan and the $2 million SBA 504 loan.

The borrower claims the bank then forced him into bankruptcy and foreclosed on the property, wiping out SBA’s 504 loan.

After the dust settled, the borrower filed a False Claim Act lawsuit saying the bank ripped off the federal government $2 million when it received the proceeds from SBA 504 loan to pay off part of the construction loan.

Anybody can file a False Claim Act lawsuit if they believe someone has received payment from the federal government from a fraudulent claim.

The Department of Justice may choose to join the lawsuit and bring the full force of government lawyers into the litigation.

That happend with this lawsuit in October 2013.

Again, this lawsuit was settled confidentially in June.

A whistleblower typically receives 15% to 25% of a settlement. For a $3 million settlement, the fee would be approximately $450,000 to $750,000.

Here is the original complaint pursuant to the Federal False Claims Act