July 27, 2018
Fraud Friday — Business Seller Photoshops Financials, Ripping off Buyer and Bank
By Contributing Editor: Dominic J Bartolone
Coleman Report Fraud Friday
A Missouri man is heading to federal prison and was ordered to pay restitution after being convicted of SBA loan fraud.
Todd Rood, 53, was sentenced in May to four years without parole, and ordered to pay $1,347,608 in restitution and another $1,207,979 to the government.
Rood pleaded guilty to bank fraud in December 2017, in the sale of his business, Rood Machine & Engineering in Kearney, Mo. Unfortunately, he photoshopped his financial statements to make his business appear much more successful than it was.
Rood sold the company for $2.05 million. The buyers took out an SBA loan from United Community Bank for $1.74 million to purchase the business,
Per the terms of the SBA loan, the buyers were required to put up $200,000 in cash. The purchasers also paid $62,000 in closing costs to obtain the financing.
Additionally, the buyers quickly sold their home in Georgia so they would have the equity capital they needed to close on the RME purchase, according to Rood’s timetable. Rood had also falsely claimed he was terminally ill with colon cancer. As a result, the buyers took a $40,000 loss on the rushed sale of their home.
Rood falsified records in 2015 and 2016 related to the assets and liabilities of his company. Rood had his bookkeeper classify a loan as $121,327 of income, and also classify $120,000 in loans from his parents as income.
Rood also directed his bookkeeper to document seven fictitious sales in 2015 as $342,500 of income. By illegally altering his books, Rood inflated his business income by $583,827, while reducing his liabilities and enhancing the overall profitability of his business ahead of the sale.
As part of his plea agreement, Rood must pay the purchasers $262,000 in restitution for their closing costs and the equity infusion they put into the business.