Fraud Friday — SBA 7(a) Loan Borrower Gets 2 Years for Using Loan Proceeds to Buy a House

February 19, 2016

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — SBA 7(a) Loan Borrower Gets 2 Years for Using Loan Proceeds to Buy a House

Of course, Stewart Harris did more than that, but this is another criminal prosecution of an SBA loan borrower whose business failed under during the Great Recession.

Remember, in exchange for increasing the SBA 7(a) loan guaranty, Congress increased the budgets of Inspector Generals to investigate and prosecute community bankers who’s failed banks failed to pay back TARP funds, and SBA loan borrowers who defaulted.

Well, not really, but the growing list of those bankers who continue to be charged and jailed for bank fraud remains centered in failed community bank institutions.

I digress.

Stewart received a $1.7 million SBA 7(a) loan from Signal Federal Financial Credit Union in Maryland to purchase a business — Commercial Glass Company.

While SBA continues to warn lenders about the unusually high incidence of fraud in biz aq loans, fraud continues to occur with unacceptable levels of frequency.

Equity injection verification fraud continues to be a problem, as is with this loan. Mr. Harris photoshopped bank statements showing $504,556 in a Wachovia Bank account on March 31, 2009, which increased to $512,468 one month later.

This was the account for the source of the $375,000 down payment for the purchase. Unfortunately, the check, as well as the endorsement, was also falsified.

Harris’ malfeasance didn’t end there. He used another individual’s social security number and lied about this on SBA Form 912.

Fake tax returns were also submitted.

He diverted $26,000 loan funds as the down payment of his new house in 2009.

Finally, he committed bankruptcy fraud in his 2012 filing.

The loan defaulted within 18 months and SBA paid $1.5 million to the credit union to honor the 90% guaranty.

Stewart Harris was sentenced Wednesday to two years in prison.