Fraud Friday — SBA Department Manager Guilty in La Jolla Bank Fraud

October 2, 2015

By Bob Coleman
Editor, Fraud Friday

Fraud Friday — SBA Department Manager Guilty in La Jolla Bank Fraud

The former SBA Department Manager of San Diego-based La Jolla Bank is going to jail for SBA loan fraud.

Amalia Martinez pled guilty last week for accepting thousands of dollars in bribes and kickbacks from borrowers in return for issuing over $50 million in SBA loans to borrowers who she knew many were unqualified and unlikely to repay — $20 million was charged off.

Beginning in 2004, Martinez and senior bank officers agreed to issue loans under favorable terms to high-volume borrowers they referred to as “Friends of the Bank,” or “FOBs.” They accepted fraudulent loan applications from the FOBs, and overlooked negative information about the borrowers’ creditworthiness. When the FOBs defaulted on their repayment obligations, the bank executives would issue more loans, so that the borrowers could use bank funds to make payments on their existing loans. In this way, the executives covered up the bank’s true poor performance, and allowed the bad loans to inflate their performance measures-which, in turn, increased their compensation from the bank.

Several of the FOBs participated in the conspiracy by making large cash payments in return for loans. In late 2007, one construction borrower handed $100,000 in cash to a senior bank official, who went on to share that money with Martinez and others. Another borrower, who received $75 million in loans, met with the same bank official in Las Vegas in 2008, where he hand-delivered $250,000 in cash. In 2006, a restaurant owner paid $50,000 in cash in return for loans; later, when the borrower struggled to repay his debts, Martinez arranged to issue another $150,000 loan, to be used to make payments on existing debts.

“Ms. Martinez abused her position of trust to unjustly enrich herself at the expense of American taxpayers,” says FBI Special Agent in Charge, Eric S. Birnbaum. “The FBI is committed to using our investigative and intelligence capabilities to identify, disrupt and dismantle corrupt business practices within our financial industry.”

The conspirators also took efforts to cover up the scheme. In 2009, as the bank was failing, regulators began to investigate La Jolla Bank’s poor performance. In order to conceal the mismanagement and self-dealing from the regulators, senior bank officials directed Martinez and other co-conspirators to destroy fraudulent financial statements and “FOB” designations contained within the bank’s files, according to Martinez’s plea agreement.

Three other defendants have been charged in this case. SBA borrower Annand Sluman pled guilty and admitted paying cash bribes to Martinez in return for several SBA loans he was issued between 2006 and 2008. By 2008, Sliuman was not qualified to borrow, and he submitted fraudulent documents as part of his loan application that made his businesses appear to be qualified.

Sliuman’s assistant, Laura Ortuondo, assisted in creating the fraudulent loan documents. She pled guilty to making false statements to investigators about her involvement in the case; as part of her plea, she also admitted that she destroyed evidence and instructed her then-husband to testify falsely on her behalf to help cover up the crime.

In August 2015, La Jolla Bank loan broker Jocelyn Brown was indicted for paying bribes to Martinez and others, in return for their help arranging loans for Brown’s borrowers. According to the indictment, Brown kicked back a portion of her broker commission to ensure that loans she referred to the bank were approved, regardless of the soundness of the loans and their benefit to the bank.

“By accepting bribes in exchange for lending out the bank’s money, corrupt officials at La Jolla Bank exposed the bank to a substantial risk and, ultimately, ran the bank into the ground. Their greed cost the taxpayers, who had to step in and repay its depositors,” says U.S. Attorney Laura E. Duffy. “Attacking corruption at financial institutions is one important tool we have to protect taxpayers and reduce the likelihood that our country will have to ‘bail out’ another bank.”

The FDIC took over the bank in 2010 and its debt of $1 billion was passed along to taxpayers.

Amalia will be sentenced on November 30th and faces up to five years in prison.