Fraud Friday: The $1 Million SBA Loan That Never Existed
March 6, 2026
Bob Coleman
Founder & Publisher
Fraud Friday: The $1 Million SBA Loan That Never Existed
In the fall of 2023, the co-owners of a local children’s music school in Fairfield, Connecticut, filled out an online form seeking information about a business loan. Shortly afterward, they were contacted by someone claiming to represent Merchant Bank.
The caller presented what appeared to be a legitimate SBA-related financing opportunity. The pitch included a low-interest rate and favorable repayment terms. The co-owners believed they were applying for a legitimate small business loan.
What they did not know was that they had entered the opening phase of a months-long fraud scheme.
The Mechanics
Police later said the perpetrators falsely claimed to be affiliated with the SBA and provided fraudulent documents to convince the victims that the loans were legitimate.
The co-owner signed what he believed was a legitimate loan agreement. Soon afterward, the scammers began requesting payments, explaining that the funds were required fees necessary to finalize or release the loan proceeds.
The payments started modestly. According to investigators, the victim sent transfers through Zelle, MoneyGram, and Western Union that initially totaled about $150,000.
The scheme continued for months. The scammers repeatedly convinced the victim that additional payments were needed for various loan-related charges. The victim complied, believing the payments were part of the process required to receive the promised financing.
The Deception
Investigators later reviewed documents provided by the scammers and found numerous typographical errors. The perpetrators also changed their business name multiple times.
By that time, the losses had escalated dramatically.
Police say the victim was eventually persuaded to send wire payments to two bank accounts connected to the scheme. Those wire instructions later allowed investigators to trace the movement of funds.
The victims ultimately lost more than $1 million.
In October, one of the co-owners contacted police again during the investigation to report that their partner had fallen victim to the scam a second time and had depleted their $900,000 retirement account.
The Investigation
Detectives later confirmed with the SBA that the companies claiming to provide the loans were not affiliated with the agency. The SBA also noted that the scammers were claiming to offer COVID-19-era loans that were no longer being issued.
Through search warrants, financial analysis, and coordination with financial institutions, investigators identified multiple individuals who had received funds connected to the scheme.
One of the accounts used in the fraud was linked to Malik Z. Smith, a 25-year-old man from Flushing, New York.
Investigators later determined that Smith opened one of the bank accounts used in the scheme and received $36,200 in payments. Bank records also showed Smith made several large transactions and withdrawals around the same time.
Officials also learned that one of the accounts used in the scheme was associated with an individual who had previously been reported to the SBA for loan fraud.
Police believe Smith is one of three suspects involved in receiving money connected to the scam. Additional arrests have not yet been announced.
The Arrest
Smith surrendered to Fairfield police on Feb. 2 after a warrant for his arrest was issued.
He was charged with first-degree larceny in connection with the scheme.
Smith was later arraigned in Bridgeport Superior Court. At the time of the court appearance, he had been released on a $200,000 surety bond.
The Takeaway
The mechanics of this scheme were simple. The fraudsters impersonated SBA-affiliated lenders, produced fraudulent loan documents, and demanded a series of fees supposedly required to release loan proceeds.
The victims believed they were securing a legitimate SBA-related loan. Instead, they were sending payments into a network of accounts controlled by the perpetrators.
The promised loan never existed.