December 6, 2019
By Caity Witucki
Contributing Editor, Fraud Friday
Fraud Friday– Three Marijuana Businessmen Fraudulently Obtain SBA Funding
In June 2019, the SBA issued a Notice of Suspension to three marijuana business entrepreneurs, prohibiting their participation in SBA programs. According to the OIG, the SBA suspension and debarment official reviewed pending criminal charges against the three men and determined that immediate action was necessary to protect the public interest.
The SBA OIG’s Semiannual Report alleges that in April 2014, two men formed a property firm to purchase commercial real estate property in Everett, Washington. A third man served as the broker for both the buyer and seller of the property. The three men then unsuccessfully applied for a marijuana retailer license with the WSLCB. However, A female co-conspirator was able to successfully obtain a marijuana license under false pretenses on behalf of the broker and two entrepreneurs.
During the marijuana business’ vetting process, the female co-conspirator made false statements about the business’ startup financing. She claimed that the business was started with a $150,000 “loan” from only one of the entrepreneurs. However, bank records showed the $150,000 came from all three men involved in the transaction. Since the female co-conspirator failed to disclose the contributions from the broker and one of the entrepreneurs, they were not vetted as financiers.
In November 2014, while the marijuana business was continuing to be vetted by the WSLCB, the three men obtained a $1,573,800 SBA loan under the false pretense of opening a new restaurant. The true purpose of the loan was to open a Washington State licensed marijuana retail shop. To obtain the SBA loan, all three men made false statements to the bank about the loan’s true purpose and the broker’s ownership interest. If the true nature of the loan proceeds had been disclosed, they would not have been eligible for an SBA loan.
An investigation into the fraud scheme is being conducted by the SBA OIG, WSLCB, and the Department of Justice. None of the participants in the alleged fraud scheme have been convicted and they are to be presumed innocent until proven guilty.