JPMorgan Chase Settles DOJ Claims of Falsifying SBA Borrower Information

May 28, 2014

Exclusive by Bob Coleman
Editor, Coleman Report

chasebanklogoIt’s not $13 billion, but JP Morgan Chase, the nation’s largest SBA 7(a) lender by number of loans approved, has entered into settlement agreements with the Department of Justice and the SBA for $212,920.

The DOJ alleged that bank employees falsified borrower information on three SBAExpress loan applications in Utah back in 2006 to meet underwriting criteria and obtain approvals on three SBA loans.

In addition, borrowers used loan proceeds to invest in a Ponzi type scheme that benefitted certain bank employees.

After the loans failed, the bank submitted three purchase packages and requested the SBA to pay the 50 percent guarantee on all three loans.

The bank did not concur with DOJ’s allegations and settled without admission of liability in exchange for the $212,920.

SBA’s settlement agreement is a, you promise it won’t happen again, then we won’t pull your PLP license or debar you from the program.

SBA says the bank wasn’t a prudent lender – the most damning accusation other than fraud a lender can receive.

SBA believes that the bank knew or should have known of false statements on documentation for SBA loans prior to submitting a request for the SBA to make guarantee payments on loans.

However, SBA has determined based upon the good faith effort of JMPC to resolve the matter and because the bank’s future dealing with the SBA will be conducted responsibly, an enforcement action is not necessary at this time to protect SBA’s interests.

The March 2014 agreement says the bank agrees for all new SBA loan approvals it will:

1) Verify borrower income with IRS form 4506.

2) Verify borrower income separate from the customer-facing employees who are responsible for initiating and managing relations and negotiating loans with small businesses.

JP Morgan Chase agrees that it understands the importance of fully complying with the federal regulations governing SBA’s loan programs.

The SBA Inspector General initiated the investigation based on a referral from a managerial level bank employee to the OIG Hotline.

The following agreements were obtained via FOIA from the SBA Office of Inspector General.

JPMorgan Chase Settlement Agreement with the Department of Justice

JP Morgan Chase Settlement Agreement with the SBA