SBA Hot Topic Tuesday — SEM Resource Capital Revocation Notice
December 9, 2014
By Bob Coleman
Editor, Coleman Report
I have chronicled SBA’s seizure of Frank Dinsmore EDF Resource Capital in Northern California, but haven’t paid too much attention to the seizure of the sister CDC, SEM Resource Capital in Michigan.
I ran across this a couple of weeks ago. This is fascinating behind-the-curtain stuff for those who like the weeds..
From 2001 until 2004, Frank Dinsmore, the CEO of EDF, was also the CEO of SEM.
As a condition of granting permanent CDC status to SEM, SBA required SEM to appoint a full-time CEO who was not operating another CDC.
Marlies Dinsmore, the spouse of Frank Dinsmore, was appointed CEO of SEM and has been acting in that capacity since 2004.
As CEO, Marlies Dinsmore is responsible for overseeing all operations of SEM. Marlies Dinsmore maintains her office in Folsom, California, not in Livonia, Michigan. Her office is located in the same building that houses EDF’s offices.
From the January 2014
Contrary to the SBA requirements identified herein, the evidence in the record discloses the following:
1. Instead of remitting faithfully to the Agency all sums due to it, as of the date of this Decision, SEM has failed to pay approximately $1,584,094.28 (plus interest and penalties) in invoiced PCLP reimbursement obligations.
2. Instead of remitting faithfully to the Agency all liquidation recoveries on defaulted SBA 504 Loans, SEM has failed to remit SBA’s share of the approximately $5.6 million in proceeds from the sale of SBA’s collateral, approximately $278,000 in other liquidation recoveries, and approximately $623,547 in other funds on 3SEM’s largest defaulted SBA 504 loan.
3. Instead of servicing and liquidating its largest defaulted SBA 504 loan in accordance with prudent and commercially reasonable lending standards, SEM has allowed its affiliated servicer, EDF, a revoked CDC, to dissipate the liquidation proceeds held in trust for SBA.
4. Instead of maintaining sound financial status, SEM’s most recent audited financial statements for the fiscal year ending September 30, 2012 show that SEM is insolvent and SEM’s independent auditor has issued a going concern opinion finding that there is “substantial doubt about [SEM’s] ability to continue as a going concern.”
5. Instead of maintaining sound financial status, SEM’s approximately $3.4 million debt to EDF, a revoked CDC, increases SBA’s financial risk.
6. Instead of fully funding its Loan Loss Reserve Fund as required by statute and regulation, SEM has repeatedly failed to adequately fund its Loan Loss Reserve Fund and does not have the ability to contribute the $261,838.65 currently required to fully fund its Loan Loss Reserve Fund under the Standard Loan Loss Reserve Fund Requirement.
7. Instead of properly evaluating and maintaining its Alternative Loan Loss Reserve Fund, SEM dropped loans from its required Quarterly Reports to SBA and failed to reserve for the dropped loans.
8. From fiscal years 2004 through 2012, SEM, a non-profit corporation, received over $5,397,129 in fees from its participation in the 504 Loan Program. However, SEM is not currently in a position to manage or discharge its obligations as a CDC going forward. SEM’s financial statements reveal that it has no funds or assets with which to discharge its debts and obligations.
SBA has invoiced SEM for approximately $1.64 million based on SEM’s loss-share on 11 charged-off PCLP loans. SEM has paid only 2 of the 11 PCLP reimbursement obligation invoices and still owes SBA approximately $1.58 million (plus interest and penalties). In addition, as of October 31, 2013, SEM has approximately 5 additional purchased PCLP loans in its portfolio with a total outstanding balance of approximately $3,379,419. SEM’s potential 10% PCLP loss reimbursement exposure on the 5 additional purchased PCLP loans totals approximately $337,942. SEM’s Loan Loss Reserve Fund currently contains only approximately $120,401.35, an amount insufficient to pay current or contingent PCLP reimbursement obligations. SEM admits that it is only able to contribute a total of $8,000 a month towards its obligations.