Office of Inspector General
Small Business Administration
August 1997 Update
Business Loans the bank for transfer to the attorney,
and permitted the attorney to
New York Bank President represent both parties in connection
Sentenced for Conspiracy, Fraud, with most of these loans. As a
and Bribery. The former president consequence of these
and board chairman of a now- arrangements, the loans, several of
defunct SBA participating lender which were guaranteed by SBA,
bank headquartered in Watertown, were not properly secured and not
New York, was sentenced on July repaid. Having lost $13 million on
28, 1997, to 30 months bad loans, the bank, which had been
imprisonment after being convicted a major community lender to small
of conspiracy, bank fraud, and business, was declared insolvent
bank bribery. The bank president and was seized in 1993 by the
had agreed to refer the bank s legal Office of the Comptroller of the
work to the law firm of a co- Currency (OCC). The OIG
conspirator in return for one-sixth of investigation was conducted jointly
the legal fees collected. The bank with the OCC, the Resolution Trust
president received more than Corporation, and the FBI; it was
$332,000 from the scheme. In based on a referral from SBA's
furtherance of the conspiracy, he Syracuse District Office.
caused the bank to make loans
totaling $1,879,500 to the attorney Wisconsin Businesswoman Indicted
for Making False Statement. A
and his associates, allowed other
business consultant in Menomonie,
individuals to borrow money from
Wisconsin, was indicted on August
12, 1997, on one count of making a years probation and a $5,000 fine.
material false statement to SBA The woman had pled guilty to
to obtain a $25,000 SBA-guaranteed witness tampering in connection
business loan. The indictment with a joint OIG and FBI
charges that the woman knowingly investigation into kickbacks and
failed to disclose a recent criminal fraud involving the bank s small
history and provided a false Social business loan division. According to
Security number on SBA Form 912, her plea, she attempted to prevent a
Statement of Personal History, in a witness in a grand jury proceeding
loan application for her consulting from testifying. She also asked the
firm. The OIG's investigation found witness to make false statements
that she had been arrested on a and conceal information from the
local charge for forging company grand jury concerning the nature of
checks the day before she applied a $5,000 payment he made to
for the SBA-guaranteed loan. She another bank officer who headed the
was convicted on that charge after bank s small business loan division.
obtaining the loan. The OIG initiated That bank officer was ultimately
the investigation in response to a convicted of receiving kickbacks
request from the U.S. Attorney's from SBA borrowers, and the bank
Office for the Eastern District of paid a $1,260,033 civil settlement
Wisconsin. and released SBA from guaranties
totaling more than $4.4 million.
Florida Auto Repair Shop Owner
Pleads Guilty to Using Falsified Tax California Tax Preparer Sentenced
Documents. The president of a for Making a False Statement in a
Longwood, Florida, auto repair shop Loan Application. A tax preparer in
pled guilty on July 8, 1997, to one Los Angeles, California, was
count of using false documents. sentenced on June 5, 1997, to 3
He had submitted tax returns that he years probation, 100 hours
knew to be altered in an effort to community service, and a $10,000
obtain a $450,000 SBA-guaranteed fine. He had pled guilty to aiding
loan. The loan application was and abetting the making of false
declined based on the overwhelming statements in a loan application
differences between the tax returns to a Federally-insured bank. He
submitted to SBA and those prepared altered copies of income
submitted to the IRS. This tax returns submitted in support of a
investigation was based on a referral $265,000 loan application by the
from SBA s Jacksonville District owner of a restaurant in Pomona,
Office. California. By overstating the
restaurateur s business income, the
New York Bank Officer Sentenced tax preparer created the illusion that
for Witness Tampering. A former the applicant had adequate
administrator and assistant to the repayment ability and was
general manager at a New York City creditworthy. The altered tax returns
participating lender bank was were discovered during the OIG's
sentenced on July 24, 1997, to 2 extensive joint investigation with the
Activity Update of the Office of Inspector General August 1997 Page: 2
U.S. Secret Service into loans conducted jointly with the U.S.
submitted by unscrupulous loan Secret Service, examining
brokers. The ensuing investigation applications submitted to SBA
into the restaurant owner s activities lenders by unscrupulous loan
revealed several other individuals for brokers and their clients.
whom the tax preparer created
altered income tax returns. *******
California Talk Show Host
Sentenced for Lying on Loan Disaster Assistance
Application. A Los Angeles,
California, businessman and former California Store Owner Pleads Guilty
radio talk show host was sentenced to Making False Statement. The
on July 14, 1997, to 4 months home former owner of a television repair
detention, 3 years probation, 300 store in Los Angeles, California, pled
hours community service, and guilty on July 28, 1997, to one count
$100,000 restitution to SBA. He had of making false statements to
pled guilty to one count of making a SBA. The SBA/OIG initiated the
false statement in a loan investigation based on a referral
application to a Federally- from the Liquidation Division of
insured financial institution. The SBA's Los Angeles District Office
investigation disclosed that the and continued it jointly with the
businessman sold land and a Social Security Administration's OIG
building to the owner of a sporting and the U.S. Secret Service. The
goods store and recreational sports investigation revealed that the man
center in Los Angeles and also had filed for bankruptcy under
assisted her with the purchase, i.e., several Social Security numbers and
he signed an escrow modification concealed the bankruptcy filings
statement which falsely stated that from SBA to obtain two disaster
she had paid him $160,000 outside loans for his business damaged
of escrow. The $160,000 "payment" during the 1992 civil unrest. He also
was submitted as evidence to both submitted altered copies of income
the participating lender bank and tax returns with his applications for
SBA that the purchaser had made the $26,400 physical damage loan
the necessary capital injection into and the $13,300 economic injury
her project (purchasing the land and loan.
building in which her company was
located) to qualify for an SBA- California Disaster Home Loan
guaranteed loan. The woman was Applicant Pleads Guilty to Making
previously sentenced for fraudulently False Statements to Government
obtaining a $1 million SBA- Agencies. A Mission Hills,
guaranteed business loan to California, disaster home loan
purchase the businessman s applicant pled guilty on July 28,
property. This case represents a 1997, to one count each of making
successful conclusion of one of an a false statement to SBA and
ongoing series of investigations, making a false statement to the
Activity Update of the Office of Inspector General August 1997 Page: 3
Federal Emergency Management had submitted copies of tax returns
Agency (FEMA). The SBA/OIG's altered to overstate his income. The
joint investigation with the investigation determined that the
FEMA/OIG, opened in response to a disaster loans would not have been
referral from SBA's Santa Ana made had his true financial condition
Servicing Center, revealed that he been known. His alleged fraudulent
had submitted three disaster home activity resulted in a $77,000 loss to
loan applications-- two under SBA.
fictitious names and all three
containing false claims for damages Texas Businessman Pleads Guilty
from the 1994 Northridge to Three Counts of Forgery. The
earthquake. A total of $27,000 was owner of a Clute, Texas, computer
disbursed in connection with the first services company pled guilty on
two loans, and both loans defaulted August 8, 1997, to three counts of
without a single payment having forging endorsements on U.S.
been made. The third loan, for Treasury checks which
$113,000, was approved but not represented a portion of the
disbursed because SBA s Disaster proceeds of a $183,400 economic
Assistance Area 4 Office detected injury disaster loan his business
inconsistencies in the obtained from SBA. The man
documentation and referred it to the fraudulently negotiated three
SBA/OIG. The applicant was Treasury checks, totaling
arrested on June 30, 1997, based approximately $27,000, each jointly-
on an outstanding warrant issued in payable to the applicant s business
connection with a previous unrelated and to another business whose
FBI case involving bank fraud. endorsement was falsely made. His
indictment resulted from an
California Disaster Loan Applicant SBA/OIG investigation based on a
Indicted for Making False referral from SBA's Houston District
Statements. The former owner of a Office.
fashion outlet located in Los
Angeles, California, was indicted on California Disaster Loan Recipient
August 5, 1997, on one count of Sentenced for Making a False
making a false statement to SBA. Statement. A Northridge, California,
The OIG initiated the investigation resident was sentenced on May 27,
based on a referral from SBA's 1997, to 2 years probation, 100
Santa Ana Servicing and Liquidation hours community service, and a
Center and continued it jointly with $5,000 fine for making a false
the U.S. Secret Service. Following statement to SBA. He had been
the 1992 civil unrest, the approved for a $123,100 disaster
businessman had obtained two SBA home loan following the 1994
disaster loans for his establishment. earthquake. After receiving $38,900
The investigation revealed that, with in disaster loan proceeds, the man
his applications for a $87,300 submitted a series of letters, one
physical damage loan and a $28,100 supported by a signed financial
economic injury loan, the applicant statement, requesting that SBA
Activity Update of the Office of Inspector General August 1997 Page: 4
reduce his monthly payments
because his financial condition had Arizona Businessman Sentenced for
worsened as a result of a new Forgery. The owner of a now-
$20,000 installment debt incurred for defunct machinery company in
the purchase of a 1994 Acura Buckeye, Arizona, was sentenced in
automobile. The OIG's investigation Arizona Superior Court on July 31,
revealed, however, that he had paid 1997, to 3 months imprisonment, 4
cash for the vehicle! Upon learning years probation, and $383,700 in
of the investigation in September restitution to SBA. He had pled
1996, he immediately repaid the guilty to one count of forgery. The
$39,000 balance of his SBA loan. joint OIG and U.S. Secret Service
The OIG initiated its investigation at investigation revealed that the man
the request of the U.S. Attorney's had forged his estranged wife's
Office for the Central District of signature on numerous disaster loan
California. documents to obtain from SBA a
$56,100 business physical disaster
California Tax Preparer Sentenced loan and a $327,600 economic injury
for Making Material False disaster loan. Charges were
Statements. A tax preparer in brought by the Arizona State
Glendale, California, was sentenced Attorney General's Office after
on May 15, 1997, to 3 years Federal prosecution was declined.
probation, 400 hours community The investigation was initiated
service, and a $5,000 fine. He had based on a referral by SBA's
pled guilty to aiding and abetting the Phoenix District Office.
making of material false
statements by preparing altered *******
income tax returns which were
submitted to SBA in support of a Small Business Investment
$450,000 economic injury disaster
loan application. The tax preparer Companies
significantly overstated the incomes
of both the applicant company as Korean Businessman in California
well as its owner. The OIG's joint Sentenced for Misapplication of
investigation with the U.S. Secret SBIC Funds. A Korean national who
Service revealed that the tax had been president and majority
preparer also prepared altered shareholder of a now-defunct
income tax returns for two other specialized small business
SBA disaster business loan investment company (SSBIC) in Los
applicants who had both previously Angeles, California, was sentenced
pled guilty to charges resulting from on August 11, 1997, to 6 months
this investigation. He is the first tax home detention, 5 years probation,
preparer charged in the continuing and $20,000 restitution to SBA. He
investigation of disaster loan had pled guilty to four felony counts
applications packaged by two of misapplication of funds of a
southern California brothers acting small business investment
as loan packagers. company following a lengthy
Activity Update of the Office of Inspector General August 1997 Page: 5
investigation which the OIG
conducted jointly with the FBI. The
case was initiated after allegations The following identifies the use of adjectives
in these Updates to describe tax returns
of wrongdoing were received from fraudulently submitted in support of loan
the SSBIC s investment advisor, an applications:
individual who had been placed in
that position by SBA to monitor the Fictitious tax returns: The applicant submits
copies of tax returns never filed with the
company s operations. The IRS.
investigation disclosed that the man
made false statements concerning Altered tax returns: The applicant submits
the amount of money he had altered copies of tax returns actually
submitted to the IRS.
invested in the SSBIC and that he
misapplied more than $400,000 by Bogus tax returns: The applicant submits tax
pledging company assets for his returns containing false information to both
personal enrichment. To conceal the IRS and SBA.
his illegal activities, he also falsely
reported in the SSBIC s records that
Most audit and inspection reports can be
loans totaling at least $337,500 had found on the Internet at:
been repaid. In 1987, the SSBIC
was placed in receivership by SBA, WWW.SBAONLINE.SBA.GOV/IG/REPORTS.HTML
which thereafter obtained a civil
judgment in excess of $5 million
against the company and its
president. SBA ultimately suffered a
The Activity Update is $4.1 million
loss of more than produced by the
because of the man s actions.
SBA/OIG, James F. Hoobler, Inspector
General.
*******
Comments or questions concerning this
update or requests for copies of OIG
audits, inspections, or other documents
Editor s Notes:
should be directed to Johnny Cahn,
SBA/OIG, 409 Third Street,
Most of the articles appearing in thisSW, of
issue
Washington, reflect outcomes of OIG
the Update DC, 20416-4110.
Telephone number:
investigative efforts. The (202) 205-6580
Update generally
FAX number: (202) 205-7382
reports all intermediate outcomes of criminal
investigations (charges, pleas, court actions,
If you are aware of suspected as well as
convictions) as they occur, waste, fraud, final
or abuse in any SBA settlements).
results (sentencings, program, please call While
audits and inspections produce equally
the OIG Fraud Line.
valuable results, they tend to take 6 to 9
months of research, analysis, and production
OIG FRAUD LINE (202) 205-7151
prior to their publication. Consequently, they
in Washington, DC metropolitan area
do not produce intermediate results that lend
themselves to monthly reporting. Several
TOLL-FREE FRAUD LINE:
audits and inspections are, however, currently
(800) 767-0385
underway and will be reported in upcoming
issues of the OIG Update.
Activity Update of the Office of Inspector General August 1997 Page: 6