6 Accused of Fraud in Filing for SBA Loans : Lending: Agency says they lied about income to borrow almost $1 million. They ultimately defaulted on loans.
A federal grand jury in Los Angeles has indicted six people for allegedly making false statements on their income tax forms to obtain almost $1 million in Small Business Administration loans that ultimately defaulted.
The indictments, announced Monday, are the first legal action stemming from a three-year investigation aimed at the SBA’s problems with borrowers filing inflated income statements in support of their loan applications.
As a result of growing fraud, the SBA has seen a rash of loan defaults--particularly in Southern California--that are likely to cost the federal agency and participating banks tens of millions of dollars.
“I hope these indictments will prevent others from using (false tax returns) as a tactic to get SBA loans,” said Steve Marica, assistant inspector general for the agency in Washington.
Marica said the indictment of the six people “is the largest group of indictments against borrowers for tax returns we’ve ever had.”
The investigation, which began in Southern California and has since expanded to other states, is ongoing and is expected to result in more indictments. Marica said the agency is considering cross-checking tax statements of all applicants nationwide with those filed with the Internal Revenue Service. Currently, all SBA applications in Southern California are cross-checked with the IRS.
Many fraudulent SBA loan applications have been linked to so-called loan packagers--independent consultants who help put together SBA applications.
Fraud related to loan packagers has increased in recent years as the volume of SBA loans has surged--to $6.4 billion last year, more than double that of five years earlier--while conventional business loans have all but dried up.
The six people indicted are Giam Buu Truong of Fountain Valley; Long Chan Quach, formerly of Cerritos and now of Pinellas Park, Fla.; Meng Hong Phou and Lim Chou of Colton, Calif., and Harris Hoang and Linh Diep of Irvine. All except Quach were arrested and arraigned Monday and all have been released on bond.
None of the six could be reached for comment.
If convicted, each of the defendants could face fines of up to $8 million and prison terms of up to 300 years. Realistically, the sentences will be significantly less, but officials say they are expecting some jail time and restitution from the defendants.
According to the indictments, the six defendants submitted SBA loan applications between 1989 and 1990.
They had disparate businesses in different locations, but they all used the same loan packager in Westminster, whom SBA officials would not identify because he is still under investigation.
The six indicted “knowingly and willingly went ahead” with what the loan packager was doing, said Deborah Jones, a special agent at the SBA inspector general’s office in Los Angeles, which conducted the investigation. Jones said the Westminster loan packager is being investigated for many more SBA loans that went sour.
A loan packager, for a fee, puts together financial statements, tax returns and other reports that go into an SBA application. The SBA guarantees 70% to 90% of small-business loans that are funded by banks and other commercial lenders. The agency can generally guarantee a loan of up to $750,000.