U.S. Accuses 3 in O.C. of Loan Fraud

By DON LEE

Aug. 23, 1994 12 AM PT

TIMES STAFF WRITER

LOS ANGELES —

A federal grand jury has indicted six people--including three in Orange County--on charges of making false statements on income tax forms to obtain almost $1 million in Small Business Administration loans that ultimately went into default.

The indictments, announced Monday, represent 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.

“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 SBA in Washington. Marica said the action against 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 expected to result in more indictments soon, as well as bring a nationwide change in the way SBA loan documents are verified.

Marica said the agency is considering cross-checking all applicant tax statements nationwide with those filed with the Internal Revenue Service. Currently, all SBA applications in Southern California are cross-checked with the IRS, because of the preponderance of fraudulent filings in this region, SBA officials said.

Many fraudulent SBA loan applications have been linked to so-called loan packagers, or independent consultants who help put together applications for SBA-backed loans at banks for a fee.

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 the volume five years earlier--while conventional business loans have all but dried up. As a result, the SBA has seen a rash of loan defaults, particularly in Southern California, that is likely to cost the federal agency and participating banks tens of millions of dollars.

The six people indicted, including two couples, 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 on Monday, and have been released on bond.

None of the six could be reached for comment Monday.

If convicted, the defendants could face maximum sentences including fines of $6 million to $8 million and prison terms ranging from 180 years 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 in 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 people 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 with the help of the FBI. Jones said the Westminster loan consultant is being investigated in relation to many more SBA loans that went sour.

A loan packager, for a fee typically ranging from $500 to $1,500, 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.

Nathan Hochman, the assistant U.S. attorney in Los Angeles who brought the charges, said that some of the six defendants used the SBA loans to repay personal debts, make loans to friends and relatives and pay off mortgages on their houses.

Besides allegedly providing personal and corporate income tax returns that were different from those submitted to the IRS, some of those indicted provided invoices and other records that authorities believe were false.

Truong, 46, had a business called Graphic Inn Printing in Garden Grove. According to officials, Truong submitted an SBA application to the Bank of Anaheim for a $400,000 loan in August, 1989. He eventually received a loan for $325,000, the amount he apparently qualified for.

However, officials allege that as part of his SBA application, Truong provided a false invoice that said his company had purchased $178,000 worth of computer equipment. In reality, officials said that Truong made out a check in that amount to a business owned by the wife of his loan packager. The loan packager then took 3% for himself out of that amount and returned the remainder to Truong.

A loan officer at the Bank of Anaheim, who asked not to be identified, recalled Truong’s case. “Oh, yes, we’ve had our fair share” of fraudulent loan applications, the bank official said. “That’s been a major contributor of our losses.”

Steve Stultz, owner of Stultz Financial in Newport Beach, who has been an SBA loan packager for more than 20 years, expressed worries that troubles with some loan packagers would discredit the work done by him and other legitimate loan consultants.

“It’s upsetting,” said Stultz, who receives almost all of his loan work on referrals from banks. “It makes life just a lot more complicated.”

Stultz said that verification of tax forms by the SBA has added time to an often lengthy SBA loan application process.

The National Assn. of Government Guaranteed Lenders Inc., a trade organization in Oklahoma that represents more than 600 SBA lenders, said the IRS verification was adding from two to 30 days to the application process.

SBA Investigation Highlights

A three-year investigation has led to the arrest of six individuals who defaulted on Small Business Administration loans allegedly obtained with false documents. Details on the indictments:

Giam Buu Truong

* Age: 46

* Residence: Fountain Valley

* Business: Graphic Inn Printing, Garden Grove

* Bank: Bank of Anaheim

* Default amount: More than $286,000 of a $325,000 loan.

Long Chan Quach

* Age: 33

* Residence: Pinellas Park, Fla.

* Business: Kim Son Enterprise Inc., Long Beach

* Bank: Bank of Industry

* Default amount: More than $397,000 of a $500,000 loan, of which he had received $405,000.