Six Charged in Scheme to Falsify SBA Loan Papers : Banking: Former Westminster loan broker called center of plan that led to a rash of defaults totaling millions.
A Pasadena banker and a former Westminster loan broker were among six charged Monday in a scheme that falsified Small Business Administration loan applications that have led to a rash of loan defaults.
The banker, Michael Mahoney, 29, was charged in federal court in Los Angeles with accepting kickbacks of $35,477 in 1990, most of it from broker Ty Huu Pham, 56. Four individual borrowers were also charged.
It was the second batch of criminal actions stemming from a three-year probe by the SBA and the FBI of widespread fraudulent loan applications in Southern California.
Pham allegedly paid Mahoney, then a loan officer at the Bank of Industry, for recommending approval of about 20 SBA loan applications that Pham packaged or assembled. Twelve of those loans have since gone into default at a cost of about $2 million to taxpayers.
Mahoney, who for the last two years has been vice president and head of the SBA lending department at Citizens Bank in Pasadena, did not return calls Monday. But at Monday’s arraignment, his attorney, James Riddet, indicated that his client would plead guilty today. Mahoney faces a maximum sentence of 30 years in prison and $1 million in fines.
Pham is expected to plead guilty next month to three counts of bank fraud, according to Nathan Hochman, the assistant U.S. attorney in Los Angeles who brought the charges against Pham and Mahoney. Pham faces a maximum sentence of 90 years in prison and $3 million in fines.
“It was a collusive effort on all their parts, and the government was a big loser here,” said Steve Marica, assistant inspector general for the SBA in Washington.
SBA officials said they looked at 24 loans that Pham helped clients acquire, and 16 of those loans have failed, costing banks and the SBA--which guarantees 70% to 90% of business loans--more than $3 million.
Two months ago, a federal grand jury indicted six borrowers--three of them in Orange County--on charges of making false statements to obtain about $1 million worth of SBA loans.
At that time, investigators said five of those borrowers went to the same Westminster loan packager, but officials did not identify him as Pham until Monday.
Criminal charges were filed Monday against four additional SBA borrowers who allegedly obtained a total of $720,000 in fraudulent business loans with Pham’s help. All of these loans have since failed as well.
The four borrowers charged Monday are Dinh Nguyen, who operated a clothing business in Orange County and now lives in Seattle; Thuan Phuc Nguyen, who had a liquor store in Lake Elsinore; and Alan Nam Nguyen and Jeannie Trinh Luong, an Irvine couple who had a trading firm in Garden Grove.
Attorneys for Thuan Phuc Nguyen and for Alan Nguyen and Jeannie Luong indicated that their clients would plead guilty, according to Hochman, the assistant U.S. attorney. Dinh Nguyen could not be reached in Seattle.
The SBA loan program has surged in recent years--to a record $9 billion this last fiscal year--while conventional lending has dried up, but the losses from fraud related to loan packagers and false tax returns have hurt the credibility of the SBA lending program. As a result of the problems in Southern California, the agency this month began cross-checking on a nationwide basis all tax returns filed in support of SBA loan applications against records at the Internal Revenue Service.
SBA officials and bankers said they were dismayed by the charges filed against Mahoney, a young bank executive who comes from a respected banking family in Los Angeles.
“It’s certainly discouraging when you put this kind of trust in a bank official and he does something like this,” said Marica, the SBA official in Washington.
Joseph Geiselmann, president of Citizens Bank in Pasadena, where Mahoney heads a three-person SBA lending department, said he was shocked. “He’s been excellent here,” said Geiselmann, adding that he was unaware of the criminal charges. Geiselman said his bank has had no problems with SBA loan defaults.
Marica said problems with fraud will likely lead to regulation of the loan packaging industry, which has grown along with the SBA loan volume. Marica appeared troubled by the fact that Mahoney was still working on SBA loans, and he said he would bring that to the attention of agency officials. He added that the SBA--which has reimbursed Bank of Industry for SBA loans that failed--may now seek to recover that money.
With numerous loans arranged by Pham, Bank of Industry was one of the top SBA lenders in the region in 1990, with a total volume of more than $11 million. In 1991, the bank was acquired by Comerica Inc., a large bank-holding company based in Michigan.
Federal investigators said Pham was at the center of the loan scheme because he was the middleman between Mahoney and the businesses seeking the loans.
Pham was well connected in Orange County’s large Vietnamese community, where he drummed up much of his business. Investigators said he received about 3% in commission on the more than $4 million in loans he packaged, which would mean he earned more than $120,000.
