Agents Take a Bite Out of Loan Fraud : Tiny Glendale office of the Small Business Administration stretches staff to limits to hunt down white-collar criminals.

As a special agent with the U.S. government, Terri Price has been trained to operate high-tech surveillance equipment, to sweep crime scenes for the most delicate clues, and to fire a 9-millimeter Beretta handgun with deadly accuracy.

But Price’s investigations only occasionally require surveillance, rarely involve crime scenes and never end in shootouts. The most common reaction Price gets when she finally corners a suspect is a dumbfounded look followed by the question: “Does this mean I don’t get my loan money?”

That’s because Price, 43, works for the inspector general’s office of the Small Business Administration, a federal agency that is best known as the guarantor of low-interest loans to small-business owners. Her assignment is to catch white-collar crooks who try to cheat the SBA out of loan money. The job may lack the intrigue associated with the CIA or the FBI, but these days Price might be the busiest agent the government has.

Price is stationed in the SBA’s Glendale office, where she is one of just two permanent agents responsible for policing loan fraud throughout four Western states and Guam. That task alone stretches the tiny Glendale office to its limits. But the agents also must police the SBA’s disaster-loan program, and Price’s territory includes Southern California, home to five disasters in the past three years.

First came the floods followed by the L. A. riots in 1992, then the fires of 1993, and then last January’s Northridge earthquake. When disaster strikes, the Federal Emergency Management Agency is usually first to arrive, doling out grants of up to $10,000 to victims who need shelter. But the SBA finances the rebuilding effort by making low-interest loans of up to $200,000 to owners of damaged homes, and of up to $1.5 million to owners of damaged businesses.

Most of the money goes to home and business owners who truly need it. But the lure of bargain-basement, 3.625% interest rates also attracts applicants who don’t deserve the money and who often don’t intend to pay it back. “Our job is to protect the government’s assets, as meager as they are,” said Price, who keeps a photo of Eliot Ness tacked to the wall of her 12th-floor office. “We’re not a giveaway program, although in many cases it turns out that way.”

*

The SBA figures that about 1% of all SBA loans are obtained fraudulently. Given that the SBA has approved more than 115,000 Northridge quake loans worth a total of $3.7 billion, that means at least 1,100 quake loans probably went to cheaters.

Through December, only two quake-loan fraud suspects had been convicted, including a Calabasas gas station owner. But Nathan Hochman, the assistant U.S. attorney in Los Angeles in charge of quake-fraud prosecutions, said his office is pursuing about 20 quake-related loan cases, with perhaps hundreds more on the way.

About 70% of the investigations that Price and her fellow SBA agents work on are prompted by tips from loan officials who screen applications. But agents also respond to anonymous tips from the public. Since the earthquake, the flow of potential cases into the SBA’s Glendale office has nearly doubled to 20 per month. Last month, agents were actively investigating 38 cases related to disaster loans, including 23 earthquake-loan cases that involve about 200 applicants.

“Are there another 800 (fraudulent quake applications) out there? Probably,” said Debbie Jones, supervisor of the Glendale team of SBA agents. “What we’re seeing now are the ones being caught (by loan officers) in the stream. There are a whole bunch more they won’t catch until they are in default.”

Some cheaters submit phony repair invoices or inflated tax returns to try to qualify for loans they don’t deserve. Others use loan money to buy a car instead of making repairs. Then there are so-called “loan packagers,” specialists at putting together fake applications who often charge applicants as much as 30% of their loan proceeds for the service.

*

Because it is swamped with cases, the inspector general’s office has farmed out some cases to the FBI and the Secret Service, and it has hired two temporary agents. Now, the Glendale office has two full-time agents, two temporary agents and a supervisor. But even with the extra help, SBA agents are scrambling to keep up.

Price, an ebullient woman with blond hair and a bright smile, is the veteran agent of the crew, having joined the SBA in 1991. Because she often works undercover, she refused to have her face photographed for this article. Her workday begins at 6 a.m., she said, and ends “when I can’t hold my eyes open any longer.”

She pores over case files, calls SBA loan officers to go over applications, sets up surveillance operations and scurries about L.A. County to interview suspects as well as their friends, enemies and business associates. Every week or so, Price visits the U.S. attorney’s office in Los Angeles to present her cases to the officials who will prosecute them.

Her official workday ends at 7 p.m., when Price returns home to make dinner for her husband, a former captain in the U. S. Marines who now works for the Internal Revenue Service. But even at home, she often stays up until 11 p.m. viewing videotaped interviews with suspects.

Sometimes the job is dangerous. In October, 1993, after helping to convict an SBA official for taking bribes, Price was beaten into semiconsciousness outside her home by an assailant who was never caught, she said. As a result, she varies her drive home each night, and, like most agents, carries a gun.

Price said she makes a little over $60,000 per year, but she says the real motivation is the work itself. Every case “is like a jigsaw puzzle without the picture on the cover,” she said. “The fascination for me is finding out what the picture looks like.”

Lately, Price has been working weekends to assemble the biggest puzzle of her life. Last March, the SBA fielded an anonymous tip from an informant who said he was at a party when he overheard a businessman bragging about filing a fraudulent SBA application for a $1.5-million quake disaster loan.

*

The suspect’s name was Siamak Kohanoff, part owner in a string of gas stations in the San Fernando Valley, the SBA said. During her investigation, Price said she quickly learned that Kohanoff had first applied for a disaster loan following the Malibu fires, saying he needed financial help because fire damage in the area was diverting traffic away from his Calabasas gas station. He was approved for a $600,000 loan, Price said, but before he got the money, the Northridge quake struck, badly damaging his gas station in San Fernando.

Now Kohanoff was in a bind, Price said, because to get his first loan he had contended the Calabasas station was his only station and sole source of income. If he now tried to get a quake loan for his San Fernando station, the SBA would surely check his first application and discover his ruse.

To get around this problem, Kohanoff claimed that the unharmed Calabasas station suffered quake damage, Price said. In his application, Kohanoff even sent the SBA pictures of a crumpled gas station--shots he claimed were taken in Calabasas, but were actually taken in San Fernando, Price said.

Kohanoff was charged with one felony count of willfully making false statements to the government, and in August, Kohanoff pleaded guilty to that one count, the U. S. attorney’s office in Los Angeles said. He is now awaiting sentencing in U. S. District Court in Los Angeles. But the case is far from over.

The investigation of Kohanoff, along with further tips from the SBA’s loan processing office, led to a group of so-called loan packagers who had assembled Kohanoff’s application. A search for other applications handled by the same packagers yielded dozens of new suspects, and by December the investigation had mushroomed to include more than 100 suspects and more than $10 million in loan proceeds.

Six suspects have already agreed to plead guilty, and 43 others were in plea negotiations last month, Price said. One of the packagers fled the country as investigators closed in. Other arrests are made periodically, but it could be years before the case is closed, Price said.

In October, the SBA took a big step toward guarding against cases like this by requiring for the first time that applicants give SBA access to actual tax records held by the Internal Revenue Service.

*

Cheaters who get caught are generally charged with filing a “false, fictitious and fraudulent claim with the government.” Each count carries a maximum sentence of five years in prison and a $250,000 fine, plus repayment of the loan. But almost all cases end in plea agreements, and the most common sentence is three years of probation plus repayment of the loan.

Still, the SBA estimates that 10% of the disaster loan money it hands out is never repaid. Most is lost on honest borrowers who never financially recover from a disaster, but fraud also contributes to the problem, and the earlier a cheater is caught, the better the odds of repayment. With that in mind, SBA loan officers look for any suspicious signs on an application, no matter how small.

Andrea Hugh, a 30-year-old SBA agent hired in March, closed a case last month against a Glendale business owner who had applied for a $60,000 loan to replace quake-damaged computer equipment. To document the damage, the man submitted invoices for equipment supposedly purchased from a company called “Muzzle Computers,” the SBA said.

*

“Muzzle Computers” is an unusual name for a PC supplier, SBA loan officers thought, and investigators were notified that the application could be fraudulent. Sure enough, Hugh said, no Muzzle Computers company could be found.

When confronted, the suspect said he had bought the equipment from a friend who had made up the Muzzle name for the invoices, but he couldn’t produce canceled checks for the total amount he claimed to have purchased. The man was not prosecuted, Hugh said, but he was ordered to repay the $20,000 he had already received on his loan, and the rest of the loan was denied.

The man’s response, Hugh said, went something like this: “Does this mean I don’t get my loan money?”