In what is believed to be the biggest case of disaster loan fraud in U.S. history, criminal charges have been filed against 10 suspects who allegedly took part in a scheme to defraud the government of millions of dollars in disaster loan money after the 1992 riots, the 1993 Malibu fires and last January's Northridge earthquake, authorities said Monday.
The suspects, who operated businesses throughout Los Angeles County, were indicted Friday by a federal grand jury in Los Angeles after a 10-month investigation.
The scheme's two alleged ringleaders functioned as so-called loan packagers who helped assemble eight fraudulent loan applications, often taking as payment up to 40% of the loan proceeds collected by their clients, the indictment said. However, investigators said, the scheme appears to involve more than 100 fraudulent applications.
"Disasters bring out the best and worst in people," said Assistant U.S. Atty. Nathan Hochman, who heads the office's quake-fraud prosecutions.
The suspects applied for $7 million in low-interest, federally subsidized disaster aid from the Small Business Administration, the agency that makes loans of up to $1.5 million to help disaster victims repair or rebuild damaged properties. About $2 million was actually disbursed to them, Hochman said.
SBA officials, who have approved nearly 116,000 disaster loans for a total of $3.73 billion in response to the Northridge quake, estimate that about 1% of all disaster loans are obtained fraudulently.
The suspected ringleaders face possible prison sentences of 45 years or more and fines totaling more than $2 million, plus repayment of loan proceeds. They were identified as Faramarz (Frank) Javidzad, 34, and Fariborz Javidzad, 32, both of Beverly Hills. Hochman said the brothers are immigrants from Iran who systematically recruited other Iranian immigrants to take part in their loan fraud scheme.
Hochman said the elder Javidzad is expected to surrender to federal authorities in Downtown Los Angeles this afternoon. The younger brother is believed to have fled the country and his whereabouts are uncertain, Hochman said.
Jerry Kaplan, a Beverly Hills criminal defense attorney representing Faramarz Javidzad, said his client will appear in court today and enter a not guilty plea. "Frank is innocent of these charges," Kaplan said, though he declined to elaborate, saying that he had not reviewed the 13-count indictment against his client and the other suspects.
Most of the suspects face up to five years in prison and a $250,000 fine, plus repayment of any loan money received, Hochman said. He said those suspects have been summoned to appear in federal court in Los Angeles in early February.
The Javidzads are accused of instructing individuals in how to submit fraudulent applications and of supplying phony income tax returns, invoices and other financial documents to support such applications, Hochman said. In return for packaging the fraudulent loans, the Javidzads allegedly charged huge fees, which they would collect by improperly listing their business as a creditor of applicants' businesses or by obtaining signed, blank checks from the applicants, according to the indictment.
Terri Price, a special agent in the SBA's regional headquarters in Glendale and the lead investigator in the case, said further indictments are expected. Price said that she and other agents, including U.S. Secret Service agents, are investigating dozens of other loan applications processed by the Javidzads and that the total loan proceeds involved exceed $10 million.
"This case is far from over," Price said. "I've got at least another year to go before I can wrap it up."
The investigation of the Javidzads began in March when the SBA received an anonymous tip from a man who said he overheard a businessman bragging at a party about filing a fraudulent application for a $1.5-million quake disaster loan, Price said.
That businessman's name was Siamak Kohanoff, the part owner of a string of San Fernando Valley gas stations who has since pleaded guilty to one count of willfully making false statements to the government, officials said.
The anonymous caller indicated that Kohanoff's loan application had not been assembled by his regular accountant, and the caller gave SBA agents that accountant's name and address. Comparing Kohanoff's financial records held by the accountant to those submitted in his loan applications, SBA agents said they found wide discrepancies and suspected that Kohanoff had not assembled his application alone.
"We knew he didn't do it himself, so we knew we had to target the (loan) packagers," said Debbie Jones, the supervisor of the SBA's investigations office in Glendale. When investigators learned that the Javidzads had packaged Kohanoff's application, they began searching for other applications handled by the Javidzads. The inquiry quickly mushroomed into the biggest case that the SBA had ever encountered, agents said.
Also named in Friday's indictment was Jakob Yakhobzadehgan, 36, of Los Angeles, who is accused of assisting the Javidzads in their scheme and of submitting a false disaster loan application.
Others indicted were Babak Nehmadi, 23, of Beverly Hills; Behdad Jadidolahi, 28, of Los Angeles; Shahram Aghaee, 34, of Tarzana; Mohammad Javad Kashani Rafye, 47, of Santa Monica; Delnaz Shervanloo, 35, of Beverly Hills; Samuel Dadbin, 39, of West Los Angeles; and Daniel Ahdoot, 43, of Los Angeles.