Office of the Inspector General Monthly Update - April 2008

Business Loan Programs

Ongoing Investigation Results in Sentencing.

In
January 2007, agents from the SBA OIG and the U.S.
Secret Service arrested 18 individuals sought in
connection with a scheme in which a lender’s former
executive vice president and others not employed by
the lender conspired to fraudulently qualify loan
applicants for SBA-guaranteed loans. The scheme
involved at least 76 fraudulent loans totaling over $76
million. The following case is part of this ongoing
investigation, which is being conducted jointly with
the U.S. Secret Service.

• On March 3, 2008, the former president of a gas
station and convenience store in Clio, Michigan
was sentenced to 24 months in prison followed by
36 months of supervised release. He was further
ordered to pay $868,455.83 in joint and several
restitution to an SBA lender. The former
president, together with a former manager,
previously pled guilty to conspiracy in connection
with a $944,000 loan to the gas station. The
investigation determined that the two individuals
conspired with others to fraudulently obtain the
loan, with the former president serving as a “straw
buyer.” The fraud involved numerous false equity
injection documents, including a phony gift
affidavit signed by the former manager. The
business failed within months and caused the SBA
to purchase its guaranty; however, the lender
repaid the guaranty during the course of the
investigation.

SBIC Owner Sentenced.

On March 17, 2008, a part
owner of a Small Business Investment Company
(SBIC) was sentenced to eight months confinement,
three years supervised release, and $158,658 in
restitution. She had previously pled guilty to Interstate
Transportation of Stolen or Fraudulently Obtained
Property in connection with her role in stealing more than $1.9 million from the SBIC, which was licensed
and funded by SBA to lend money to start-up
technology businesses. She was also part owner of the
SBIC’s general partner and another firm. She and
others participated in the theft of the SBIC’s funds by
issuing checks, wire transfers, and other payments for
their own personal benefit to and through one of the
partner companies. They concealed the thefts by
falsifying partner company records to make it appear
that the payments were for salary or shareholder
distributions. Sentencing had been delayed due to her
cooperation with federal authorities in other
investigations relating to the SBIC and her now exhusband,
who was the former managing partner of the
SBIC. The OIG is conducting this investigation
jointly with the Federal Bureau of Investigation (FBI).

Disaster Loan Program

Texas Business Owners Sentenced.

On April 25,
2008, two co-owners of a lumber company in Sour
Lake, Texas, were sentenced in U.S. District Court for
the Eastern District of Texas. The first owner was
sentenced to sixty days home confinement and four
years probation. The other was sentenced to sixty
days incarceration, sixty days home confinement, and
three years supervised release. They were also
ordered to collectively pay a total of $25,184.92 in
restitution. On January 16, 2008, a jury found the two
defendants guilty of making false statements to SBA
in connection with an Economic Injury Disaster Loan
(EIDL). They purported to own several vacant lots in
Sour Lake, Texas, which they knew did not belong to
them, and offered these lots to SBA as collateral in
order to obtain the EIDL.

Church Pastor Pleads Guilty.

On April 10, 2008, a
Louisiana pastor pled guilty to one count of mail
fraud. He was previously charged via a criminal
information with using his position as the pastor of a
church to apply for an SBA physical disaster loan in amount of $252,000, and for a grant in the amount
of $35,000 from the Bush-Clinton Katrina Fund, to
rebuild the church. He caused the SBA to wire
transfer $10,000, which he intended to use for his own
benefit, to a bank account that he controlled. He also
caused the $35,000 to be sent to his home address and
used the funds for his own personal benefit. The
pastor also admitted that he received $13,000 in
kickbacks from a furniture company for falsely
claiming that the company delivered items to the
church. This investigation is being conducted jointly
with the FBI.

Florida Man Sentenced.

On April 22, 2008, a Gulf
Breeze, Florida man was sentenced to four months in
prison, three years supervised release (with four
months home detention), and restitution of
$40,414.73. He previously pled guilty to two counts
of making false statements on his application for
disaster assistance by claiming that he had sustained
damage to his second-floor apartment located in the
French Quarter of New Orleans. The apartment
complex where he resided was in an area that did not
flood and, therefore, his unit sustained little or no
damage as a result of Hurricane Katrina. He received
an SBA disaster loan of $40,000 for personal property
losses.

Government Contracting and Business Development

Five Defendants Sentenced in Texas.

On April 18,
2008, five people were sentenced in the Western
District of Texas after pleading guilty to committing
acts of bribery, kickbacks, and disclosure of bid
information in order to ensure that a certified 8(a) firm
located in San Antonio, Texas received numerous
multi-million dollar government contracts.


• A coordinator/project officer with the U.S.
Medical Command at Fort Sam Houston, was
sentenced to seven years imprisonment and three
years supervised release.

• A civilian contracting officer at Fort Sam Houston
was sentenced to seven years imprisonment and
three years supervised release.


• A contract government employee at Fort Sam
Houston was sentenced to five years imprisonment
and three years supervised release.
The owner of the certified 8(a) firm was sentenced
to five years and two months imprisonment, and
three years supervised release.


• A San Antonio contractor consultant was
sentenced to seven years imprisonment and three
years supervised release.

This case was initiated as part of an FBI task force
investigating certified 8(a) firms that act as passthrough
companies. The SBA OIG is conducting this
investigation jointly with the FBI, Internal Revenue
Service, U.S. Army Criminal Investigation Division,
General Services Administration OIG, Department of
Interior OIG, and the Defense Criminal Investigative
Service (DCIS).

Kentucky Business Consultant Indicted.

On April 8,
2008, a business consultant to a Louisville, Kentucky
company was indicted on one count of making false
statements to the SBA. He allegedly misrepresented
the location of the company’s principal office, as well
as the number of employees living in a HUBZone
area, in order to influence SBA to certify the company
as a HUBZone business. The company subsequently
received a HUBZone set-aside contract for over
$1 million for construction of a courthouse at Fort
Campbell, Kentucky. The OIG is conducting this
investigation jointly with the DCIS.
Statutory/Regulatory/Policy Reviews
In an effort to proactively identify and correct
potential Agency inefficiency and management
problems at the onset of policy and regulatory
development, the OIG reviewed, cleared, and/or
provided comments, as appropriate, on 6 Agency
initiatives, including proposed legislation, SBA
Standard Operating Procedures, and Agency notices
containing directives to its employees.

This monthly update is produced by the SBA OIG,
Eric M. Thorson, Inspector General.
The OIG has established an e-mail address
(oig@sba.gov) that we encourage the public to use to
communicate with our office. We welcome your
comments concerning this update or other OIG
publications. To obtain copies of these documents
please contact:


SBA OIG
409 Third Street SW., 7th Floor
Washington, DC 20416
E-mail: OIG@SBA.GOV
Telephone number (202) 205-6586
FAX number (202) 205-7382
Many OIG reports can be found
on the Internet at:
http://www.sba.gov/IG/igreadingroom.html
If you are aware of suspected waste, fraud, or
abuse in any SBA program, please call:
TOLL-FREE at (800) 767-0385
Or email:
OIGHotline@sba.gov