Home Music bank Their PPP loans were cancelled. But they were under investigation by the FBI

Their PPP loans were cancelled. But they were under investigation by the FBI

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CINCINNATI — Seven people who were under FBI investigation in Greater Cincinnati have had their Paycheck Protection loans canceled by the US Small Business Administration, WCPO 9 I-Team has found.

The I-Team found the anomaly by comparing SBA pardon data to criminal complaints in 22 fraud cases related to the local pandemic. A complaint, which outlines loan fraud allegations against six defendants, said the FBI opened its investigation in March 2021 “based on a review of transactional data showing that deposits from SBA programs … had been used for purchases and expenses apparently unrelated to maintaining employment. and other authorized business expenses.

The investigation led to the September 2021 arrest of Joseph Lentine, a Sedamsville property manager who was charged with filing false statements to obtain pandemic relief loans and collecting fees for helping five others to do the same.

By the time Lentine was arrested, the SBA had approved paycheck protection and economic disaster loan payments to the six defendants totaling $1.3 million. Additionally, the SBA canceled PPP loans totaling $572,745 for five of the six defendants between April and August 2021. In other words, the loans were canceled after the FBI’s investigation began, but before the criminal complaint against Lentine be unsealed in the U.S. District Court.

Four of the six defendants have reached plea agreements that call for restitution to the SBA totaling $392,908. No trial date has been set for Lentine, who could not be reached through his lawyer.

The I-Team also contacted the SBA, the FBI and the U.S. Attorney’s Office to ask if the SBA was aware of the criminal investigation before the loan forgiveness was granted. The FBI and U.S. Attorney’s Office declined to comment. SBA provided a statement:

“While the U.S. Small Business Administration (SBA) cannot comment on ongoing investigations or specific cases, the SBA is actively working with its Office of Inspector General to identify cases of suspected fraud and supports the OIG, DOJ, FBI, USSS, and other federal and state law enforcement agencies to pursue fraudsters and seize illegally obtained funds.

Forgiveness Rules
In its latest public report, the SBA said it had approved nearly $753 billion in PPP loan forgiveness through 9/11. This represents 95% of all money borrowed. He has been criticized by government auditors for canceling the loans before they were screened for eligibility and fraud.

He has come under fire from small business advocates for turning down loans in which borrowers made “good faith” mistakes.

But overall, the agency has accomplished what Congress intended: to keep people employed by helping businesses survive the pandemic, said Tenley Carp, a Washington, D.C. attorney who helps businesses appeal. SBA loan decisions.

“SBA is one of the smaller agencies, with only about 3,000 employees,” said Carp, partner at Arnall Golden Gregory LLP. “So to have a small agency do this massive work on top of the existing work that’s been thrust upon them, and check and make sure they’ve caught every bad actor, I think is a lot to ask. “

Carp said banks that approve PPP loans also make the initial decision on whether borrowers are eligible for the forgiveness. Their decision is subject to review by the SBA. Borrowers must show how much they spent on payroll expenses within eight to 24 weeks of getting the loan. If their payroll expenses are less than the loan, they can add qualifying expenses like mortgage payments, rent, and utilities to their forgiveness amount. If forgiveness is declined, borrowers must begin repaying the loan.

The SBA may halt a pardon application if there is evidence of fraud. The agency flagged millions of loans as potentially fraudulent between August 2020 and September last year, according to analysis of data released this month by the Project on Government Oversight. He said the SBA cleared more than 60% of its fraud flags in the final days of the Trump administration. The mass clearing happened in part because borrowers with fraud flags were unable to access second-round PPP loans, which began in January 2021.

Carp said an ongoing FBI investigation would be enough to stop a request for loan forgiveness. But it could have alerted those under investigation that their loans were under scrutiny. And that wouldn’t necessarily have triggered repayment of the loans.

“The agency should have coordinated,” Carp said. “If there was an investigation going on, they shouldn’t have approved those loans. But the money was out and there would be a hard way to get the money back from the bad actors no matter what.

Forgiveness Facts
In a 41-page affidavit, FBI agent Ferron M. Yi identified 11 Paycheck Protection loans totaling $925,000 that were approved for Lentin and his co-defendants before the FBI began its investigation in March 2021. Four additional loans totaling $186,295 were approved in March and April 2021.

But court records indicate the SBA may have known about the alleged fraud 10 months earlier.

“Klosterman has the fraud identification numbers issued in early May 2020,” wrote John Klosterman, a Sedamsville landlord who claimed he reported Lentine “to the SBA Inspector General’s Fraud Division” in a handwritten folder this year. .

Klosterman owned dozens of buildings in Sedamsville before he was jailed for failing to fix building code violations and harassing a former tenant.

A court-appointed receiver took control of Klosterman’s properties in February 2020 and appointed Lentine to manage them. Last month, the Port of Greater Cincinnati Development Authority reached an agreement to buy the properties for $1.5 million. Proceeds from the sale will be used to pay Klosterman’s fines and receivership costs.

“Joe Lentine was laundering my money as well as PPP funds,” Klosterman wrote in a 15-page motion asking a federal magistrate to remove the receivership and fire Lentine. Prosecutors have not responded to the motion, which Magistrate Karen Litkovitz denied in March.

The FBI found “significant indicia of money laundering and fraud” when it analyzed the expenses of two Lentine companies that obtained PPP loans in June 2020. In a $99,290 loan to Tri State Corporation, FBI review of transactional data revealed proceeds were used to purchase a 37ft Yacht and a 2012 Mercedes. In a $50,926 loan to NY-OH Property Corporation, the FBI was suspicious of “various cash withdrawals and movement of funds from this account to other accounts”.

When agents interviewed Lentine on April 29, 2021, he “admitted to filing PPP applications on behalf of many people” and “collected fees” from those borrowers of up to 30%, according to the FBI affidavit. The SBA had a 1% limit on PPP loan consultant fees. But those issues didn’t stop the SBA from canceling the largest loan on April 2, 2021 and the $50,926 loan on May 20, 2021.

In addition to Lentine’s two loans, the SBA canceled three loans in May 2020 that Lentine helped others obtain. Additional loans were canceled in June and August. Here is a summary of the canceled loans:

  • Angel Strunk borrowed $14,165 as a freelance office worker in April 2021. The SBA approved a loan forgiveness of $14,204 — which is the loan amount plus accrued interest — on August 12, 2021. In a May interview with the FBI, Strunk “admitted to preparing PPP applications for Lentine’s associates, explaining that she “started from scratch” to provide “supporting documentation” for each loan. Strunk signed a plea deal in August on one count of misrepresenting a loan application, she agreed to pay restitution of $43,985 and is due for a plea hearing in December.
  • Full Circle Pies LLC borrowed $49,696 on June 30, 2020. The SBA approved a loan forgiveness amount of $50,106 (including accrued interest) on May 3, 2021. The company was owned by Charles Murray, who entered into a plea deal in January on one count of making a false statement when applying for a loan. He has agreed to pay restitution of $212,981 and is awaiting sentencing.
  • Events by Faith LLC borrowed $100,925 on July 28, 2020. The SBA approved a loan forgiveness totaling $101,680 on May 5, 2021. The FBI affidavit said Faith Hill submitted the request, listing an address for Reading Road which had ‘no signage or storefronts, nor any evidence that this business ever existed there. Hill signed a plea deal last December on one count of misrepresenting a loan application. She agreed to pay $135,942 in restitution and is due to be sentenced next March.
  • Two companies owned by Keith Lee obtained rebate authorizations totaling $240,587 on May 27 and June 15. SBA data shows OBJ Property Services LLC borrowed $105,520 on July 6, 2020, while OBJ Development Properties LLC borrowed $132,965 on July 16, 2020. Lee “went on a gambling spree” with the proceeds from one of those loans, according to the FBI affidavit, with $17,500 in “point-of-sale withdrawals at Jack’s Casino” downtown between July and October 2020. Lee waived his right to be charged within 30 days of his arrest in September 2021. The case has not yet moved beyond that stage.
  • A sixth defendant had no loan canceled or approved after the FBI launched its investigation. Robert Debaun received two loans totaling $199,745 in July 2020 and January 2021. He entered a plea deal in January 2022 and is expected to be sentenced on December 6.

Carp said the lack of coordination between the SBA and investigators is a problem for taxpayers, even if the criminal case leads to restitution orders.

“For everyone involved, especially the taxpayers, it would have been better if the SBA had never approved the loan forgiveness and let that money out,” Carp said. “Because getting it back is of course much more difficult than allowing bad actors access to it.”