Fraudulent Conduct Under the Small Business Act Results in Criminal Convictions and Civil Judgments
On behalf of a marketing vendor, we sued several hotel owner defendants under the False Claims Act for having committed fraud under the Small Business Act (SBA), when they perpetrated a "short sale" scheme to avoid liability for an SBA loan that one of them had obtained. The fraudulent scheme involved a hotel owner who stopped paying on his loan to the SBA under pretense that his business was failing - in fact, he had sufficient revenues to have made the payments due. Instead, the defendants hatched a plan to conduct a "short sale" of the hotel property to an insider (another hotel owner and partner of the first defendant), and then to ask the SBA to write off the balance of the debt as uncollectable. The "short sale" to the insider/partner was a sham, and the hotel property in reality remained in the control of the original owner. Now, though, the property was free of about $1 million in debt to the SBA that defendants had fraudulently induced the SBA to write off.
After we filed this suit, the Government began a parallel criminal case against the defendants involved, which resulted in several criminal indictments. One of the main defendants pleaded guilty while the other went to trial - and unsurprisingly was found guilty by the jury. Both defendants went to prison. On the civil side, in the qui tam action that we filed, the Government secured judgments against the defendants for $2,500,000.