PNC Bank N.A. has agreed to pay the United States $9.5 million to settle claims under the False Claims Act in connection with the issuance of loans guaranteed by the U.S. Small Business Administration (SBA). PNC is a national banking association with its principal offices located in Pittsburgh.
The settlement was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; U.S. Small Business Administration Inspector General Peggy E. Gustafson; and SBA General Counsel Melvin F. Williams, Jr.
“Banks that are trusted to make loans backed by the SBA have a duty to apply proper lending standards, because the United States is obligated to pay when federally-backed loans default,” said U.S. Attorney Rod J. Rosenstein. “The government will vigorously pursue lenders that fail to enforce reasonable lending standards and stick the taxpayers with the bill for bad loans.”
“This case is the latest example of the significant, positive results achieved through the combined efforts of the SBA and the Department of Justice to uncover, and forcefully address, civil fraud committed in connection with SBA’s lending programs,” said SBA General Counsel, Melvin F. Williams, Jr. “Rooting out, and vigorously pursuing, instances of civil fraud committed by those who participate in the lending programs of SBA is among the highest priorities of this Agency.”
“The SBA Office of Inspector General will aggressively investigate wrongdoing in SBA programs,” said Inspector General Peggy E. Gustafson. “SBA’s loan programs are designed to provide eligible small businesses access to capital to finance and grow their businesses, and SBA’s preferred lenders have a responsibility to apply prudent lending standards in making these loans.”
The SBA Act allows banks to partner with the SBA to make loans to qualified small businesses. Participants in the SBA’s Preferred Lenders Program (PLP), like PNC, have authority to make and close these loans without obtaining the prior approval of the SBA. Banks are required to comply with terms and conditions, including SBA regulations, standard operating procedures (“SOPs”), and prudent lending standards, when making loans under the Preferred Lenders Program. In the event a borrower defaults on the loan, SBA guarantees to repay the lender 75% of the balance of the loan.
As a PLP lender, PNC approved 74 SBA-guaranteed loans that were brokered by Jade Capital & Investments LLC (“Jade Capital”) through its principals, including Joon Park (“Park”). Beginning in 2006, certain Jade Capital loans went into default. PNC submitted guaranty claims to SBA for payment for many of the defaulted loans. The SBA approved the claims for 24 loans and paid PNC the SBA-guaranteed portion of the unpaid balance of the loans at the time of default, minus any recovery from the liquidation of business assets.
The U.S. Attorney’s Office for the District of Maryland subsequently prosecuted Joon Park and others associated with Jade Capital, for conspiring to commit bank fraud in connection with a scheme to fraudulently obtain business loans guaranteed by the SBA, with resulting losses of over $100 million. Joon Park and other defendants admitted in plea agreements that they created and submitted false and fraudulent documents to secure PNC’s loan approval. For example, Joon Park and others used computer software programs to alter bank statements, and created false management resumes, profit/loss figures, and gift letters, among other documents. PNC in turn approved the loans based on the documentation provided by Joon Park and others. Joon Park and five other defendants were convicted for their roles in the scheme and sentenced to federal prison.
The United States contends that it has civil claims against PNC with regard to the Jade Capital Loans for failing to adhere to requirements as a PLP lender, including demanding adequate bank and IRS tax records from the borrowers, ensuring that the borrowers had the ability to repay the loans, and failing to apply prudent lending standards. Moreover, PNC sought payment on SBA guarantees even though PNC should have known that SBA requirements to recover on the guarantees were not met.
U.S. Attorney Rod J. Rosenstein thanked Assistant U.S. Attorneys Jason D. Medinger and Roann Nichols, the SBA Office of Inspector General and the SBA Office of General Counsel for the collaboration that resulted in the settlement announced today. The claims settled by this agreement are allegations only; there has been no determination of liability. Criminal charges against Jade Capital and its co-owner Loren Park, who is a fugitive, are still pending.