PNC to pay $9.5M to settle claims of improper SBA loans

PNC Bank is paying the U.S. government $9.5 million to settle a complaint related to loans guaranteed by the Small Business Administration, the U.S. Attorney’s Office for Maryland announced this week.

As a lender in the SBA’s Preferred Lenders Program, the Pittsburgh-based bank approved 74 SBA-guaranteed loans brokered by Jade Capital & Investments LLC through principals. Some Jade Capital loans defaulted starting in 2006, and PNC submitted claims to the SBA for payment of those loans. The SBA approved 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 Justice Department said.

The U.S. Attorney’s Office for the District of Maryland prosecuted principal Joon Park and others affiliated with Jade Capital for conspiring to commit bank fraud in connection with a scheme to fraudulently obtain business loans guaranteed by the SBA, resulting in losses of over $100 million, the Justice Department said.

During settlement talks, Park and other defendants admitted to creating and submitting false and fraudulent documents to secure PNC’s loans, such as using computer software programs to alter bank statements, creating false management resumes, profit and loss figures and gift letters, the government contended. In turn, PNC approved the loans based on those documents. Park and the other five defendants were convicted and sentenced to federal prison.

The Justice Department said PNC failed to meet its requirements as a lender in the SBA program, which include demanding adequate bank and IRS tax records from the borrowers, making sure that the borrowers were able to repay the loans and failing to apply prudent lending standards.

Furthermore, PNC sought payment from the SBA even though the bank should have known that the that required criteria for the SBA to pay back those guarantees were not met.

U.S. Attorney for Maryland Rod J. Rosenstein; U.S. Small Business Administration Inspector General Peggy E. Gustafson; and SBA General Counsel Melvin F. Williams, Jr. announced the settlement on Tuesday.

“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,” Rosenstein said. “The government will vigorously pursue lenders that fail to enforce reasonable lending standards and stick the taxpayers with the bill for bad loans.”

Justice officials said that the claims settled in the agreement are only allegations and that there has been no determination of liability. The federal government is still pursuing criminal charges against Jade Capital and its co-owner Loren Park, who is a fugitive.