US raises false claims defenses in suit brought by Small Business Administration borrowers

by Ben Vernia | June 16th, 2010

Sometimes the government comes looking for a False Claims Act defendant, and sometimes the defendant goes looking for the government. Two Tulsa hoteliers named Kim owed Saehan Bank $1.65 million in a mortgage on their Ramada Inn, and obtained a Small Business Administration loan (under its “504” program) to pay off the mortgage. Saehan Bank sued the Kims and the SBA when the deal went sour, and in response, the United States counterclaimed against the bank and the Kims, alleging that they concealed their financial distress at the time of the loan closing. According to DOJ’s June 15 press release:

The allegations relate to the SBA’s 504 loan program, which offers small businesses long-term, fixed-rate financing to acquire major fixed assets, such as buildings or machinery, for expansion or modernization. Before the 504 loan closing, the SBA requires certain certifications regarding the borrower’s financial condition and ability to repay the loan. The government alleges that Saehan Bank and the Kims falsely certified that the Kims had experienced no adverse change in their financial circumstances, even though the bank and the Kims knew that the Kims were facing serious financial difficulties. The SBA approved the Kims’ $1.7 million 504 loan, but the government alleges that the Kims never made any payments on the loan.

The government’s counterclaim also alleged a violation of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).

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