Former BLX Executive VP Pleads Guilty to Fraud

IFA Continues As Normal As Partner in Diversity Program Pleads Guilty

DETROIT (Blue MauMau) - Out of the smoldering ashes of the Franchise Diversity Development Initiative (FDDI), a program launched by the International Franchise Association and Business Loans Express one year ago, a new glow is now flickering through past scandals reported on here on Blue MauMau. This month BLX issued a statement that its former executive vice president, Patrick J. Harrington, plead guilty to fraud and making false statements to a grand jury. Harrington headed the Troy, Michigan office of BLX until it was closed in August of 2006. The Department of Justice released its original indictment in January 2007 against him and several other state residents. At that time,  BLX entered into an Agreement with SBA.

After the U.S. Attorney's indictments was first announced, IFA stated that BLX was only one lender in a consortium of companies under FDDI, a program which provided a “one-stop-shop” of products and services for developing minority and women-owned franchises." Miriam Brewer, director of Development and Diversity Initiatives, explained that in light of the January federal charges, IFA was making changes regarding FDDI's leadership. But she stated, "BLX will remain as a partner in FDDI, even though there has been an indictment by the Department of Justice.  She said, “In the United States people are innocent until proven guilty.  At this point, the charges are just allegations.” 

BLX also released a statement last August that it was joining the SBA's new Patriot Express Loan Initiative which provides financial, procurement, and technical assistance programs to the military community.

The Superseding Indictment

The recent superseding indictment filed in the U.S. District Court for the Eastern District of Michigan, which lists 10 loan commitment letters issued between August 2002 to May 2005, states the following:

"Harrington and his co-conspirators knowingly caused BLX to fraudulently originate and issue SBA-guaranteed loans to small businesses, typically for the purchase of gas stations, small hotels and restaurants, by knowingly and willfully making and using material misrepresentations in the loan applications and supporting documents." 

On October 1, 2007, BLX said in its statement through its public relations firm, Sitrick & Company, Inc., that Harrington had been charged with conspiring to fraudulently originate 76 loans in a total amount of approximately $76 million. All losses due to his criminal conduct will be borne entirely by BLX, and according to the statement, the 10 loans are secured by commercial real estate collateral, which may result in some recovery to BLX.

It also reinstates its commitment to preventing fraud in SBA lending and states that it has instituted a number of enhancements to its processes to prevent and detect fraud. Allied Capital Corp., Washington, D.C., which owns 95% of BLX , buys controlling stakes in privately held companies and provides them with financing. Through BLX, it makes loans up to $4 million to small businesses.

Although the U.S. Attorneys office did not return phone calls prior to this posting, a report from SmartMoney.com said Harrington's sentencing will be in January. Another report from Nationalmortgagenews.com stated that the maximum penalty for conspiracy, false statements and making false declarations before the grand jury is five years imprisonment, a $250,000 fine and three years supervised release. 

 Developing Story. . .

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