New BLX Indictment, Sentencing in SBA Loan Fraud Scheme

WASHINGTON, D.C. (Blue MauMau) - On March 10, U.S. Attorney Steven J. Murphy, Eastern District of Michigan, announced that the government was continuing its investigation of a massive fraud loan program, one involving one of the Small Business Administration's top 10 lenders, Business Loans Express LLC. In January 2007, 19 persons were charged for their connection to the lender in providing over $76 million in SBA-guaranteed loans. Among them was Patrick J. Harrington, Beverly Hills, Michigan, a former Executive Vice President of Business Loans Express, 95 percent owned by Allied Capital. He was charged with 14-counts, including conspiracy, wire fraud, tampering with witnesses, making false declarations before a grand jury, and making false statements to a bank. Last October, he pled guilty to one count of conspiracy to fraudulently originate 10 SBA-guaranteed loans, and to giving false statement before a grand jury. His sentencing had been scheduled for last January, but was postponed.

In this latest announcement, another person had been indicted and two others sentenced because of their roles in the fraudulent loan scheme. Sanas Dakhlallah, Dearborn, Michigan, pled guilty to conspiracy in making false statements in support of a loan application to purchase a gas station/convenience store. Dakhlallah, a probation officer with the Michigan Department of Corrections, submitted the false application materials knowing full well that the information for the SBA loan was false and fraudulent. The loan, originated by BLX, was for $825,000. She admitted that she was a "straw purchaser" of the gas station. Dakhlallah will be sentenced in July.

The other two people already charged in the case for signing false documents pertaining to loans, were sentenced this month. One was given a one-day imprisonment, and a one-year supervised release with six months home confinement. The other was sentenced to a two-year imprisonment. The SBA-guaranteed loans were for the amounts of $1,310,000 and $944,000, respectively. Several others indicted received sentences in 2007.

The Franchise Connection

The Business Loans Express debacle has unfolded here on Blue MauMau over the past 18 months, having a franchise connection. In late 2006, prior to the U.S. Attorney's announcement of the investigation and charges, the International Franchise Association partnered with the BLX lender in announcing its newly formed Franchise Diversity and Development Initiative at an Atlanta-based conference. David Nayor, vice president of BLX, told the audience that their goal was to assist franchisors in taking advantage of growth opportunities in urban locations to provide a one-stop shop for financing, location, tax credits and operational support. IFA Foundation President John Reynolds had described the program as one that would offer financing and technical assistance to women and minority franchisees.

In a November 2007 Senate Committee meeting, Steven Preston, SBA Administrator, distances the administration from an escalating BLX loan fraud scheme involving gas station owners and others. BLX has close ties to an IFA minority initiative.

Related reading:

• Minority Initiative Denies Connection to BLX Scandal
• Former BLX Executive Pleads Guilty
• Allied Capital 3^rd Quarter Shifts Away from BLX

Attachments:

Dept of Justice March 10 Announcement