New Indictment Against BLX, IFA Remains Silent

Federal Grand Jury Returns Two New Indictments in SBA Loan Program

DETROIT (Blue MauMau) - On April 13, 2007, U.S. Attorney Stephen J. Murphy announced further developments in the ongoing investigation of the SBA loan scandal involving loans originated by Business Loans Express, one of the largest lenders participating in the SBA 7(a) Loan Guaranty Program.  BLX recently surfaced in franchising when its vice president assisted the International Franchise Association in unveiling its new Franchise Diversity and Development Initiative (FDDI), dubbed by IFA as a "one-stop-shop for developing minority and women-owned franchises.  

But last January, the Department of Justice had announced the original indictment against 19 persons in connection to BLX , charging them with fraud in a scheme surrounding SBA-guaranteed loans amounting to $76 million. One of the indicted was Paul Harrington, a former BLX executive vice president charged in a 14-count indictment with conspiracy, wire fraud, tampering with witnesses, making false declarations before the grand jury, and making false statements to a bank. In the latest indictment on April 10, the U.S. Attorney (see New BLX Indictment) announced with the Inspector General of the Small Business Administration and the U.S. Secret Service of Detroit that a Federal Grand Jury returned two more indictments charging three BLX executives "with fraud in connection with two loans. 

In spite of the original indictment, IFA took the position that the charges were only allegations until proven guilty. “BLX would remain as a partner in FDDI”, the IFA stated. So now with an additional indictment, will IFA and the franchise community remain silent on the alleged corruption surrounding the SBA-guaranteed loans, a definite risk not only to a vital segment to the growth of franchising, but also a threat to minorities who desperately depend on SBA assistance in obtaining loans for their businesses.

Indicted BLX to Continue with Franchise Minority Initiative

In an attempt to get clarification on IFA's present involvement with Business Loans Express and an update on the current FDDI program, questions were asked of Terry Hill, IFA's vice president of communications, who asked that only written questions be submitted.  In asking what amount BLX had committed to contributing to the diversity initiative or any other IFA Foundation entity related to it, Hill stated that "no money was pledged or paid to the IFA Educational Foundation for anything to do with FDDI."   But Don Graves, chairman of Metropolitan Business Collaborative and of the FDDI program, stated in his posting to the last Blue MauMau article, " BLX's leadership sees value in supporting minority efforts, and because of that it was willing to make the financial commitment towards the creation of the program, as well as its long-term development, when others did not step up to the plate."

Hill also stated that Don Graves, not David Nayor, has the lead role in the FDDI program, and that BLX was just one of several companies that participated in the first meetings to organize the FDDI effort. Graves , in his posting, also emphasized that it was brought together by a consortium of companies, and he took exception to BLX being referred to as a "lead" or "preferred" lender. But he did state that FDDI was sponsored by BLX and its parent company, Allied Capital Corp., along with the National Cooperative Bank. 

Although Hill stated that Nayor was not the contact person for the program, Nayor said in a telephone interview that his company was still the contact for FDDI, but asked that questions be referred to Thomas Becker of Sitrick and Company, who is now the spokesperson for BLX in light of the investigation. Becker explained that BLX is under a strict agreement with the Small Business Association (PRNewswire SBA / BLX) since the indictment, but that he would be happy to provide answers to any questions regarding the company's continued involvement in FDDI. But after several weeks waiting for his response to questions submitted through telephone calls and email, this article goes forward without his answers.

Hill also said that IFA was continuing to promote the program under the Franchise Diversity and Development Initiative, although there seems to be little mentioned on FDDI from IFA in announcements or on its web site.

Coverage of SBA Loan Scheme and BLX Indictment Lacking in Franchise Community 

Although there has been broad media coverage in the business and finance arenas regarding the SBA loan scheme allegations surrounding the DOJ indictments of BLX employees, the franchise community has been slow to cover the news in spite of the fact that SBA-guaranteed loans are a vital segment of franchising.  One franchise insider said that the loans are critical to franchising’s growth. According to a report last September from FRANdata, the exclusive contractor for the SBA Franchise Registry, SBA's value proposition appeals to a broad spectrum of franchise systems of all sizes in helping their growth.   In one news report this month, the reporter asks why BLX is allowed to retain its Preferred Lenders Program Certification from SBA and it states that potential for fraud still exists with BLX, in spite of its agreement with the SBA.

Now we must wonder, will IFA and the franchise community go into damage control and lash out on the corruption threatening franchising’s growth, or will they remain silent, turning their back on the people who need their protection most?