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DOJ Catch of the Week -- PNC Bank

Posted  August 19, 2016

By the C|C Whistleblower Lawyer Team

This week’s Department of Justice “Catch of the Week” goes to PNC Bank N.A.  On Tuesday, the Pittsburgh-based national banking association agreed to pay $9.5 million to resolve allegations it violated the False Claims Act in connection with the issuance of loans guaranteed by the Small Business Administration (SBA).  See DOJ Press Release.

The SBA Act allows banks to partner with the SBA to make loans to qualified small businesses.  In the case of defaults by qualifying borrowers, the SBA guarantees to repay participating banks 75% of the balance of the loan.  PNC approved dozens of SBA-guaranteed loans under this program which had been brokered by Jade Capital & Investments LLC.  After many of these loans went into default, PNC submitted guaranty claims which the SBA approved, resulting in payment to PNC for the SBA-guaranteed portion of the unpaid balance of the loans.

The government subsequently prosecuted several individuals associated with Jade Capital for conspiring to fraudulently obtain business loans guaranteed by the SBA, with resulting losses of over $100 million.  These individuals admitted to submitting false documents to secure PNC’s loan approval such as altered bank statements, false management resumes, profit/loss figures, and gift letters.  PNC approved the loans based on this documentation.   However, the government also went after PNC, alleging it failed to adhere to the requirements of the SBA program, including demanding adequate bank and IRS tax records from the borrowers, ensuring that the borrowers had the ability to repay the loans, and failing to apply prudent lending standards.  The government further charged that PNC sought payment on SBA guarantees even though PNC should have known that SBA requirements to recover on the guarantees were not met.

In announcing the settlement, the government stressed its commitment to pursuing SBA lenders that do not adhere to strict lending standards.  This was made clear by Maryland US Attorney Rod J. Rosenstein who stated that “the government will vigorously pursue lenders that fail to enforce reasonable lending standards and stick the taxpayers with the bill for bad loans.”  And SBA General Counsel Melvin F. Williams, Jr. noted that “rooting out, and vigorously pursuing, instances of civil fraud committed by those who participate in the lending programs of SBA is among the highest priorities of this Agency.”

Tagged in: Catch of the Week, FCA Federal, Financial Institution Fraud,