New Jersey man sentenced to more than five years in federal prison for $ 3.5 million bank fraud scheme | USAO-MD

Baltimore, Maryland – U.S. District Judge Deborah K. Chasanow today sentenced Mehul Khatiwala, 37, of Voorhees, New Jersey, to 63 months in federal prison, followed by four years of supervised release, for conspiracy to committing bank fraud and for three counts of bank fraud, as part of schemes to fraudulently obtain a total of approximately $ 15 million in loans from Cecil Bank to purchase hotels and multi-family residential property, resulting in losses of over $ 3.5 million. Judge Chasanow also ordered Khatiwala to pay a fine of $ 50,000 and waive and pay restitution of $ 3,593,801.

The sentence was announced by the Acting United States Attorney for the District of Maryland, Jonathan F. Lenzner; Special Agent in Charge Robert Manchak of the Federal Housing Finance Agency (FHFA), Office of the Inspector General; Special Agent in Charge Shimon R. Richmond of the Federal Deposit Insurance Corporation-Office of Inspector General (FDIC-OIG); Special Inspector General Christy Goldsmith Romero of the Special Inspector General for the Distressed Property Relief Program (SIGTARP); and Inspector General Hannibal “Mike” Ware of the Small Business Administration – Office of the Inspector General.

“Mehul Khatiwala will now serve more than five years in federal prison for fraudulently obtaining more than $ 15 million in loans. Khatiwala’s criminal behavior stole millions of dollars from the victims, which included not only the bank that granted the loans, but also the American taxpayers whose taxes guaranteed the loans, ”said Acting United States Attorney Jonathan F. Lenzner . “All of us in the federal police force are determined to investigate and prosecute this type of costly fraud.”

According to his plea agreement, from February 2011 to January 2014, Khatiwala and two co-conspirators executed a scheme to defraud Cecil Bank, the Small Business Administration (SBA) and other financial institutions by distorting important facts in order to obtain financing for the purchase of two hotels and a multi-family residential property. Khatiwala defaulted on the loans, causing losses to Cecil Bank and the SBA of more than $ 3.5 million. According to the indictment and information presented at today’s plea hearing, on December 23, 2008, Cecil Bank’s holding company, Cecil Bankcorp, Inc., received a $ 11.5 million bailout. dollars from the Troubled Asset Relief Program (TARP).

Specifically, starting around April 2011, Khatiwala and Conspirator A planned to apply for a $ 5 million loan from Cecil Bank to purchase the Memphis Airport hotel in Memphis, Tennessee, as well as a loan of $ 1.6 million. million dollars to renovate this hotel. In order to secure a loan, Khatiwala concealed Conspirator A’s 80% stake in the borrowing entity because Conspirator A had already reached his legal loan limit to Cecil Bank. In May 2011, the board of directors of Cecil Bank approved the $ 5 million loan, on condition that it be guaranteed by the SBA. The SBA required Khatiwala, as the purported 100% owner of the borrowing entity, to show that it had equity in the borrowing entity, or available cash of around $ 1.8 million. Conspirator B, who was an employee of another bank, falsely verified that Khatiwala had more than $ 2 million on deposit at the co-conspirator’s bank. Khatiwala admitted to signing and submitting this statement, which he knew was false. The SBA has approved its 75% guarantee of the $ 5 million loan funded by Cecil Bank. The loan defaulted in January 2015.

In 2007, Khatiwala and the other owners of the Best Western Hotel in York, Pa., Refinanced a loan for the property in the amount of $ 6.635 million. In early 2010, Khatiwala and his co-owners became delinquent on the loan and began discussions with the loan management company. In August 2011, Khatiwala reached an agreement with the loan manager to accept a discounted repayment of $ 3.625 million on the outstanding principal balance of approximately $ 6.6 million. Khatiwala submitted fraudulent documents and a fraudulent settlement statement to the loan manager indicating that the funds were provided by a private lender. In fact, Khatiwala had organized the sale of the hotel to related parties for the sum of $ 4.3 million.

As early as April 2011, before Khatiwala made the false statements to the credit manager to negotiate the repayment, he began to implement the second step of his short sale fraud scheme by arranging the sale of the hotel. to person B and to one of the Khatiwala. employees. Khatiwala fraudulently obtained a loan of $ 3.225 million from Cecil Bank, which was guaranteed by the SBA. During the loan and underwriting review process carried out by Cecil Bank and the SBA, Khatiwala submitted false documents regarding the ownership of the buying and selling entities, as well as false financial statements for the buyers. . Khatiwala knew that the funds paid at closing would come from the personal bank account of Khatiwala and other companies, and not from the buyers, as was falsely portrayed to the bank and the SBA, in order to get the loan approved. . As a result of this short sale fraud, the original note holder on the Best Western Hotel lost $ 675,000, which instead went to Khatiwala.

Finally, Khatiwala admitted that as of February 2011, he had negotiated the purchase of a multi-family residential property in Perryville, Maryland. In order to get the loan, he set up a company to serve as the borrowing and buying entity, representing to Cecil Bank that people A and B, a husband and wife, were the 100% owners of the company and that Khatiwala was the manager. In fact, Conspirator A owned 50% of the company and agreed to stand surety for the loan. The bank approved a loan of $ 7,122,500 to purchase the property with people A and B as 100% owners of the purchasing entity. On or about March 28, 2011, several days before the settlement, Khatiwala emailed Conspirator A an amended and updated operating agreement reflecting Conspirator A’s 50% interest in the property and his agreement to indemnify them. persons A and B for any loss, cost, liability. or expenses related to the realization of Cecil Bank’s rights under the loan guarantee agreement. Khatiwala, Conspirator A, and Persons A and B signed the Amended Agreement; however, this important fact and document was never disclosed to Cecil Bank before or after the settlement, thus concealing Conspirator A’s stake in the property. As of February 2012, loan payments of approximately $ 29,000 per month became past due and the loan is in default. Cecil Bank ultimately sold the note to a private lender for $ 3.252 million in lieu of foreclosure, incurring a loss of $ 3,583,170.

Acting US Attorney Jonathan F. Lenzner commended the FHFA, FDIC-OIG, SIGTARP and SBA-OIG for their work in the investigation. Mr. Lenzner thanked US deputy lawyers Martin J. Clarke and Harry M. Gruber, who pursued the case.

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