%1

A Chicago-area rabbi, who formerly owned a nursing home chain at the heart of the biggest default in the history of a federal mortgage-guarantee program, has been indicted by federal authorities on charges he bilked millions of dollars from investors, the New York Times reported. The indictment against Zvi Feiner and a business partner, Erez Baver, is the latest chapter in the yearslong saga involving the Rosewood Care Centers chain of nursing homes, which are mainly in the Chicago suburbs. The $146 million default in 2018 was the worst ever for a program that insures mortgages on roughly 15 percent of the nation’s nursing homes. In the aftermath, the Department of Housing and Urban Development, which administers the mortgage guarantee program, tightened some of its underwriting and review processes. The Rosewood chain — which has been renamed by the new owners — was part of a network of nursing homes that Feiner, 50, and Baver bought after raising money from investors in the Orthodox Jewish communities around Chicago and New York. Federal authorities said that the two men had misled investors about the financial health of the nursing homes and had run them as a Ponzi scheme, using money from new investors to pay earlier ones and skim cash for themselves. The accusations are similar to those in a fraud lawsuit filed last year by the Securities and Exchange Commission and in investor lawsuits previously reported by the Times. In addition to the wire fraud charges, federal authorities seek to recoup $13.56 million from Feiner and $3.76 million from Baver.

U.S. prosecutors charged a hedge-fund manager with fraud for suppressing a rival bid for a prized piece of bankrupt retailer Neiman Marcus Group Ltd., then trying to cover up the misconduct when it came to light, WSJ Pro Bankruptcy reported. Dan Kamensky, the founder of Marble Ridge Capital LP, was arrested yesterday and charged by federal prosecutors in New York with securities fraud, wire fraud, extortion and obstruction of justice in connection with his efforts to acquire shares in Neiman’s MyTheresa e-commerce business. Kamensky previously admitted to Justice Department bankruptcy watchdogs that he had used his pull with investment bank Jefferies LLC, where he was a client, to coerce it to scrap a competing offer for the MyTheresa shares so he could buy them himself for less. If convicted of all charges, Kamensky faces up to 50 years in prison. The Securities and Exchange Commission also sued Kamensky and Marble Ridge yesterday over his attempt to suppress competition for MyTheresa shares.

The feds have made another arrest tied to Paycheck Protection Program (PPP) loan fraud. This time, it's an attorney facing charges. Jae H. Choi, who has an office in Fort Lee, N.J., has been accused of fraudulently obtaining nearly $9 million in PPP loans, Forbes reported. Choi has been charged with three counts of bank fraud and one count of money laundering. According to the complaint, Choi submitted three fraudulent PPP loan applications to three different lenders on behalf of three businesses that allegedly provided educational services. Choi allegedly falsely represented to lenders that the companies had hundreds of employees and paid over $3 million in monthly wages. To do this, he reportedly fabricated the existence of those employees, manipulated bank and tax records, and falsified a driver's license on the applications. A recent report by the House Select Subcommittee on the Coronavirus Crisis advised that over $1 billion in COVID-19 relief went to companies in violation of the program's rules. Specifically, 10,856 loans (totaling more than $1 billion) appeared to be multiple loans to the same recipient. The report also found more than 600 loans (totaling more than $96 million) went to companies that have been debarred or suspended from doing business with the federal government. And there were also more than 350 loans (totaling more than $195 million) that went to government contractors previously flagged by the federal government for performance or integrity issues.

The Justice Department has made at least 41 criminal complaints in federal court against nearly 60 people, who collectively took $62 million from the Paycheck Protection Program by using what law enforcement officials said were forged documents, stolen identities and false certifications, the New York Times reported. They are just “the smallest, tiniest piece of the tip of the iceberg,” said Hannibal Ware, the inspector general of the Small Business Administration, which led the program. But with their ostentatious spending and clearly faked records, those examples have also been the easiest to spot. The Paycheck Protection Program, a centerpiece of the CARES Act, poured $525 billion into the economy in just four months before coming to an end. More than five million businesses received loans, which could be forgiven if used for payroll and certain other expenses. Now, that hastily created program in response to the initial financial shock of the COVID-19 pandemic is entering its next messy stage, one that lenders and government officials expect to take years: the hunt to recapture illicitly obtained cash. The challenge facing scores of state and federal agencies is enormous. The Small Business Administration’s fraud hotline, which received fewer than 800 calls last year, has already had 42,000 reports about coronavirus-linked graft. But many of the cases investigators ultimately pursue will not have telltale clues like expensive watches and Italian sports cars bought by people who said their small businesses were in need of help. Future cases will be more thorny, involving owners who tried to exploit gray areas in the program’s rules or the desperation of their employees. Under the initial rules, borrowers who wanted the loans forgiven had to spend most of the money within eight weeks. Those limits frustrated many owners, and some appear to have tried to quietly break the rules, according to the workers, who asked not to be identified to protect their livelihoods.

The New York Attorney General’s Office yesterday sued the Trump Organization, President Donald Trump’s son Eric Trump and two lawyers who have worked with the Trump Organization, asking a New York County Supreme Court judge to compel the defendants to comply with subpoenas, the National Law Journal reported. Attorney General Letitia James is investigating “whether the Trump Organization and Donald J. Trump … improperly inflated the value of Mr. Trump’s assets on annual financial statements in order to secure loans and obtain economic and tax benefits,” according to court documents. Land-use attorney Charles Martabano, tax attorney Sheri Dillon and Dillon’s firm Morgan, Lewis & Bockius are also named as defendants in the suit. Martabano and Dillon each worked on matters related to Seven Springs, a Westchester County estate. One focus of the investigation is whether the Trump Organization and its agents improperly inflated the value of Seven Springs, according to court documents. “Valuations of Seven Springs were used to claim an apparent $21.1 million tax deduction for donating a conservation easement on the property in tax year 2015, and in submissions to financial institutions as a component of Mr. Trump’s net worth,” wrote Matthew Colangelo, chief counsel for federal initiatives in the AG’s office. A number of other Trump properties, including Trump National Golf Club – Los Angeles, Trump International Hotel and Tower Chicago and the Manhattan office tower at 40 Wall Street are also part of the investigation, according to court filings.

The Consumer Financial Protection Bureau (CFPB) on Friday issued a consent order against Go Direct Lenders, Inc. (Go Direct), a California corporation that is licensed as a mortgage broker or lender in about 11 states, according to a CFPB press release. Go Direct offers and provides mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). Go Direct’s principal means of advertising VA-guaranteed loans is through direct-mail advertisements sent primarily to United States military servicemembers and veterans. The Bureau found that Go Direct sent consumers numerous mailers for VA-guaranteed mortgages that contained false, misleading, and inaccurate statements or that lacked required disclosures, in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts and practices, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. The consent order requires Go Direct to pay a civil money penalty and imposes requirements to prevent future violations. The Bureau found that Go Direct disseminated advertisements that contained false, misleading, and inaccurate statements or that failed to include required disclosures.  For example, Go Direct advertisements misrepresented the credit terms of the advertised mortgage loan by stating credit terms that the company was not actually prepared to offer to the consumer, including advertising a lower annual percentage rate than it was prepared to offer. 

A Manhattan federal judge has rejected Martin Shrkeli’s bid to escape an antitrust lawsuit seeking to ban the imprisoned executive from ever working in the pharmaceutical industry, after the price of his company’s lifesaving drug, Daraprim, suddenly spiked more than 4,000 percent in 2015, the National Law Journal reported. U.S. District Judge Denise L. Cote of the Southern District of New York said Tuesday there was reason to believe that alleged scheme at Shkreli’s Vyera Pharmaceuticals was still occurring, more than five years after the price of the company’s branded drug increased overnight to $750 per pill. The ruling denied motions by Shkreli and Vyera to dismiss all but one claim in the civil suit, which accused Vyera of stifling competition for the drug. Daraprim is used to treat the parasitic disease toxoplasmosis, an infection that can be fatal for immunocompromised individuals, particularly those with cancer or HIV/AIDS. The lawsuit, filed by the Federal Trade Commission, New York Attorney General Letitia James and six other states, seeks the return of millions of dollars in illegally obtained profits, as well as an order permanently barring Shkreli and his former business partner, Kevin Mulleady, from working in pharmaceuticals.

Efforts to root out scammers in the $670 billion Paycheck Protection Program and $374 billion Economic Injury Disaster Loan program are sweeping up legitimate borrowers, the Wall Street Journal reported. Business owners have had their loan funds frozen, often along with their personal bank accounts, after tripping alarms meant to prevent fraud. More than seven million loans have been made under both federal programs, which aim to blunt the economic impacts of business lockdowns and stay-at-home orders. The loans are either provided by or guaranteed by the government, and most are eligible for forgiveness under certain circumstances. A pot of money that big was always going to attract scammers. Lenders have reported to the government more than 5,000 instances of suspected fraud in the EIDL program. The PPP approved loans so quickly and lacked strong enough safeguards that there was a “significant risk” that some people likely got loans who shouldn’t have, the Government Accountability Office warned in June. The Justice Department has charged at least 50 people with fraudulently obtaining loans, including two who allegedly used the money to buy Lamborghinis. But the dragnet has also snared lawful companies. Nick Oberheiden, a Dallas-based lawyer, said he has heard from hundreds of small-business owners whose bank accounts were frozen after receiving government loans. Some were subsequently contacted by the Federal Bureau of Investigation or Secret Service, an arm of the Department of Homeland Security.