Three Indian-Americans indicted in over $35 mn loan fraud scheme

New York, Nov 9 (IANS) Three Indian-Americans have been charged in a fraud scheme intended to obtain over $35 million from financial institutions by providing false documentation in support of Small Business Administration (SBA) loan applications for the purchase of hotels.

Rajendra G. Parikh, 63, and Rajnikant I. Patel, 59, from New Jersey were charged with bank fraud, making false statements to financial institutions, and money laundering.

In addition to the above charges, Mehul Ramesh Khatiwala (aka Mike Khatiwala), the 41-year-old kingpin of the fraud scheme, was also slapped with a continuing financial crimes enterprise charge.

Also known as the Financial Crime Kingpin Statute, the additional charge on Khatiwala has been used for the first time in Maryland, the US Attorney's Office, District of Maryland, announced on Wednesday.

While Khatiwala and Parikh made initial appearances in the US District Court in New Jersey on November 3 where they were ordered to be detained, Patel will have an initial appearance Thursday.

According to the 31-count indictment, Khatiwala was the owner and managing member of Delaware Hotel Group and an operator of GMK Consulting and KPG Hotel Mgmt, which were hotel management and loan brokerage companies located in Mount Laurel, New Jersey.

Rajendra Parkih was an owner of KPG and Patel worked as the manager of a convenience store owned by Parikh and Parikh’s brother.

The indictment alleged that from August 2018 until February 2020, the defendants conspired to obtain loan proceeds for the defendants and others to buy and sell hotels in a hotel flipping scheme.

This they did by making material misrepresentations and omissions to financial institutions during the loan application process regarding the identity of the sellers, the familial relationships between the parties, and the nature and amount of the equity injected by the borrowers, under the SBA’s Section 7(a) Program. 

This program guaranteed and insured 75 per cent to 90 per cent of qualified loans made and administered by participating lending institutions and required that the small business owner/borrower invest a certain amount of their own money into the business to qualify for the loan.

Specifically, the indictment alleged that Khatiwala and Parikh created shell companies using Patel and a co-conspirator as the straw owners of the companies.

They then had the straw owners sign purchase contracts, operating agreements, and related documents to buy hotel properties in the names of the shell companies created by Khatiwala and Parikh.

At the same time they were soliciting investors, including family members, and creating other companies to serve as buying entities (the “Buyers”) so they could quickly resell the hotels at a much higher price.

As detailed in the indictment, Khatiwala, Parikh and two other co-conspirators collected, compiled, and submitted documentation needed by financial institutions to determine whether the Buyers qualified for the SBA loans.

The indictment further said that Khatiwala and Parikh fraudulently diverted some of the Buyers’ equity injections to make down payments on hotels that were under contract to shell companies controlled by Khatiwala and Parikh.

They submitted the same wire transfer records and gift letters as support for equity injections that had already been used to satisfy the buyer’s equity injection obligations for other SBA loan applications.

Also, they fraudulently submitted falsified bank statements and wire transfers to satisfy the equity injections.

The defendants engaged in roundtrip transactions, whereby they falsely represented to financial institutions that over $1.5 million on deposit in a Residential Title escrow account would be used to satisfy the Buyer’s equity injection obligations, when, the indictment alleges, the funds were temporarily withdrawn from that account prior to the loan closings and redeposited back into the same escrow account subsequent to the loan closings. 

In addition, the indictment claimed that Khatiwala and Parikh falsely represented to financial institutions that the buying entities had purchased the hotels from the shell companies when, in fact, the shell companies had not yet owned the properties. 

Khatiwala and Parikh diverted loan proceeds intended for the buyers to purchase hotels from the shell companies so that the shell companies could first purchase the property and then flip it to the buyer.

If convicted, Khatiwala faces a mandatory minimum sentence of 10 years and up to life in prison for a continuing financial crime enterprise.

All of the defendants face a maximum of 30 years in federal prison for the conspiracy to commit bank fraud and for each count of bank fraud; a maximum of 5 years in federal prison for a conspiracy to make a false statement to a financial institution. 

Khatiwala and Parikh also face a maximum of 30 years in federal prison for each count of making a false statement a financial institution and a maximum of 10 years in federal prison for conspiracy to launder money and for each count of money laundering