A Magic Johnson Affiliate Funded a Small-Enterprise Lender. That Lender’s CEO Now Faces Fraud Prices.

Federal prosecutors filed fraud prices towards the chief of a monetary agency that acquired funding from an organization affiliated with basketball legend Earvin “Magic” Johnson to subject loans by the federal government’s Paycheck Safety Program.

The federal authorities alleges that

Rafael Martinez,

chief govt officer of MBE Capital Companions, used fraudulent monetary statements to realize approval from the Small Enterprise Administration to subject loans to small firms by the Paycheck Safety Program. Beneath this system, government-approved lenders supplied Covid-19 help to small companies within the type of forgivable loans backed by the SBA.

The costs have been filed final week in a federal district court docket in New York. In its grievance, the Justice Division alleged that Mr. Martinez used the charges his firm collected for processing the pandemic loans to purchase a villa within the Dominican Republic and a number of other luxurious autos, together with a 2018

Porsche

911 Turbo and a 2017 Ferrari 488 Spider.

Legal professionals representing Mr. Martinez contest the costs.

Mr. Martinez “did precisely what he was presupposed to do as a PPP lender. He labored enormously arduous to get authorities help into underserved communities the place it was wanted most,” stated a press release from

Telemachus Kasulis,

an legal professional on the regulation agency Morvillo Abramowitz Grand Iason & Anello in New York, and different attorneys representing Mr. Martinez.

Mr. Martinez declined to remark when reached by way of e-mail. Representatives of MBE Capital couldn’t be reached for remark.

MBE Capital in 2020 acquired $100 million in capital from EquiTrust Life Insurance coverage Co., which is majority owned by Magic Johnson Enterprises, to bolster the lender’s efforts to subject PPP loans focused at small companies owned by girls and minorities. The federal government’s grievance didn’t point out EquiTrust or Mr. Johnson by identify, nor allege the corporate or the previous Los Angeles Lakers star engaged in any wrongdoing.

Mr. Johnson is the chairman and chief govt officer of Magic Johnson Enterprises, which makes investments in companies throughout a number of industries, in keeping with the corporate’s web site.

EquiTrust CEO

Eric Holoman

stated in a press release supplied by a consultant that the allegations towards Mr. Martinez “haven’t any monetary affect on EquiTrust nor its policyholders.”

“We’re disenchanted and shocked if true as these actions are regarding and inconsistent with our values,” he stated.

A 2009 photograph of Magic Johnson Enterprises in Los Angeles.



Photograph:

Noah Graham/NBAE/Getty Pictures

The EquiTrust consultant stated Mr. Johnson was unavailable to remark. Magic Johnson Enterprises didn’t reply to requests for remark and to make Mr. Johnson obtainable.

The funding EquiTrust supplied to Mr. Martinez’s firm was the topic of a Might 2020 article in The Wall Road Journal. Mr. Martinez stated then that the funding would assist MBE Capital’s skill to supply PPP loans. In an interview for that article, Mr. Johnson stated he needed EquiTrust to supply the funding to MBE Capital as a result of many small, minority-owned companies had reported difficulties accessing the PPP initially.

“What we’re launching right here now could be so vital as a result of we’re going to avoid wasting loads of small, minority companies as a result of they’ll’t simply stroll into the financial institution and get that mortgage,” Mr. Johnson stated on the time.

In keeping with the Justice Division, Mr. Martinez allegedly used fraudulent monetary statements to hunt a funding line with a life-insurance firm, which then supplied MBE Capital with $100 million to fund PPP loans. The Justice Division in its grievance additionally alleges that Mr. Martinez was then in a position to make use of the loans as collateral to borrow extra capital by a Federal Reserve facility that supplied lenders liquidity to assist them make PPP loans.

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The division didn’t identify the life insurance coverage firm within the grievance towards Mr. Martinez. The funding quantity was the identical as the quantity EquiTrust officers stated, in Might 2020, was supplied to MBE Capital.

The PPP’s construction relied on banks and different lenders to make the loans, which acquired a authorities assure. The federal authorities paid PPP lenders charges for facilitating the loans. At its shut final Might, the PPP had permitted roughly 11.8 million loans value about $800 billion, in keeping with SBA information.

Mr. Martinez, by MBE Capital, issued roughly $823 million in PPP loans to roughly 36,600 companies and acquired about $71 million in charges, the Justice Division stated.

The SBA declined to touch upon or present extra particulars in regards to the loans MBE issued. An company spokesman stated SBA is engaged on the sound administration of pandemic-relief packages and “to determine and tackle any and all areas of concern, and any potential fraud we determine by these checks is referred to the Inspector Common.”

The Justice Division additionally alleges that Mr. Martinez in April 2020 used fraudulent and doctored tax information to use for a roughly $284,000 PPP mortgage that MBE Capital acquired.

Mr. Martinez faces prices together with one rely of financial institution fraud, two counts of wire fraud and one rely of constructing false statements to a financial institution, the Justice Division stated. Every of these prices carries a most of 30 years in jail upon conviction, in keeping with the company.

“These prices are false and Mr. Martinez appears ahead to being vindicated in court docket,” the attorneys for Mr. Martinez stated.

The case towards Mr. Martinez is an instance of the federal authorities’s efforts to pursue those that are alleged to have abused pandemic packages, together with small enterprise, unemployment insurance coverage and healthcare packages. President Biden throughout final Tuesday’s State of the Union tackle stated the Justice Division would quickly identify a chief prosecutor for pandemic fraud.

President Biden stated within the State of the Union tackle final week {that a} to-be-named chief prosecutor would go after these alleged to have abused pandemic packages.



Photograph:

Julia Nikhinson – Pool by way of CNP/Zuma Press

“We’re going after the criminals who stole billions of reduction cash meant for small enterprise and tens of millions of Individuals,” Mr. Biden stated. The Justice Division has already introduced a whole lot of instances associated to pandemic fraud.

A number of Republican senators final Wednesday despatched a letter to Mr. Biden asking his administration to supply detailed accounting of how the federal authorities has spent Covid-19 reduction funding appropriated to date.

Lawyer Common

Merrick Garland

stated Thursday that the Justice Division’s chief prosecutor for pandemic fraud will construct on the work of a activity pressure he stood up in Might 2021 to convey federal businesses collectively to crack down on schemes associated to the pandemic.

Write to Amara Omeokwe at [email protected]

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