New York Small Business Lender to Pay U.S. $26.3 Million to Resolve False Claims Act Allegations

It must be “False Claims Act Thursday.” We just learned that Ciena Capital LLC, a private, non-depository lender located in New York City, has reached an agreement with the federal government to settle fraud claims related to its small business lending for $26.3 million. Ciena and a subsidiary, Business Loan Center (“BLC”), a small business lending company licensed to originate and service loans under Section 7(a) of the Small Business Act, are alleged to have submitted false claims for payment on loans made through the Small Business Administration (“SBA”).  

The SBA, through various lending programs, provides financial assistance to small businesses by guaranteeing up to 85 percent of the value of loans made by private lenders.  According to the government: The settlement resolves allegations that Ciena and BLC falsely certified that they complied with SBA regulations when they submitted claims for payment on loans they originated, underwrote, and serviced.  Some of these loans defaulted shortly after they were made as a result of Ciena’s and BLC’s disregard of SBA rules, regulations, and underwriting requirements.  Other loans were originated by former BLC Executive Vice President Patrick Harrington, or his office, during his tenure.  Harrington pleaded guilty to conspiracy to defraud the United States and was sentenced to 10 years in prison for his prominent role in the fraudulent loan scheme, which included falsifying loan documents, inflating property appraisals, and using straw purchasers to engage in sham transactions.  This settlement also resolves allegations that the defendants’ parent company, Allied Capital Corporation, is liable for the acts of its subsidiaries.     
 
The settlement for $26.3 million, which includes a credit for $18.1 million previously negotiated by and paid to the SBA, resolves a lawsuit filed by James R. Brickman and Greenlight Capital Inc., under the qui tam, or whistleblower provisions, of the False Claims Act.  Brickman and Greenlight Capital will receive $4.3 million as their share of the government’s recovery.  

On Sept. 30, 2008, Ciena and several of its subsidiaries filed petitions for bankruptcy under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.  The FCA settlement must be approved by the bankruptcy court.