CHICAGO (CN) - The head of a USDA-approved lender sold phony loans to transfer over $4.5 million to himself and fund his "extravagant lifestyle," the firm's asset receiver claims in court.
In a complaint filed in federal court on Monday, Patrick Cavanaugh, receiver First Farmers Financial LLC, claims the lender's principal, Timothy Fisher, engaged in a "massive fraud" even as the organization he headed came undone.
After forming First Farmers in 2012, Fisher and nonparty Nikesh Patel, sought U.S. Department of Agriculture approval of the firm as a nontraditional (non-bank) lender.
According to Cavanaugh, however, Fisher's intentions were anything but legit.
He claims Fisher provided regulators with an application "that contained fraudulent financial information about [First Farmers] FFF that Fisher had secured through a confederate, purported to be from a large financial institution and purported to show that [First Farmers] FFF had over $22 million on deposit (and therefore the liquidity to be approved as a USDA-approved lender)."
"However, in fact, the financial information Fisher provided, and [First Farmers'] FFF's alleged access to liquidity, were a complete fiction," the complaint says.
As a USDA-approved lender in Florida and Georgia, First Farmers "purportedly originated loans, represented that those loans were secured with USDA guarantees, and sold the allegedly guaranteed portions of those loans through asset managers and/or investment advisors, including a company named Pennant Management Inc.," the complaint states.
Indeed, Pennant sued First Farmers, and later, the USDA, for approving the firm as a non-bank lender, so it then allegedly sold Pennant about $179.2 million of phony loans.
From 2013 to 2014, "Pennant used its clients' money to fund and acquire the federally guaranteed portions of 26 separate 'loans' originated by [First Farmers] FFF, reflecting alleged loans to a variety of borrowers in Florida and Georgia," supposedly guaranteed by the U.S. Small Business Administration or the USDA Rural Development Program, the receiver's lawsuit states.
Patel and Fisher "invented each of the 26 'borrowers,' printed phony loan documents, forged the signatures of USDA officials on guarantees, sent the fraudulent loan documentation to Pennant and sold close to $180 million in worthless paper to numerous investors through Pennant," the complaint continues. "Those written representations were false, and were known by Nikesh and Fisher to be false at the time they were made."
The pair managed "to maintain this fraud by pocketing almost all of the proceeds paid through Pennant for the [First Farmers] FFF loans, and using such proceeds of the fraud to purchase real estate investment properties, personal residences, luxury vehicles, jewelry and the like," according to the complaint.
The millions transferred to Fisher are listed in the complaint as 24 separate transactions - including one for $2.5 million - meant as "a blatant attempt to harm [First Farmers] FFF and defraud [First Farmers'] FFF's investors and creditors," the receiver says.
The receiver seeks to recover the fraudulent transfers, obtain additional monetary damages from Fisher for his illegal conduct, and place a constructive trust on his assets.
The complaint alleges breach of fiduciary duties, aiding and abetting Patel's breach, unjust enrichment, and accounting.
The receiver is represented by Richard Saldinger with Shaw Fishman Glantz & Towbin in Chicago.
The defendant has yet to respond to a request for comment.
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