HSBC Settles Start-Up Loan Fraud Claims

MANHATTAN (CN) — HSBC’s U.S. subsidiary will pay more than $2 million to settle a whistleblower’s claim that it bilked a federal program to boost small businesses by seeking reimbursements for fraudulent loans, prosecutors said Friday.

The whistleblower, identified in a settlement stipulation as Jan Orlando, will receive a slightly more than $360,000 share of the $2.1 million deal.

Orlando’s affiliation with the British bank is unclear in court papers, but her case quietly entered through the intriguing lawsuit ABC v. DEF in 2007, now known as United States of America ex rel. v. HSBC Bank USA, ever since federal prosecutors took up her cause.

Her attorney Timothy McInnis declined to comment on the case or provide background when reached by phone.

Kept under seal for more than four years, the lawsuit alleged that HSBC defrauded the Small Business Administration’s SBA Express Loan Program, designed to help start-ups by guaranteeing up to 75 percent of loans above $750,000.

During an internal review in late 2006, an unnamed HSBC employee wrote in an email that “a list of known fraud accounts must be established” as part of an effort “to gain an understanding of fraud within the Small Business Portfolio,” according to the unsealed lawsuit.

Prosecutors said that HSBC USA sought reimbursement from the SBA on at least 42 defaulted loans that had been identified as fraudulent or potentially fraudulent, including cases of false commercial identity, check fraud, and other swindles.

“HSBC’s failure to disclose that it had determined that many of the loans were fraudulent or potentially fraudulent rendered HSBC’s reimbursement requests for losses incurred in connection with such Loans false, misleading, and/or fraudulent,” the lawsuit states. “The wrap up reports contained half-truths and material omissions by failing to disclose facts about fraud or potential fraud by borrowers when the loans were originated.”

Acting Manhattan U.S. Attorney Joon Kim said that HSBC USA admitted the allegations against it in accepting the settlement.

“Lenders must disclose material information for our agency partners like the SBA, who administer federal loan programs,” Kim said in a statement. “When they fail to do so – as HSBC did here, by submitting loans for repayment on SBA guarantees without disclosing that the loans had been identified as potentially fraudulent – they need to be held to account.”

An HSBC spokesperson said in a statement, “We are pleased to resolve this matter. HSBC takes its responsibility to the SBA very seriously. The DOJ’s complaint is related to a limited number of SBA loans made many years ago. HSBC has been a long-time partner of the SBA in helping Americans start, build and grow businesses, and we look forward to continuing to work with them.”

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