Phony Loans, Bogus Borrowers, Investor Says

CHICAGO (CN) - A loan purchaser claims in court that it bought $22.8 million of purported USDA-guaranteed rural development loans from First Farmers Financial, but the loans were shams and the borrowers did not exist.

Pennant Management sued First Farmers Financial, Nikesh and Trisha Patel, and a host of related entities on Monday in Federal Court.

Pennant, a Milwaukee-based money management firm, acquires loans guaranteed by the government through the Small Business Administration or the Department of Agriculture. Its total portfolio of such loans is worth $850 million.

Pennant claims it acquired 26 such loans from First Farmers Financial (FFF), a Florida company, then discovered that several of them are fraudulent.

"Although all of the loan materials provided by FFF are facially regular and complied with USDA's Good Delivery Requirements, Pennant has now discovered that at least three of the loans it acquired from FFF are fraudulent; the borrowers do not exist, and the USDA [U.S. Department of Agriculture] has told Pennant that the loans are not reflected in its books and records and may not be legitimately guaranteed. The scope of the fraud may be broader, but at least 3 loans with purportedly 'guaranteed' balances totaling $22.8 million, purchased by Pennant from FFF, have now been revealed to be shams," the complaint states.

What's more, Pennant says, the accountant who allegedly performed the most recent audit of FFF does not exist either.

"FFF has used its status as a USDA-approved lender to perpetrate a fraud on Pennant," the complaint states. "It sent packages for the FFF Loans which represented that there were actual borrowers, and that the USDA had approved and guaranteed the FFF Loans. Both of those written representations were false, and were known to FFF, Nikesh, and Trisha to be false at the time those representations were made. In fact, FFF, through Nikesh and Trisha, invented each of these three 'borrowers' out of whole cloth, and forged the signatures of USDA officials on guarantees."

Pennant claims that the Patels pocketed the proceeds of these loans, maintaining enough cash to make interest payments on the principal.

They "used the balance of the proceeds to purchase real estate investment properties and other investments, [and] purchase a lavish personal residence in Windermere, Fla.," Pennant claims. It says the Patels are also negotiating to develop 50 Bennigan's restaurants in India.

"Without a real borrower, the loans FFF sold to Pennant are worthless," the complaint states. "The value of the assets held by Patel, which represent the proceeds of his fraud, must be safeguarded to protect Pennant's clients, and there is a real and genuine risk that without injunctive relief or a prejudgment attachment, Nikesh and Trisha will flee the jurisdiction of this court and those assets will disappear."

Pennant seeks damages for fraud, and a court order attaching the Patel's assets, so they cannot transfer their ill-gotten gains to India.

Pennant is represented by Paul Fox, with Greenberg Traurig.

The Patels live in Florida.

Here are the defendants: First Farmers Financial, LLC; Nikesh Ajay Patel; Trisha N. Patel; Alena Hospitality, LLC; Alena Laboratories, LLC; Alena Aviation, LLC; Able Connection, LLC; NPSSS, LLC; Kuber Capital Funding, LLC; Kuber Consulting; Suri Hospitality, LLC; and Suri Hospitality International, LLC.

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