Federal prosecutors have filed fraud charges against the executive of a financial company who received funding from a company affiliated with basketball legend Earvin “Magic” Johnson to provide loans through the government’s consumer protection program. pay checks.
The federal government alleges that Rafael Martinez, managing director of MBE Capital Partners, used fraudulent financial statements to obtain approval from the Small Business Administration to provide loans to small businesses through the Check Protection Program. pay. Under the program, government-approved lenders provided Covid-19 relief to small businesses in the form of SBA-backed forgivable loans.
The charges were filed last week in federal district court in New York. In its complaint, the Justice Department alleged that Mr. Martinez used fees collected by his company for processing pandemic loans to buy a villa in the Dominican Republic and several luxury vehicles, including a 2018 Porsche 911 Turbo and a Ferrari 488 Spider 2017.
Lawyers representing Mr. Martinez dispute the charges.
Mr. Martinez “did exactly what he was supposed to do as a PPP lender. He worked tremendously to get government help in underserved communities where it was most needed,” said Telemachus Kasulis, an attorney at the Morvillo Abramowitz Grand Iason & Anello law firm in New York, and other attorneys. representing Mr. Martinez.
Mr Martinez declined to comment when contacted by email. Representatives for MBE Capital could not be reached for comment.
In 2020, MBE Capital received $100 million in capital from EquiTrust Life Insurance Co., majority-owned by Magic Johnson Enterprises, to support the lender’s efforts to issue PPP loans to small businesses owned by women and minorities. . The government complaint does not mention EquiTrust or Mr Johnson by name, or allege that the company or the former Los Angeles Lakers star was guilty of any wrongdoing.
Mr. Johnson is chairman and chief executive of Magic Johnson Enterprises, which invests in companies across multiple industries, according to the company’s website.
EquiTrust CEO Eric Holoman said in a statement provided through a representative that the allegations against Mr. Martinez “have no financial impact on EquiTrust or its policyholders.”
“We are disappointed and surprised if this is true as these actions are concerning and inconsistent with our values,” he said.
The EquiTrust representative said Mr Johnson was not available to comment. Magic Johnson Enterprises did not respond to Mr Johnson’s requests for comment and availability.
The funding provided by EquiTrust to Mr. Martinez’s company was the subject of a May 2020 article in the Wall Street Journal. Mr Martinez then said the funding would support MBE Capital’s ability to provide PPP loans. In an interview for this article, Mr Johnson said he wanted EquiTrust to provide funding to MBE Capital because many minority-owned small businesses had initially reported difficulty accessing PPP.
“What we’re launching here now is so important because we’re going to save a lot of minority-owned small businesses because they can’t just walk into the bank and get this loan,” Mr Johnson said at the time.
According to the Justice Department, Mr. Martinez allegedly used fraudulent financial statements to seek a line of financing from a life insurance company, which then provided MBE Capital with $100 million to fund PPP loans. The Justice Department, in its complaint, also alleges that Mr. Martinez was then able to use the loans as collateral to borrow additional capital through a Federal Reserve facility that provided lenders with liquidity to help them. to make PPP loans.
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The department did not name the life insurance company in the complaint against Mr. Martinez. The amount of funding was the same as the amount reported by EquiTrust officials, in May 2020, was provided to MBE Capital.
The PPP structure relied on banks and other lenders to make the loans, which received a government guarantee. The federal government paid fees to PPP lenders to facilitate the loans. By its close last May, the PPP had approved about 11.8 million loans worth about $800 billion, according to SBA data.
Mr. Martinez, through MBE Capital, issued about $823 million in PPP loans to about 36,600 businesses and received about $71 million in fees, the Justice Department said.
The SBA declined to comment or provide further details on the loans made by MBE. An agency spokesperson said the SBA is working on the proper administration of pandemic relief programs and “to identify and address all areas of concern, and any potential fraud we identify through these checks is referred to the Inspector General”.
The Justice Department also alleges that in April 2020, Mr. Martinez used fraudulent and doctored tax records to apply for a PPP loan of approximately $284,000 that MBE Capital received.
Mr. Martinez faces charges including one count of bank fraud, two counts of wire fraud and one count of misrepresentation to a bank, the Justice Department said. Each of those charges carries a maximum of 30 years in prison if convicted, according to the agency.
“These accusations are false and Mr. Martinez looks forward to being vindicated in court,” Mr. Martinez’s lawyers said.
The case against Mr. Martinez is an example of the federal government’s efforts to prosecute those who allegedly abused pandemic programs, including small business, unemployment insurance and health care programs. President Biden, during last Tuesday’s State of the Union address, said the Justice Department would soon appoint a chief pandemic fraud prosecutor.
“We’re prosecuting the criminals who stole billions in relief money meant for small businesses and millions of Americans,” Biden said. The Department of Justice has already brought hundreds of cases related to pandemic fraud.
Last Wednesday, several Republican senators sent a letter to Mr. Biden asking his administration to provide a detailed account of how the federal government has spent the Covid-19 relief funds allocated so far.
Attorney General Merrick Garland said Thursday that the Justice Department’s chief prosecutor for pandemic fraud will build on the work of a task force he formed in May 2021 to bring together federal agencies to crack down on pandemic-related schemes.
—Sadie Gurman contributed to this article.
Write to Amara Omeokwe at [email protected]
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