WASHINGTON, Dec. 29 /PRNewswire-USNewswire/ -- The Justice Department
announced today that it has filed a lawsuit accusing John Torkelsen,
Richard Propper, Daniel Beharry, and Sovereign Bank of defrauding the Small
Business Administration's Small Business Investment Company (SBIC) program
of $32 million. The suit was filed in the Eastern District of Pennsylvania
under the False Claims Act, which allows the United States to recover up to
three times the amount of its losses plus civil penalties.
The government's complaint alleges that Torkelsen, Propper and Beharry
violated the conflict of interest and management fee rules of the SBIC
program by engaging in multiple secret transactions that funneled
government money into companies controlled by Propper and Beharry or
Torkelsen and his family. The SBIC program has rules designed to prevent
the unauthorized investment of government funds in companies controlled by
those who act as managers of the SBICs. The alleged fraud is believed to be
the largest perpetrated upon the program to date.
The SBIC program, administered by the U.S. Small Business
Administration, was created in 1958 to fill the gap between the
availability of venture capital and the needs of small businesses in
start-up and growth situations. The government, itself, does not make
direct investments or target specific industries. Rather, the SBIC program
is a "fund of funds" - meaning that portfolio management and investment
decisions are left to qualified private fund managers. Small businesses
which qualify for assistance from the program are able to receive equity
capital, long-term loans and expert management assistance.
The investigation of the fraud allegations against the defendants was
conducted by the U.S. Attorney's office in Philadelphia, Pa.; the U.S.
Small Business Administration's Office of Inspector General and Office of
General Counsel; the Federal Bureau of Investigation; and the Justice
Department's Civil Division. The United States has settled with, or reached
settlement in principle with, a number of other individuals or entities
involved in the alleged fraud.
SOURCE U.S. Department of Justice