U.S. Files Suit Against John Torkelsen, Richard Propper, Daniel Beharry, & Sovereign Bank Alleging Fraud of $32 Million Against the Small Business Administration

Dec 29, 2006, 00:00 ET from U.S. Department of Justice

    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