Fooling Some of the People All of the Time, a Long Short (And Now Complete) Story, Updated With New by David Einhorn (tohfa e dulha read online TXT) 📕

He told the committee that the agency had been aware of recurring performance and compliance issues with BLX, but the company had suffered few consequences. “We believe that the high rate of default and other problems with BLX loans presented undue financial risk to SBA, and therefore, merited in-depth reviews of the defaulted loans, as well as possible suspension of BLX’s preferred lender status, which allows BLX to approve loans with virtually no prior review by SBA.”

He continued: “Despite problems with BLX’s loans however, SBA continued to renew the delegated PLP lending authority, and to honor guarantee purchase requests without taking any additional precautions, paying out $272.1 million in guarantees between 2001 and 2006. Quite simply, SBA did not hold the lender accountable for its performance problems . . . SBA has focused on the quantity of loans, not the quality. SBA sets goals for loan production, but not for loan quality or lender performance. . . . We believe SBA may have been reluctant to take enforcement action against BLX because it is among SBA’s top ten lenders in the value of loans disbursed.” Stating the sad, obvious truth, Thorson concluded his indictment of SBA “oversight policies” with an understatement: “SBA is not focused on fraud detection.”

Then Senator Kerry asked: “Why was the investigation of BLX initiated?”

“The criminal investigation was actually started back around 2002 by allegations that were made from a number of sources, some of which, I believe, you have statements from that are commonly referred to as short-sellers,” Thorson said. “The SBA did investigate a lot of those issues, but didn’t find that there were enough specifics there to be able to bring a criminal case.” This brought up the depressing memory of how the SBA could not even find its own loan numbers for the many fraudulent loans we brought to its attention. No doubt it would be hard to find “enough specifics there” if they couldn’t even find the loans in question.

Thorson continued, “There were other issues that developed along the way on the non-fraud side of it, which was an issue in ‘02, which suggested that there were problems with loans, and then in 2005, the OIG issued a management advisory report detailing, I think, it was seven loans, in violation of SBA procedures, and material misstatements to the SBA.”

Then Thorson shocked everyone:

Thorson: “In fact, to their credit, BLX offered to repay one of those loans, but for some reason the SBA sent them an e-mail stating that they were being too hard on themselves and they didn’t need to do that.”

Senator Kerry: “You’ve got to hit me again with that one.”

Senator Snowe: “Yeah” (as everyone began to laugh).

Thorson: “I’m sorry?”

Senator Kerry: “You’ve got to hit me again with that one. The SBA did what (sic) they wrote them back and said, don’t worry?”

Thorson: “That’s the information—I would—neither myself nor Mr. Preston were with SBA at that time, but that’s the information I have, yes.”

It was at this point that Senator Kerry got around to asking who had insisted on making the redactions in the OIG report. Thorson said the requests came from the SBA general counsel and from BLX’s attorneys. BLX’s attorneys? “We rejected the claims of the company, but I did accept the redactions from the general counsel’s office,” said Thorson.

“In your opinion, are all of the redactions legally supportable?” Kerry asked.

“No, but in fairness to their office, I’m not an attorney,” Thorson answered.

Senator Snowe followed up: “Could you understand why they continued to renew the status of BLX? . . . Reading the report here, it really, truly is mystifying and disconcerting.”

Thorson responded, “It’s really one of the things that we had a hard time with, and I understand the agency’s concern about affecting their business and the argument was made, I believe, by BLX that it would put them out of business.” Apparently, the SBA thought it was more important to keep a fraudulent company in business than to stop it from increasing the SBA’s losses by cutting it off from making new loans.

After a break Tannenhauser testified, and if he had spun any faster, he would have turned to butter. Senator Kerry also lived up to his promise of sparing the SBA and Allied any embarrassment. The Senator smoothly paved the way for Tannenhauser: “Since this story broke, the Committee has taken a very measured approach to the news, asking the questions about the SBA oversight in reaction, but leaving the disciplinary decisions entirely to the SBA, and I think, we refrain from any sort of public bashing sessions. As you know, we’ve never recommended for or against radical calls for BLX to lose its preferred lender status, delegated loan privileges, or to cease BLX’s ability to sell SBA loans on the secondary market.”

As Tannenhauser began to speak, he was visibly nervous—his voice cracked. In his prepared testimony, Tannenhauser argued that BLX is victim, not perpetrator. He claimed it has no financial incentive to condone fraud, and every incentive to avoid it. In one moment, he blamed the government for not finding the fraud sooner, “The Farm Credit Administration reviewed several of these loans going back almost four years with no indication to us of fraud. Obviously, such wrongdoings are difficult to detect.” Then, he attacked the OIG for finding the fraud later, “The OIG report . . . is fundamentally flawed,” is “replete with inaccuracies and inconsistencies.” Obviously, he liked the Farm Credit report, which missed the fraud, better and alleged that the OIG report “paints an inaccurate picture by excluding the Farm Credit Auditors’ ultimate finding and conclusions, which strongly support the SBA’s decision to renew BLX’s PLP status. . . . Unfortunately, I cannot provide more detail, because criminal law prohibits lenders from disseminating the contents of Farm Credit audits.”

In an apple-pie effort to show remorse and concern, Tannenhauser intoned, “I’m personally saddened and disappointed by the misconduct of our former employee. I wish we had become aware