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) 📕

was obvious to me at the time that the SBA was choosing to protect BLX, and we said as much to the DOJ. Nonetheless, Bonander assured our lawyer that the audit’s focus on early repurchased loans would not mean that damage calculations would be limited to early defaults.

In June 2006, the DOJ reported that the draft audit had been completed and showed that 40 out of 47 (85 percent) of the audited loans had significant problems with their documentation packages. The loans had originated from many different BLX offices and were made to many different types of borrowers. Clearly the problems went far beyond one rogue employee in Michigan as BLX had claimed.

We ran into a delay because the U.S. Attorney in Michigan prosecuting the criminal case against Patrick Harrington needed an additional six months of unimpeded investigation and asked the Atlanta office to stall our qui tam case.

In late 2006, Harrington was indicted. When the indictment became public a month later, the Atlanta DOJ learned that the government had evidence that higher-ups at BLX were told numerous times what Harrington was doing, that BLX was now the target in the criminal case, and that the government would be seeking an indictment against it as well.

Again, we were hopeful that we would be able to proceed with the damage claim, only this time Bonander told us the DOJ was worried that the damage payment “could bankrupt BLX.” The DOJ said it needed yet another six months to get its work done. Meanwhile, despite two audits clearly showing that BLX was an atrocious lender nationwide, the SBA continued to approve BLX as a “preferred lender” so that it could originate new loans and service its $1.5 billion portfolio of SBA loans.

There were still more delays, and by the time the DOJ eventually approached BLX, it was in such a depleted state that the government would find it hard to collect a fair restitution. I shouldn’t have been surprised when Bonander contacted our lawyers to float the idea of settling the damages claim for about $20 million. So much for Bonander’s earlier assurances about not letting the SBA’s efforts interfere with the DOJ’s ability to extrapolate a damage claim.

We responded by recommending that the DOJ use the completed audits and other evidence to estimate the damages across BLX’s entire portfolio as initially intended. Our lawyers prepared a detailed memorandum outlining how and why we believed that the audits showed that 64 percent ($226 million) of the $354 million of payments the SBA made to BLX were false claims, which under law would be trebled to $678 million in restitution for taxpayers.

The DOJ proposed a lawyers-only meeting for February 18, 2008, to discuss the case. After some persuasion, the DOJ permitted me (but not Brickman) to attend the meeting as well.

In addition to the DOJ lawyers, Glenn Harris, chief counsel for the SBA inspector general’s office, attended the meeting. He made it quite clear that the SBA was embarrassed by the revelation of the fraud in Detroit and would not welcome additional evidence of its poor oversight coming to light.

According to Harris, our charges “did not pan out.” He claimed that nothing in our complaint could be substantiated, and the only reason we were still here was because we were lucky to have the diligent efforts of the DOJ lawyers. Harris was seemingly unaware that our original complaint had detailed the roles of Abdullah Al-Jufairi and Patrick Harrington. Since our complaint, Al-Jufairi had been indicted and fled the country and Harrington had pled guilty to conspiracy to commit fraud against the SBA. And Harris’s ignorance did not end there.

Among other things, Harris also:

Denied that Matt McGee was a business development officer who often operated beyond his SBA permission. Asked again whether we had the SBA loan numbers for the Mangu Patel loans—the very same loans we had brought to the SBA in Washington five years earlier, when the SBA’s response was to ask us to provide it with its own loan numbers.

Maintained that BLX wasn’t so bad, because its loans had “high recovery rates.”

Denied that there was any reason for concern about BLX’s Special Asset Group. (During the investigation, the DOJ obtained evidence from BLX that it had formed a Special Asset Group led by McGee to get new SBA loans issued to replace defaulted loans. The documents showed that BLX executives who originated the first bad loan were paid a larger bonus for making a second loan. In one document, a senior BLX executive suggested using an SBA disaster loan program for victims of the September 11, 2001, terrorist attack as a means of propping up loans that had already defaulted before the attack.)

Maintained that all of the interviews it had conducted with former BLX employees failed to support our case.

Exclaimed, “You can’t just do that!” in response to our request that the DOJ create an appropriate statistical analysis to extrapolate damages suffered by the U.S. government.

Harris admitted that with its oversight under congressional scrutiny, the SBA simply could not afford to let it be known that it had missed another $250 million of fraud under its watch. Harris said that the SBA believed that such a revelation would call into question the SBA’s oversight over its multibillion-dollar portfolio.

Harris’s belligerent tone surprised me. If he’d been hoping to bully me, it didn’t work, and his denials only served to reinforce my belief that the SBA was looking to cover up the fraud. Unfortunately, the DOJ lawyers were not as immune; it was clear that they were being worn down by the SBA’s campaign, and despite our efforts to help, they were not inclined to view us as their ally. I left the meeting dismayed and disgusted.

My lawyers followed up with the DOJ lawyer to correct several of Harris’s misstatements, but it would appear not to matter. Bonander left the DOJ a short time later to go into private practice, and we started over with her replacement, Gerald Sachs. Fortunately, after several