California Man Sentenced to Five and Half Years in Prison for Loan Fraud Conspiracy

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Defendant, Co-Schemers Defrauded Banks, Other Lenders, and Small Business Administration Out of Millions of Dollars

United States Attorney David Metcalf announced that Frank Hamilton, 55, of Simi Valley, California, who previously pleaded guilty to one count of wire fraud conspiracy affecting a financial institution, was sentenced to 66 months in prison, two years' supervised release, and restitution of $6,093,024.90 by United States District Judge Wendy Beetlestone yesterday for loan fraud conspiracy, in which Hamilton and his co-schemers defrauded multiple banks, other lenders, and the Small Business Administration ("SBA") out of millions of dollars in loans that were either funded or guaranteed by the SBA.

As detailed in case filings and admitted to by the defendant, prior to the pandemic, Hamilton and his conspirators started filing fraudulent applications for SBA 7(a) loans, which are loans funded by banks and other lenders and partially guaranteed by the SBA. During the pandemic, Hamilton and his co-conspirators transitioned to Economic Injury Disaster Loans ("EIDLs"), which were funded by the SBA, and Paycheck Protection Program ("PPP") loans, which were funded by banks and other lenders but fully guaranteed by the SBA. PPP loans were also eligible for forgiveness if a large percentage of the loan was used to pay employees, as the goal of that program was to enable businesses to continue to pay their employees during the pandemic despite the loss of a company's business due to the pandemic.

To obtain these loans, Hamilton advised his conspirators how to submit false loan applications and helped them generate fake documents, including false tax returns, to support the false applications. In addition, Hamilton assisted conspirators in obtaining "shelf companies," that is, companies that had been created by a vendor who registered a non-functioning business in a state, paid all required fees for several years, and then sold the company "off the shelf" so that is could be used by individuals who needs to make it appear that they had a company that had been in business for a significant length of time.

Hamilton also helped conspirators open bank accounts and obtain websites and email addresses for those non-functioning companies. Moreover, he sometimes even joined his conspirators on phone interviews with lenders. To conceal the scheme and give the fraudulent submissions more legitimacy, Hamilton often used names of conspirators or their non-functional companies in the applications and back-up documents of other conspirators as employees or vendors of the non-functioning companies.

In addition to assisting others to apply for fraudulent loans, Hamilton applied for fraudulent loans for one of his own minimally-functioning companies, as well as three shelf companies that he owned. As a result of this sophisticated fraud, the conspirators applied for loans totaling approximately $9 million, of which approximately $7,088,010 was funded.

As part of their plan, the conspirators turned over a majority of their proceeds to Hamilton so that he could invest the funds for them and return money to them in installments sufficient to make their loan payments plus a small sum for their personal use.

Some conspiracy members made payment on their loans for at least a short period of time. Many did not, as Hamilton did return some money to his co-conspirators, instead keeping most of the money for himself. Despite Hamilton's receipt of more than a million dollars of loans for Hamilton's own companies, and his receipt of the majority of the millions of dollars of his co-conspirators' loans, Hamilton did not make a single payment on any of his own loans. As a result, the vast majority of loans went into default, resulting in more than $7 million in losses to the SBA.

This case was investigated by the Small Business Administration Office of Inspector General, the FBI, the Internal Revenue Service Criminal Investigation, Homeland Security Investigations, and Immigration and Customs Enforcement and prosecuted by Assistant United States Attorney Judy Smith and Department of Justice Trial Attorney Varun Trivedi.