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NEW BRUNSWICK, NJ–A Hub City resident admitted on July 19 to defrauding a bank by fraudulently using a federally-backed $2 million small business loan for personal expenses, according to a Department of Justice (DoJ) news release.
The man, John Cheng, 58, pleaded guilty in Newark federal court over charges related to loan application fraud.
Late in 2007, Cheng submitted a Small Business Administration (SBA) loan application for $1.75 million and a commercial loan application for $2 million, saying he’d use the funds to finance a restaurant in Skillman.
And in December 2007, Cheng made false statements to influence the actions of BNB Hana Bank regarding the loan application.
“The loan applications were submitted to an independent lender through the SBA Loan Guaranty Program, which authorizes the SBA to provide financial assistance to eligible small businesses through loan guarantees to participating lenders,” wrote the DoJ.
But “rather than loan money directly to small businesses, the SBA provided a guaranty to the independent lender that the SBA would repay a percentage of a loan in the event that a borrower defaulted.”
The SBA loan application falsely stated that the loan would be used for construction, machinery and equipment, and working capital to launch the restaurant.
But after receiving $2,082,229 from the bank in March of 2008, Cheng used the money to pay off gambling debt, send money to family members, and pay his outstanding federal tax bill.
While Cheng will be sentenced on October 25, "the charge to which [he] pleaded guilty is punishable by a maximum potential penalty of 30 years in prison and a $250,000 fine, or twice the gross gain or loss from the offense."
Under the plea agreement, Cheng must pay $2,657,687 in restitution to the bank he defrauded and forfeit $1,696,506, according to the DoJ.
"If John Cheng enters a guilty plea and is sentenced to this charge… and otherwise fully complies with all of the terms of this agreement, the Office will not initiate any further criminal charges against John Chen for loan application fraud for the years 2005-2014," reads the plea agreement with Cheng.
Cheng’s attorney is Steven D. Altman, of the powerful Benedict & Altman firm in New Brunswick.
Acting U.S. Attorney William E. Fitzpatrick credited special agents of the FBI, under the direction of Special Agent in Charge Timothy Gallagher in Newark, with the investigation.
He also thanked the U.S. Small Business Administration’s Office of Inspector General, Eastern Region, and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP)
“The government is represented by Assistant U.S. Attorney Jacob T. Elberg, Chief of the U.S. Attorney’s Office Health Care and Government Fraud Unit in Newark,” continued the DoJ.