Mehul Khatiwala, age 37, of Voorhees, New Jersey, has pleaded guilty to conspiracy to commit $3.5 million bank fraud to purchase hotels and residential property.
The bank fraud involved a scheme to fraudulently obtain loans from Maryland-based Cecil Bank to purchase hotels and multifamily residential property, resulting in losses of more than $3.5 million, according to a statement released by United States Attorney for the District of Maryland.
“Mehul Khatiwala and his co-conspirators submitted false statements and fraudulent documentation in order to obtain more than $15 million in loans from Cecil Bank, much of which was guaranteed by the SBA,” US Attorney Robert Hur, said in a statement. “The defendants used deceit to steal millions of dollars from the victims, which ended up including not only the bank but the American taxpayers. Federal law enforcement is committed to prosecuting and deterring this type of costly fraud.”
According to his plea agreement, from February 2011 through January 2014, Khatiwala and two co-conspirators executed a scheme to defraud Cecil Bank, the Small Business Administration (SBA), and other financial institutions by misrepresenting material facts in order to obtain financing for the purchase of two hotels and multifamily residential property. The defendant defaulted on the loans, causing losses to Cecil Bank and the SBA of more than $3.5 million, according to a media release by the US Attorney’s office.
and information at the plea hearing, on December 23, 2008, Cecil Bank’s holding company, Cecil Bankcorp, Inc., received an $11.5 million bailout from the Troubled Asset Relief Program (TARP).
According to the indictment, beginning in April 2011, Khatiwala and Conspirator A made plans to apply for a $5 million loan at Cecil Bank to purchase the Memphis Airport Hotel in Memphis, Tennessee, as well as a $1.6 million loan to renovate that hotel. In order to obtain a loan, Khatiwala concealed Conspirator A’s 80% ownership of the borrowing entity because Conspirator A had already reached his legal lending limit at Cecil Bank. In May 2011, Cecil Bank’s Board of Directors approved the $5 million loan, with the condition that it be guaranteed by the SBA. The SBA required Khatiwala, as the purported 100% owner of the borrowing entity, to show that he had equity in the borrowing entity or cash on hand of approximately $1.8 million. Conspirator B, who was an employee at another bank, falsely verified that Khatiwala had over $2 million on deposit at the co-conspirator’s bank. Khatiwala admitted that he signed and submitted this statement, which he knew to be false. The SBA approved its 75% guarantee of the $5 million loan funded by Cecil Bank. The loan went into default in January 2015.
Khatiwala and others owned the Best Western Hotel in York, Pennsylvania. In 2007, they refinanced a loan for this property in the amount of $6.6 million. In early 2010, Khatiwala and his co-owners became delinquent on the loan and began discussions with the loan servicing company. In August 2011, Khatiwala reached an agreement with the loan servicer to accept a discounted payoff of $3.62 million on the unpaid principal balance of approximately $6.6 million. Khatiwala submitted fraudulent documentation and a fraudulent settlement statement to the loan servicer showing that the funds were being provided by a private lender. In fact, the indictment said, Khatiwala had arranged for the sale of the hotel to related parties for the sum of $4.3 million. As early as April 2011, prior to the time, the defendant made the misrepresentations to the loan servicer to negotiate the payoff, he began implementing the second step of his short-sale fraud scheme by arranging the sale of the hotel to Person B and one of Khatiwala’s employees.
Khatiwala fraudulently obtained a $3.225 million loan from Cecil Bank, which was guaranteed by the SBA. During the loan application review and underwriting process performed by Cecil Bank and the SBA, Khatiwala submitted false documents as to the ownership of the selling and purchasing entities, as well as false financial statements for the purchasers. Khatiwala knew that the funds paid at closing would come from Khatiwala’s own personal bank account and other businesses, not from the purchasers, as was falsely represented to the bank and the SBA, in order to obtain approval of the loan. As a result of this short-sale fraud, the original holder of the note on the Best Western Hotel lost $675,000, which instead went to Khatiwala.
Khatiwala faces a maximum sentence of 30 years in prison on each of the four counts. US District Judge Deborah Chasanow has scheduled sentencing for September 10, 2019.