UPDATED: FDIC seeks to bar 3, impose fines and restitution over alleged bridge loan scheme that cost SBA millions

A bridge loan scheme that allegedly ended up costing the Small Business Administration an estimated $8.8 million is at the root of a Federal Deposit Insurance Corp. (FDIC) notice in February regarding prohibitions, fines assessments and restitution sought against three institution-affiliated parties of Independence Bank in East Greenwich, R.I.

The FDIC, in a notice released March 31 with a list of other February enforcements, said the individuals – Robert S. Catanzaro, Danielle M. Desrosiers, and John C. Ponte – as institution-affiliated parties of the bank should be removed from their positions and prohibited from any future participation in the affairs of any federally insured institution.

The notice states that Catanzaro was (still at the time of the notice) the chief executive officer (CEO), a director, and principal shareholder of the bank; Desrosiers was an executive vice president at the bank (but had resigned in January 2018); and Ponte was the sole owner, managing member, and president of Ponte Investments, LLC, a Rhode Island limited liability company, which the FDIC said operated under the names SBA Loan Program and SBALoanProgram.com and is now known as Greenwich Business Capital, LLC.

The FDIC said that during all relevant times – which appear to have run from June 2017 through 2019 – the bank’s sole business strategy was the origination of SBA Small Loan Advantage (SLA) 7 (a) loans in amounts up to $150,000, which are 85% guaranteed by the SBA. It said the bank was granted delegated authority to make eligibility determinations on the loans without SBA review and that Ponte, a loan-referral agent to the bank, referred small businesses to the bank for such loans. It said about 76% of the dollar amount of the SBA loans approved and funded by the bank involved loans referred by Ponte.

The litany of findings in the notice include the finding that Ponte directed his staff to provide bridge loans to the small businesses referred to Independence Bank while SBA loan applications were pending and “arranged, where possible,” to have the bridge loans repaid from the proceeds of the SBA loans made by Independence Bank. The bank, it said, sold the guaranteed portion of the SBA loans – 201 in all – in the secondary marketplace “at a significant profit and kept the 15% unguaranteed portion on its balance sheet.”

The borrowers were unable to generate as much revenue from their SBA loans since proceeds had to be used to repay the loans and thus “were were less able to pay back their SBA Loans to the Bank compared with other borrowers,” it said. It said about 44% of the 201 SBA loans (or 89 SBA Loans) defaulted, and that the bank charged off about $1.6 million. “The SBA found this default rate to be five times higher than the Bank’s peer institutions,” it stated. “The SBA sustained an estimated loss of $8.8 million on the guaranteed portion of the SBA Loans referred by Ponte Investments that had concealed Bridge Loans.”

The notice states that Catanzaro was aware of the bridge loan scheme and worked with Ponte to ensure the activity was not documented in the bank’s records. “Catanzaro knowingly made false certifications on SBA forms to conceal the Bridge Loan Scheme from the SBA,” it said, adding that Desrosiers “knew that SBA Loan applications to the Bank failed to document Bridge Loans but permitted applications with inaccurate information to be submitted anyway.”

The FDIC is seeking to impose civil money penalties of $400,000 against Catanzaro; $128,000 against Desrosiers, and $74,000 against Ponte. It also seeks to require Ponte to pay $326,000 in restitution.

FDIC’s February enforcements

Release: FDIC Makes Public February Enforcement Actions