Man Charged with Running Advanced Fee Loan Scheme

Allison Tussey —  December 5, 2014 — 1 Comment

Octavio Lombardo, a/k/a Otto Lombardo, 67, was arrested on wire fraud charges stemming from his advance fee loan scheme, which allegedly defrauded victims of more than $1 million.

Among other false and misleading statements, Lombardo allegedly lied to small business owners by claiming to have the ability and expertise to structure investment loans for their businesses through Lombardo’s exclusive relationships with small community banks across the United States, when in fact he did not have the ability to obtain such financing.  In connection with the scheme, Lombardo induced over 30 business owners to pay an upfront fee that was purportedly to pay for expenses incurred during the due diligence process prior to the loan’s closing.  Instead, Lombardo used the vast majority of the money he received from the business owners – over $1 million in total – on his own personal expenses, including rental payments, club dues, food and other personal items.

Lombardo is expected to be presented in federal court in Manhattan before Chief United States Magistrate Judge Frank Maas.

According to the Complaint unsealed in Manhattan federal court:

From at least 2007 through 2013, Lombardo engaged in a fraudulent scheme to mislead small business owners into paying an upfront due diligence fee, typically in the amount of $25,000, in connection with loans that Lombardo promised to obtain for the small business owners.  During this period, Lombardo held himself out to the business owners as having the ability and expertise to structure investment loans for their businesses through Lombardo’s purported exclusive relationships with small community banks across the United States.  In fact, Lombardo had no ability to provide such financing, and none of the businesses at issue received a loan through Lombardo during this period.

In connection with the scheme, Lombardo made a series of false and misleading misrepresentations to the business owners, including: (i) that Lombardo could obtain interest-only loans in amounts ranging from $1 million to $75 million by consolidating the lending power of several small community banks into a trust, which he would manage through his holding company, Lombardo & Company; (ii) that, in order to structure the loan appropriately, Lombardo needed to conduct due diligence of the businesses, which included obtaining corporate and financial documentation and conducting site visits; (iii) that Lombardo required a non-refundable upfront payment – generally in the amount of $25,000 – to cover the expenses incurred during the due diligence process, including legal and other professional fees, taxes, appraisals and the like; and (iv) that this fee would be incorporated into the final loan agreement, so that the business owners would ultimately “get back” the upfront payment once the financing was in place.

As a result of these misrepresentations, Lombardo obtained over $1 million in so-called due diligence payments from more than three dozen business owners.  Lombardo spent the vast majority of the due diligence payments on his own personal expenses, including, among other things, rental payments, club dues, food and other personal items.  For example, Lombardo spent more than $300,000 on rental payments for his residence in Brooklyn, more than $100,000 on membership dues for a private gun club located in Manhattan and more than $50,000 on restaurants and purchases of wine and liquor.

Once he received the due diligence payments, Lombardo made a variety of excuses to the business owners – including, among others, that he was having health problems and had been hospitalized, that he was traveling and/or that he had a new grandchild – in order to explain the delay in closing the loan.

Ultimately, Lombardo did not provide any of the loans to the business owners as promised.

Lombardo was arrested at his residence in Brooklyn, New York.  He is charged with one count of wire fraud, which carries a maximum sentence of 20 years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense.  The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced the charges.

Mr. Bharara praised the work of the Federal Bureau of Investigation.  He added that the investigation is continuing.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Amy Lester and Damian Williams are in charge of the prosecution.

U.S. Attorney Preet Bharara said: “As alleged, Mr. Lombardo repeatedly lied to dozens of small business owners and used an illegal scheme to defraud them of their hard-earned money. He proceeded to use this corruptly obtained money, amounting to over $1 million, on his own living expenses and leisure activities. I want to thank our partners at the FBI for their hard work in investigating this case and in continuing to expose unlawful schemes such as this one.”

FBI Assistant Director-in-Charge George Venizelos said: “As alleged, Lombardo stole from dozens of small business owners, looking to make significant investments with their new equity. His scheme not only defrauded the owners, but took capital away from new investments and critical employee hires.”

 

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Allison Tussey

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