By Arthur Kane | Watchdog.org
The Small Business Administration recently got into the Lamborghini business not once, but twice –– just two of more than $8.7 billion worth of failed loan guarantees that potentially left taxpayers on the hook for nearly $1 billion, a Watchdog.org investigation found.
Since 2009, SBA lenders charged off loans backed partly by taxpayer dollars, including $139 million for liquor stores and bars, $56 million for car dealerships, $25 million for country clubs, about $21 million for boat dealers, and $4.5 million for wineries, an SBA database Watchdog.org obtained through the Freedom of Information Act shows.
Watchdog.org found former executives of companies that the database shows failed to make good on the loans still running businesses and in one case apparently living a lavish lifestyle.
National Taxpayers Union president Pete Sepp said backing loans with taxpayer money to dealers of some of the most expensive luxury cars in the world shows the SBA program is poorly managed.
“These are loans the private sector wouldn’t make so how is it a good idea to have taxpayers backing them when they don’t have the ability to say no to financing these loans,” he said.
The SBA’s lenders determined in 2010 and 2013 that loans they made years earlier to Lamborghini Ohio and to Lamborghini Chicago couldn’t be collected on, the database shows. A former executive of the Chicago-area dealership hinted there was a recent resolution in the Illinois loan.
Usually, SBA loans are backed by fees on lenders. But since 2009, taxpayers subsidized about $835 million — $510 million for unsecured 7a loans to fund basic business expenses and $324 million for 504 loans, which allow a borrower to buy land and equipment, according to a SBA report and a lender grade group. Congress appropriated hundreds of millions more tax dollars to reduce lender fees and improve loan terms after the Great Recession.
The subsidy is supposed to end in the 2016 fiscal year budget, but Sepp questioned whether it would come back if there was another economic crisis.
Tony Wilkinson, president of the National Association of Government Guaranteed Lenders which represents 7a lenders, maintains the program has not cost taxpayers any money because lawmakers overestimated how much was needed to pay for defaults.
“Since 2009, the program has returned more to the Treasury than was originally provided,” he wrote in an email exchange, noting the 7a charge-off rate is less than 1 percent. He did not provide documentation for the claim no tax money went to 7a loans.
IN OTHER NEWS: SBA-backed loans go to large chains
The database doesn’t indicate if the Lamborghini loans were backed by taxpayer money or lender fees. SBA critics, however, questioned the need for a federal agency to get involved in businesses like sports cars, wineries and country clubs.
“There is of course the question why an average taxpayer, who could never afford many of these goods and services, should be forced to underwrite the businesses,” Sepp said.
The SBA did not respond to repeated requests to discuss their loan guarantee selection process. Barbara Vohryzek, president of the National Association of Development Companies, whose members provide 504-backed loans, said the loans create jobs and help impoverished areas.
“We have to fund women-owned, vet-owned, minority-owned businesses,” she said. “We fund businesses in distressed zones that the statistics show have higher poverty levels.”
The Government Accountability Office and SBA’s Inspector General have criticized the agency for a lack of oversight on lenders and the lack of outcome-based performance measures for the loans, according to an SBA review of the guarantee program.
Watchdog.org initially requested a database of SBA and taxpayer repayments of loans that defaulted. SBA officials said the agency didn’t keep such a record. The SBA instead provided a database of loans lenders had charged off, or determined they could not collect on.
An SBA Freedom of Information Act worker told Watchdog he could not vouch for the completeness or accuracy of the data.
Using the database, interviews and public records, Watchdog.org researched several of the largest loans, raising questions about the lengths lenders and federal officials went to recover money from defaulted loans.
Vohryzek said banks and the Treasury department can go after the businesses and principals after a loan is charged off though it is hard to track now much, if any, money is recovered. She also said assets from other businesses are often difficult to find.
Former executives of the Lamborghini dealerships who accepted the government backing were not interested in talking about their SBA loans.
Lamborghini Chicago, Inc., received a $1.5 million loan guarantee in 2007, the SBA database shows. Court records from an unrelated dispute list Marc Iozzo as president. However, state incorporation records list Mark Hoppe as president of the umbrella company over Lamborghini Chicago and another luxury dealership.
Iozzo is currently president of Ogden Lincoln, in Westmont, Ill., according to state incorporation records. He declined to answer Watchdog questions about the details of the $1.24 million that the SBA database says was charged off in 2013 for the Lamborghini Chicago dealership.
“Those are not facts. There’s something, something brewing, close to happening – actually it happened,” Iozzo said when asked about the loan. “Look, I’m not trying to be a hard ass for lack of a better word but if you wrote that you might regret that.”
He put the phone on hold for a few minutes and came back on the line to say: “I have no comment at this time. Thanks for your call,” and hung up.
Land records show that Mark E. Hoppe, of Glen Ellyn, purchased a $6.6 million home on the gulf in Naples, Fla., in 2011, two years before the charge off. He did not return messages left at his current business, Illinois home or the Florida ocean-front home.
Around the time of the Naples home purchase, Lamborghini Chicago was sued by rapper Missy Elliott for allegedly taking her Bentley as a trade in and a $30,000 down payment in 2011 and failing to provide a 2012 Lamborghini Aventador worth more than $400,000, according to a Chicago Tribune story.
Growth Corp., the community development corporation listed on the database as participating in the loan for the Chicago-area Lamborghini dealer, couldn’t comment on the specific loan but downplayed the luxury aspect of the taxpayer-back loans.
“One more suggestion, don’t trust a name,” wrote Growth Corp. president Douglas Kinley in an email exchange. “Used cars are used cars… And just because you call you(r) crappy 9 holes golf course a country club doesn’t make it exclusive or even worth playing.”
An appeals court ruling showed lenders were able to get a $1.2 million judgment in the Lamborghini Chicago case but it’s unclear how much was paid. On May 18, a DuPage County court clerk told Watchdog.org that there is no notation of the judgment being paid.
Elliott’s case appears to have been settled as both parties moved for a joint dismissal in 2013, according to Dade County court records. Neither Elliott’s attorney nor publicist returned calls and emails seeking comment.
The other Lamborghini dealer with a charged-off loan was also closed lipped.
Gregory S. Nelson sold the Lamborghini Ohio dealership in 2009 about 18 months before the lender and SBA charged off $213,000, according to the SBA database and a news story.
In 2009, Nelson told Marysville News people had approached him about selling the sports car lot known as the largest Lamborghini dealer in the state, and he felt it was the right time.
Nelson still owns a used car dealership in Marysville, Ohio, called Nelson Auto Group, according to the dealership’s website.
Reached by phone and asked about the loans, Nelson said, “I said I don’t want to talk about it. Goodbye,” and hung up.
Sepp has called on Congress to either eliminate the SBA or crack down on its guarantee practices. Staff for Rep. Steve Chabot, R-Ohio, current chairman of the House Small Business Committee, did not return emails and calls seeking comment.
Sepp hoped some lawmaker would take up the issue.
“Congress has a special responsibility to reevaluate the program as well as protect taxpayers from the liability of loans that the private sector would not accept,” Sepp said.
- Feds back defaulted loans for luxury businesses like Lamborghini dealers
- Drink up! Taxpayers back bad loans for country clubs, boats, wineries
- Up in smoke: Cigarette shops, liquor stores default on $140 million in SBA loans