A young guy, early twenties, walks into a bank without any prior history of running a business. He presents federal tax records that are falsified, but somehow the bank does not figure it out and seems to do no other poking around. He gets the loan, which he clearly will not be able to repay. He has no money to speak of and it is an unsecured loan.
But it gets better! He then applies for more loans over the next few months and gets those loans also, even though he is not making payments on the first loan.
Crazy? Not if you are the son of a local congressman. At least, that is how the indictment reads for Chip Fattah, the son of Congressman Chaka Fattah.
The Chip Fattah trial involving charges of bank fraud and tax evasion is a sad spectacle. It is hard to know what to think, especially after the odd revelation on Wednesday about an FBI agent leaking information to an Inquirer reporter. We are barely at the midpoint of the drama so who knows how it will all play out.
It certainly has been good newspaper fodder. Chip is flamboyant, boastful, and talkative. The media loves it. How can they not? It’s like having Donald Trump’s personality on trial, except Trump actually built a few things. Chip appears to be all sizzle and no steak—at least at this point in his life. But he is smart and so maybe there will be other acts to follow where he will succeed.
There were $86,000 in loans from five major banking institutions. After he was in default, there were more loans. none of which seemed interested in underwriting their borrower in the most basic way. How was Chip Fattah able to get unsecured loans without more questions being asked?
The charges are straightforward fraud allegations, but once Chip decided to act as his own attorney, the trial got juicy. His cross-examination of his business partners, who turned on him and struck deal with the Feds, is great theater.
My unscientific observation, from listening to the newscasts and reading the indictment, is that Chip is a classic narcissist. He displays all of the character traits of the disorder: grandiosity, entitlement, lack of empathy, and a feeling of being owed admiration.
For Chip’s father, the indicted congressman, there is a lot riding on the trial besides a prison sentence for his son. A verdict of guilty or not guilty could affect perceptions prior to his own trial.
While the charges against the son and the father have little to do with each other, Congressman Fattah’s narrative of innocence is based on being a victim of a federal prosecutor who has it out for him. His son has said the same thing about his own case, even alleging that the Feds went after him to get to his father. Thus Chip sees himself as fighting a battle to exonerate his father as well as himself. A good novel plot but not necessarily a good defense strategy.
We presume innocence both for the son and the father; that is the way the law and our civil society works. They deserve to put on a vigorous defense and push back hard against the charges and the power of the federal government. I just wish the son had real legal representation and the father was not so publicly nonchalant about it all. It does not wear well.
In Federal prosecution cases where there are already associates that plead guilty and give evidence, the track record of the Feds is pretty good. If indeed Chip falsified federal tax statements and loan documents, he ought to be negotiating a deal with the Feds. Some of these charges are verifiable one way or the other.
Aside from the overall Fattah family intrigue and Chip’s relentless self-admiration, the fact that the young Fattah was able to obtain so many small business bank loans is what caught my eye. Take a look at the indictment, issued July, 2014.
In June, 2005, Fattah Jr. obtains a $26,000 loan from Citizens Bank, and a month later he gets a $15,000 line of credit from PNC. That month his associate identified as M.A in the indictment (Mathew Amato) picks up $25,000 more from Wachovia in support of a Fattah business. In November, Sun Bank gets the pleasure of providing $25,000, and that same month Bank of America provides a $10,000 line. That’s a quick $86,000 from five major banking institutions, none of which seemed interested in underwriting their borrower in the most basic way.
Within a brief period of time Fattah was in default and dealing with legal action on the loans (first with Sun Bank in 2007), including from the Small Business Association. SBA is in several instances a guarantor for the bank loans.
Only a few years after these defaults, he takes down a new loan, this one from United Bank, to support his cash flow needs for a School District contract. He eventually gets a loan from United for $50,000 in 2011. And in 2012 he is trying to get a loan with the Philadelphia Federal Credit Union, again submitting false information, according to the Feds.
The indictment contends Fattah used some of the loan proceeds to pay down personal credit cards and a car note, as well as gambling debts at Sugar House and Harrah’s casinos. The loans were supposed to be used as working capital for the businesses, so Chip will have to argue that the personal accounts were really business affairs, and that he is just a bad manager of his finances.
Unless you have a forensic accounting analysis in front of you that details the movement of cash in and out of various accounts, it is hard to get a handle on whom was paying what to whom. The indictment text only goes so far.
The Feds wrapped up their evidence this week and then the spectacle will really begin as Fattah calls his witnesses. Who from Philadelphia’s political class will make an appearance? Whoever it is will testify that Chip had a real business and that they used his services. The cross examination will be something.
The only point that connects the son to the father has to do with the use of campaign proceeds to pay down a school loan at Drexel in 2007. Greg Naylor, a former political operative of the Congressman, who has pleaded guilty to federal charges, testified against the son and is expected to testify against the father. In the present trial he described the order from the Congressman to pay school loans off with campaign funds. Those campaign funds were later replenished.
But now back to the loans. How was it that Chip Fattah was able to get the loans, one after the other, without more questions being asked? It might be one thing if the loans were home equity loans against the value of a house, but these were unsecured loans; or at least that is how it is portrayed in the indictment.
If his father called a bank on behalf of his son’s loan application, there’s nothing wrong with that. It’s not illegal. But is it proper? These are, after all, federally insured and regulated institutions.
Think about that the next time you go to a bank for a business loan. What do they ask for in the real world?
They will want several years of prior tax returns for the business and for you personally. They will do a credit check against you and your business, including other businesses with which you had prior involvement. As part of that credit check they will look for liens or judgments filed against you or the business. They will check your bank accounts to verify revenue.
And they will want collateral, including personal signatures from you or others who might have to co-sign. Moreover they will file liens against whatever they can, including the corporate accounts. And finally, they will want to see, understand, and verify (as far as possible) your financial projections.
How did it happen that the standards of lending seemed to be thrown aside in this case? There are three logical explanations and maybe all three come into play at once.
First, for a time in the run up to the Great Recession, banks were lending with less stringent standards, although that was generally linked to real estate loans.
Second, Chip is smart, so maybe he was able to build a business case. And the Fattah connection cannot hurt. He would not be the only person in the world to walk into a bank and use family references to help him secure a loan. There is certainly nothing illegal about that.
Third, it could be that the Congressman made calls to the banks. I have no knowledge that this happened but it is not impossible. Again there is nothing illegal about his father calling a financial institution to support his son’s loan application. It’s just that these are federally insured and regulated institutions and he is a U.S. Congressman. So you have to wonder about the propriety of the conversation, if indeed that did happen.
If you are a lender and a politician calls, you say the following: “Happy to take an application and if we can make a loan, great; if it does not conform to our standards, I will let your son know and will be happy to answer any questions.” I know because, as someone who ran a lending institution, I have done this before.
That is the line but it is probably a hard line to straddle in some cases. Let’s face it: It is not as if people who represent banks and other financial institutions don’t call on congressmen for help with regulatory and policy issues, or at least to get their point of view across. So there may be a certain informal reciprocity at work here. Again, it is hard to know when the slope becomes slippery in these relationships.
It is possible that a local bank executive who manages billions in assets and gets a call from a congressman will do what he or she can to expedite a small loan of $15,000 or $25,000. It is nowhere near a rounding error to the bank. And like everyone, they want political access. And hey, maybe the loan will work out.
If Chip did these things then he ought to be punished. But it is also possible his access and celebrity parents unwittingly enabled him. We have seen this before in Hollywood, in politics, in sports, and business. That is why the spectacle seems so sad. It would be better—if he is guilty —to pay a price, get some help, and move on. And in doing so, learn the big lesson that real entrepreneurs know: There are no shortcuts, there is only hard work and reality. Better to stick with both.
Header Photo: Flickr/Pictures of Money
