The Northern District of California U.S. Lawyer’s Workplace has charged a collision repairer with two counts of wire fraud and and one rely of creating a false assertion in a loan utility, alleging June 5 the person had since 2013 “fraudulently obtained at least $8 million through his illegal conduct.”
One in every of Geoffrey Palermo’s wire fraud fees includes conduct the FBI referred to as a part of a building kickback scheme at a San Francisco, Calif., Hilton.
The opposite two fees allege Palermo, 56, of Novato, Calif., misled lenders and improperly borrowed about $6.7 million for his auto physique firm GMP Automobiles — together with about $1.7 million although an April Paycheck Safety Program loan.
“What is particularly galling about the conduct alleged in the complaint is that while Geoffrey Palermo was wrongfully receiving PPP funds, he was not paying required payroll taxes for his employees, making it difficult or impossible for his employees to obtain the benefits to which they were rightfully entitled,” U.S. Lawyer David Anderson mentioned in a press release June 5. “PPP funds are intended to protect the many, not to enrich the few. The fraud alleged in the indictment reversed Congressional intent by depriving employees and enriching Palermo.”
If convicted, Palermo might withstand 20 years for the wire fraud allegations and as much as 30 years on the false assertion accusation.
Palermo’s felony legal professional Matthew Jacobs, a associate at Vinson & Elkins, mentioned Palermo would defend himself “vigorously in court.”
“Mr. Palermo intends to fight these various charges,” mentioned Jacobs, who we interviewed concerning each the felony case and up to date civil instances by Justice Buyers and FinishMaster towards Palermo. (David Bate of Bate & Bate, Palermo’s legal professional within the civil litigation, referred us to Jacobs.)
“… We’re looking forward to the opportunity to clear his name,” Jacobs mentioned.
Jacobs mentioned the felony case appeared to imitate the Justice Buyers case, calling it “unusual” for the federal government to make use of allegations from a civil case wholesale.
A GMP Automobiles consultant mentioned the corporate had no assertion.
Jacobs mentioned GMP Automobiles remained open. It was “actively in business and serving its customers” in an “excellent way,” he mentioned.
GMP Automobiles’ web site lists six places. It says the MSO carries a number of OEM certifications.
The U.S. Lawyer’s Workplace alleged that “Palermo’s reliance on the company’s funds to finance his personal expenditures left the company in financial distress.”
Requested if employees and distributors had been involved about paychecks and accounts receivable, Jacobs mentioned the case concerned merely “unproven allegations” and workers had been serving prospects on the store.
“There’s a long way to go here,” he mentioned.
Palermo appeared earlier than the courtroom June 10 and has surrendered his passport. Court docket data present he had been assigned an unsecured bond of $Four million and an look bond of $1 million.
The federal government accused Palermo of embezzling “large sums of money” from the San Francisco Hilton he managed between 2013-16 for proprietor Justice Buyers.
“One contractor frequently hired by Palermo for projects at the hotel is suspected of paying Palermo approximately $1.5 million in kickbacks between March 2013 and June 2016,” the U.S. Lawyer’s Workplace wrote in a information launch. “Palermo allegedly ensured that the contractor’s inflated or fraudulent invoices were paid by Justice Investors, LP, the owner of the hotel. After depositing Justice Investor checks to his business banking account, the contractor transferred funds into an illegitimate living trust bank account and then wrote checks back to Palermo or entities associated with Palermo.”
Justice Buyers sued Palermo in June 2018. In September 2018, it filed an amended criticism alleging he had been a part of a “fraudulent scheme spanning years” The corporate accused him of fraud; breach of fiduciary responsibility, contract and implied covenant of fine religion and honest dealing; conversion and violation of California Penal Code Part 496. It additionally sued for declare and supply, accounting and rescission or restoration.
A companion 2019 lawsuit towards former Justice Buyers Director of Finance Kristara Santos alleged she was a part of Palermo’s scheme and in addition moonlighted as chief monetary officer of GMP Automobiles. Justice Buyers estimated that Alonzo and her personnel spent greater than 50 p.c of their time working for a special resort, Palermo and/or his corporations like GMP Automobiles.
Justice Buyers accused each Santos and Palermo of inflicting it to pay $3,000 month-to-month for a June-December 2014 unique automotive occasion benefiting Palermo and GMP Automobiles; $39,300 between 2014 and 2015 for different GMP Automobiles unique automotive occasions; greater than $81,500 to sponsor Palermo’s Ferrari Homeowners Group occasions partially to learn GMP Automobiles; and $3,300 for a rendering on the Golden Gate Ferrari Pageant to learn the auto physique store.
Justice Buyers claimed Santos amortized these over a 12 months “in an attempt to cover them up by making them seem smaller than they actually are. As a further cover up, she disguised many of these wrongful expenditures as ‘public relations’ expenses, which they were not.”
The corporate alleged she additionally “facilitated the transfer of millions of dollars from GMP Management to Palermo and GMP Cars, effectively laundering the funds GMP Management had embezzled from Justice.” Justice Buyers mentioned this included practically $1.74 million to GMP Automobiles with out notification to Justice’s managing basic associate.
Bate, who additionally represents Santos, didn’t reply to a request for touch upon her case.
The Justice Buyers instances towards Palermo and Santos are slated to go to an amended arbitration process with each Palermo and Santos performing as co-respondents.
FBI: Loans obtained regardless of ‘immense financial difficulty’
Palermo moved to GMP Automobiles after leaving the Hilton in 2016. An affidavit by FBI Particular Agent Alexandra Bryant accused him of utilizing the native multi-shop operation’s cash “to pay for personal auto racing expenses and other lifestyle purchases, leaving the company with mounting debt.” Bryant mentioned she thought by 2019, the enterprise was in “immense financial difficult due to PALERMO’s lavish spending habits.”
Bryant mentioned Palermo had by mid-2019 “significantly overdrawn” the auto physique store’s bank accounts and did not pay cash it allegedly owed to distributors and the previous proprietor of German Motors Collision Heart. GMP Automobiles purchased the competitor in January 2019.
GMP Automobiles had accounts at CW Bank since August 2018. By summer season 2019, the store “was writing checks with insufficient funds to cover the checks, depositing checks that bounced, and overdrawing the accounts,” Bryant wrote. “A CW Bank employee regularly spoke to PALERMO about these issues.”
On Aug. 20, the bank advised Palermo his firm carried an $850,926.60 overdraft, in keeping with Bryant. In September, the bank agreed to simply accept a verify from Palermo’s private account, and he submitted three checks worth a mixed $435,000, she wrote.
“All three checks bounced due to insufficient funds,” Bryant wrote.
GMP Automobiles’s overdraft sat at $738,706.44 on Sept. 30, 2019, and the bank restricted his accounts, the affidavit acknowledged. Palermo allegedly blamed the bounced checks on his different bank and his personal latest hospitalization for coronary heart surgical procedure however in the end acknowledged he didn’t have the cash, in keeping with Bryant. By Nov. 29, 2019, the GMP Automobiles working account carried a unfavourable stability of $338,875.08, she wrote.
In the meantime an “INVESTOR A” who owned 1 p.c of the store permitted Palermo to make use of his American Specific card in September to deal with a cash-flow difficulty, in keeping with Bryant. (Palermo advised the investor the store lacked a line of credit score, Bryant wrote.) Bryant mentioned the settlement concerned the cardboard getting used simply as soon as.
“PALERMO, however, used INVESTOR A’s American Express card multiple times, and by September 2019, INVESTOR A’s American Express card had approximately $190,000 in unauthorized GMP Cars charges, for which PALERMO had not reimbursed INVESTOR A,” Bryant wrote. As of January 2020, the investor was nonetheless owed $171,000, she wrote.
Palermo and his spouse’s personal American Specific playing cards data confirmed him making funds of greater than $10.7 million between January 2015 and August 2019, in keeping with Bryant. But on Aug. 31, 2019, American Specific minimize his restrict from $200,000 to $50,000 amid a stability of $192,405.20, Bryant wrote. By Dec. 31, 2019, the bank card firm cancelled his account with an impressive stability of about $192,000, she wrote.
Palermo additionally charged about $1,061,110 at GMP Automobiles to his personal American Specific card between July 2018 and August 2019, in keeping with Bryant. “I believe PALERMO did this to generate cash at the stores and possibly also to artificially inflate revenue,” she wrote.
Palermo additionally in summer season 2019 allegedly owed German Motors Company after buying its German Motors Collision Heart for $5.2 million on Jan. 31, 2019.
“The president and vice president of German Motors Corporation stated during an FBI interview that they were surprised at the closing because PALERMO wired approximately $1.1 million, but then wanted to enter into a promissory note for the remaining $4.15 million due,” Bryant wrote.
The vendor agreed to simply accept month-to-month funds of $250,000 and eight p.c curiosity between that time and Dec. 31, 2019; Palermo was additionally speculated to contribute funds raised by auctioning off some automobiles, Bryant wrote.
She mentioned that Palermo stop paying on the debt and modified the deal phrases May 31, 2019, to pay $203,553 in again principal and curiosity.
“PALERMO was also supposed to send $500,000 within 60 days of this updated note, but PALERMO did not do so,” she wrote. “Palermo also did not auction off the vehicles as specified.”
As of May 30, 2019, Palermo nonetheless owed the previous homeowners practically $3.93 million, in keeping with Bryant.
German Motors Company then allowed a second loan modification on Aug. 20, 2019, demanding $500,000 no later than Sept. 27, 2019, in keeping with Bryant. As of Aug. 31, 2019, Palermo nonetheless owed practically $3.83 million, she mentioned.
With a number of million in debt excellent, Palermo utilized for greater than $4.Eight million in Small Enterprise Administration loans on Aug. 8, 2019, in keeping with Bryant. The lender had offered an approval memo for its loan committee by Sept. 26, 2019, and advised GMP Automobiles on Oct. 1, 2019, it might submit the loan to the SBA, she mentioned. The loan cleared Dec. 19, 2019, she mentioned.
Neither the overdraft, utilization of the investor’s American Specific card or German Motors Company cost modifications had been disclosed to the SBA lender in a debt schedule, Bryant alleged.
She mentioned Palermo’s loan utility additionally included a falsified copy of the January 2019 promissory be aware to German Motors Company.
“I believe paragraphs 2.2 and 3 were altered to make it appear that PALERMO only owed monthly interest payments and the maturity date was 2021, when in fact in the original promissory note, PALERMO owed interest and principal payments and the maturity date was December 31, 2019,” Bryant wrote. (Emphasis hers.)
In accordance with Bryant, German Motors Company in the end did approve a 2021 maturity date, however not till the May 2019 loan modification.
“Our office will aggressively investigate any false statements made to gain access to SBA’s programs,” SBA Workplace of the Inspector Basic Particular Agent in Cost Weston King mentioned in a press release. “OIG and its law enforcement partners are poised to root out fraud in SBA’s programs and bring wrongdoers to justice.”
Bryant mentioned present and former GMP Automobiles workers advised the FBI GMP was not producing a revenue in 2019. She mentioned a former basic supervisor of 1 location believed nearly each retailer was dropping cash in 2019 and the broader firm should be within the crimson.
“A former general manager of one GMP Cars location told me that GMP Cars had a bad reputation with other auto shops and auto parts vendors,” Bryant wrote. “Some auto part vendors would not sell GMP Cars parts and others would not allow GMP Cars to pay by check. PG&E would shut off the electricity in 2019 for non-payment. Employees’ paychecks sometimes bounced.”
A employees accountant additionally advised the FBI that every GMP Automobiles location continuously misplaced cash final 12 months, in keeping with Bryant. “The staff accountant did not think there was any way the company was generating a profit or positive net income in 2019,” she wrote.
PPP loan questioned over payroll taxes
The FBI challenged Palermo’s PPP loan utility on completely different grounds than the opposite SBA-backed loan. In accordance with Bryant, Palermo’s request for a $1,733,000 PPP loan included confirming that his firm “had employees for whom it paid salaries and payroll taxes.”
Bryant alleged this to be false “because there is probably cause to believe that PALERMO did not properly pay payroll taxes for his employees in 2019 to 2020.”
“The FBI, along with our federal partners, will actively pursue this type of criminal behavior—especially of those seeking to fraudulently profit from the current health crisis,” FBI Particular Agent in Cost John Bennett mentioned in a press release. “This case exemplifies how collaboration with our federal partners is vital to these investigations.”
Bryant mentioned GMP Automobiles reported 100 workers to the California Employment Growth Division within the first quarter of 2019. However GMP Automobiles mentioned it solely had 5 workers within the second quarter and a single worker within the third quarter, in keeping with Bryant.
A GMP Automobiles human assets worker advised the FBI that laid-off GMP Automobiles workers say the California unemployment company have them on report as making nothing or a tiny quantity, in keeping with Bryant. The HR worker wound up reporting right wage info to the EDD manually, Bryant mentioned.
A former GMP Automobiles HR worker additionally mentioned the state had advised GMP Automobiles workers they hadn’t paid taxes regardless of W-2s saying they did, in keeping with Bryant. “The former employee thought this was a red flag and decided to investigate,” Bryant wrote.
That former worker offered the FBI with an inside GMP spreadsheet showing to indicate $341,732.80 owed in payroll taxes, Bryant’s affidavit states.
Bryant mentioned she solely discovered 4 funds on Palermo’s American Specific card for a mixed $61,469.64 to the Employment Growth Division between January 2015 to August 2019. She mentioned she discovered no funds to the company on a GMP Automobiles LLC account.
“Bay Area Hospitality And Automotive Executive Charged With Fraud”
U.S. Lawyer’s Workplace, Northern District of California, June 5, 2020
Featured picture: The San Francisco Federal Courthouse constructing is proven. (Nicolas McComber/iStock)