Small Business Administration

Prohibited Practices and Inadequate Oversight in SBIC and SSBIC Programs Gao ID: T-OSI-95-16 September 28, 1995

Since 1966, 500 companies participating in the Small Business Administration's (SBA) Small Business Investment Company (SBIC) and Specialized Small Business Investment Company (SSBIC) program have failed and gone into liquidation. GAO found that the SBICs and SSBICs that it investigated engaged in improper management practices, including loans to associates, loans for prohibited real estate purchases, and loans to persons of questionable eligibility. Several of these regulatory violations should have been red flags of potential criminal misconduct. Two of the licensees GAO examined are now being investigated by U.S. Attorney's Offices. The investigation of a third resulted in the conviction of its president for soliciting and receiving cash payment in return for approving loans. In addition, the SBICs and SSBIC seldom took prompt corrective actions for regulatory violations. Moreover, SBA did not ensure that the violations were corrected. For the SBICs and SSBICs that GAO reviewed, some violations went unresolved for five years or longer. Estimated losses for three of the five companies that have gone into liquidation, receivership, or bankruptcy exceeded $4 million.



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