Lone Tree businessman sentenced for conspiracy involving false statements to SBA and false income tax returns

DENVER – Hemal Ramesh Jhaveri, the owner and former CEO of SofTec Solutions Inc. of Englewood, Colorado, was sentenced in federal court in Denver earlier this week to six months in prison.  Jhaveri pleaded guilty earlier this year to conspiring to commit the crimes of making false statements to influence the Small Business Administration (SBA) and of filing false federal income tax returns.  The conspiracy began in 2006 and continued to 2013.

Chief Judge Marcia Krieger of the U.S. District Court, who imposed the sentence, ordered Jhaveri to serve a two-year term of supervised release following his release from incarceration, perform one thousand hours of community service, and pay a fine of $250,000.  Prior to the sentencing hearing, Jhaveri paid restitution to the Internal Revenue Service in the amount of $1,171,179.  Jhaveri, age 52, is a resident of Lone Tree, Colorado.

A Plea Agreement and other documents that were filed in the case described the factual basis for Jhaveri’s guilty plea:

The SBA’s 8(a) Business Development Program is available to small businesses that are owned by socially and economically disadvantaged individuals.  A business ad- mitted to the program receives various benefits, including sole-source, or non-competitive, government contracts.

The SBA admitted SofTec Solutions to the program in 2001, and the company thereafter received sole-source contracts under which it provided clerical and administrative support and other services to federal departments and agencies.  Following the start of the conspiracy in 2006, those departments and agencies paid SofTec Solutions more than seventeen million dollars pursuant to the contracts.

The SBA required SofTec Solutions to annually provide Jhaveri’s financial statements and other information, which the agency used to determine whether the company met the requirements to remain in the program.  One requirement was that Jhaveri’s net worth remain under $750,000.  Another was that his withdrawals from his company not exceed $300,000 in any fiscal year.  In order to circumvent those rules, Jhaveri, with the assistance of his chief financial officer and others, diverted money from SofTec Solutions to bank accounts that Jhaveri controlled, to bank accounts of associates, and to other places for his personal use and benefit.  The government took the position in court that the amount diverted was $4,494,305.79.

Some of the diverted funds were transferred to accounts in California, India, Hong Kong, and Singapore.  At Jhaveri’s direction, SofTec Solutions’ CFO misrepresented in the company’s accounting records that those transfers were payments of business expenses, making it appear that those to whom the money was sent had provided services.  The money in fact went to accounts controlled by Jhaveri’s associates, who deducted commissions and then, at his direction, passed on the remaining funds to his bank accounts.  Jhaveri created false invoices and agreements to make it appear that there was support for the recording of the transfers as expenses.

Much of the other money diverted from SofTec Solutions was used for expenses related to a restaurant in Lone Tree in which Jhaveri had an interest.  In January 2007, Jhaveri used $300,000, which was transferred from SofTec Solutions to his personal bank account, to make a partial payment for the purchase of the property where the restaurant was located.  In 2008 and 2009, another $984,194.40 moved from SofTec Solutions to accounts of Jhaveri and related entities and used to pay restaurant ex- penses.  And, in late 2009, after the restaurant had closed, $116,000 was moved out of SofTec Solutions to make mortgage payments and pay other expenses related to the restaurant property.

The remaining diverted funds included $40,000, which was wire transferred in March 2008 from SofTec Solutions to an account in Jhaveri’s name at ABN AMRO Bank in India.  One year later, Jhaveri diverted $558,590.39 from his company and used it to make a partial payment for the purchase of his residence in Lone Tree.  Also in March 2009, a SofTec Solutions check in the amount of $177,240 was made payable to the Internal Revenue Service to pay Jhaveri’s personal taxes.  In late 2009, funds were transferred from SofTec Solutions to the account of a dormant Jhaveri-controlled company.  Jhaveri used that money to make three alimony payments, each in the amount of $15,000.

As part of the conspiracy, the CFO of SofTec Solutions kept track of two different profit figures: “Profit per Books” and “True Profit.”  The former was based on the company’s books, where the CFO had falsely classified the diverted money as expenses.  The latter was a larger number, representing the profit the company would have recorded if the diverted money had not been booked falsely as expenses.  In emails and memoranda, the CFO informed Jhaveri of the two numbers and explained the differences between the two.

Jhaveri never informed the SBA that money had been diverted from SofTec Solutions for his use and benefit.  If he had provided that information, the government maintained, the SBA would have seen that his withdrawals from the company exceeded $300,000 in each of the years 2006 through 2009.

Beginning in 2006 and continuing to 2009, the annual financial statements that Jhaveri submitted to the SBA were, as he knew, false.  They underreported the amounts of his cash on hand and in bank accounts, and they failed to report a condominium in Vail, Colorado, which he had bought for $740,000 in January 2006.  The financial statements for the four years represented that Jhaveri’s net worth amounts were $186,000, $202,000, $218,000, and $587,942, respectively.  If, however, the financial statements had included the value of the condominium and Jhaveri’s true bank-account balances, the SBA would have seen that each year the value of his assets was more than reported and his net worth was greater.

For each of the years 2006 through 2009, Jhaveri willfully filed federal income tax returns that were false in that they failed to report much of the diverted money as in- come.  Because the diverted money was mischaracterized on SofTec Solutions’ books as expenses, it was not passed on to Jhaveri’s returns, as it should have been.  The government took the position that the total amount of diverted money that was un- reported on Jhaveri’s returns for the four years was $3,349,111.39 and his failure to re- port it as such caused a tax loss of $1,171,179.

The investigation was conducted by special agents of the IRS Criminal Investigation division, the Offices of Inspectors General of the Small Business Administration and the General Services Administration, the Defense Criminal Investigative Service, and the Major Procurement Fraud Unit of the Army Criminal Investigation Command.

The defendant was prosecuted by the Economic Crime Section of the Colorado U.S. Attorney’s Criminal Division.