VANCOUVER, WASHINGTON BROKER AND APPRAISER PLEADS GUILTY TO LIES SURROUNDING SALE OF BUSINESS
Broker Failed to Disclose Side Deals to Lender and Small Business Administration
JEFFREY KRAAI, 42, of Vancouver, Washington, pleaded guilty today in U.S. District Court in Tacoma to making false statements to the Small Business Administration and Wachovia Bank. KRAAI operates a company called Exit Strategies. In 2006, KRAAI was hired to appraise and broker the sale of Charles Prescott Restoration, Inc., a disaster restoration company specializing in rehabilitating real and personal property damaged by fire, flood, wind and vandalism. The owner of Charles Prescott Restoration, Inc., Donald Chill, has since pleaded guilty and been sentenced to prison for a variety of frauds surrounding the operation and sale of the business. KRAAI, while not aware of all the frauds, was aware of multiple fraudulent representations made to both Wachovia Bank and the Small Business Administration. Both entities were involved in financing the deal. KRAAI faces up to five years in prison when sentenced by Benjamin Settle on February 7, 2011.
According to the plea agreement, KRAAI assessed the value of Charles Prescott Restoration, Inc. at $7.4 million. After KRAAI located a buyer, he represented to Wachovia Bank and the Small Business Administration (SBA) that the sale price of the business was $4 million. Based on that purchase price Wachovia agreed to loan $2 million to the purchaser. Seventy-five percent of the loan was guaranteed by the Small Business Administration. KRAAI failed to disclose to the bank and SBA that the true purchase price was $7.4 million. KRAAI failed to reveal that there was a secret promissory note between the buyer and seller in addition to what was disclosed to the bank and SBA. KRAAI also failed to disclose that a one year employment agreement with Donald Chill was for a much longer period of time. KRAAI also helped engineer a secret “second closing” involving these agreements that was concealed from the bank. Email communications revealed that KRAAI and Chill knew the deal would not go through if the bank and SBA knew about these side agreements.
Shortly after the sale of Charles Prescott Restoration, Inc., the purchaser learned the balance sheet had been based on fraudulent conduct. Beginning as early as 2004, Donald Chill began inflating the estimates and invoices mailed to an insurance company, Mutual of Enumclaw. Chill padded bills from sub-contractors, or submitted forged secondary estimates that appeared to be from competitors. In just ten jobs scrutinized over five years, Chill over billed by an estimated $3.2 million. In March 2010, Chill was sentenced to four years in prison and $4.9 million in restitution for Mail Fraud, Bank Fraud and Money Laundering. The bank fraud count related to Chill’s fraudulent representations surrounding the sale of the business.
Under the terms of the plea agreement, KRAAI shares in the $1.7 million loss associated with the bank and SBA loan relating to sale of the business.
The case was investigated by the Small Business Administration Office of Inspector General (SBA-OIG) and the Internal Revenue Service Criminal Investigations (IRS-CI). The case was prosecuted by Assistant United States Attorney Kurt Hermanns.
For additional information please contact Emily Langlie, Public Affairs Officer for the United States Attorney’s Office, at (206) 553-4110 or Emily.Langlie@USDOJ.Gov.