Man Sentenced to Prison for Making Bad Church Loans

Thursday, October 27, 2016 Written by 
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A rogue loan officer was sentenced this week to 18 months in federal prison for approving bad church loans.  Paul Ryan pleaded guilty to scamming his former employer, Broadway Federal Bank by lending to churches that were poor credit risks.


Working with loan brokers, Ryan pocketed $354,000 in kickbacks in exchange for approving the loans from 2007 through 2010.  He was ordered to pay the same amount in restitution on Monday to Broadway Federal.


During Ryan’s tenure with the bank, the church loan portfolio rose from $17 million to about $101 million.  The bank’s church loans expanded to include customers nationwide. 


Broadway Federal is the last black-owned bank still operating in Los Angeles.  It was founded in 1946 by a group of black entrepreneurs and has branches in Mid-Wilshire, near USC and in Inglewood.


By the end of 2011, half the bank’s bad loans belonged to churches.  A bank official said loans originated by Ryan amounted to about $90 million, and that many were made with fraudulent financial documents.  Broadway incurred a loss of as much as $30 million.  


Feds found that Ryan was in cahoots with Chester Peggese, a loan broker, in the scam.  Peggese pleaded guilty to the fraud last year, and was ordered in February to pay $4.2 million in restitution, and serve a year and a day in federal prison.


The scheme was uncovered by federal regulators, and investigated by the FBI, IRS, Federal Deposit Insurance Corp. and Office of the Special Inspector General for the Troubled Asset Relief Program (TARP).


The bank obtained $15 million in TARP money to help recoup the losses in 2009.   However, it was still unable to repay the loan, and made a deal with the U.S. Treasury in 2013 to trade its debt for Broadway stock.  The agency is Broadway’s largest shareholder.


Although partially owned by Koreatown’s Bank of Hope, Broadway is still considered to be black-owned, and has total assets of $408 million.  About $43 million in church loans remain on its books.  The bank has not made a church loan since 2010, although federal regulators have lifted the order to cease the practice.


Broadway Federal now focuses primarily on making loans for apartment-building acquisitions by small investors.




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