DOJ has filed a civil complaint against father-son duo Pankaj Sheth and Rajan Sheth.
An Indian-origin family running a hotel business in the US secured more than $100 million in loans over nearly three decades despite a history of loan defaults, bankruptcies and court judgments, according to a civil complaint filed by the US Department of Justice. The allegations targeted hotel operators Pankaj Sheth and Rajan Sheth, five other relatives, 21 businesses and eight associates. The 332-page complaint alleged that the family used a network of companies and so-called “straw owners” to conceal their control of hotels and obtain fresh financing even after earlier loans had gone into default. According to the DOJ, the Sheths and their associates repeatedly shifted ownership or control of distressed hotel properties among different entities. Prosecutors alleged that the arrangement enabled companies linked to the family to apply for new loans without fully disclosing their relationships with earlier borrowers. The complaint alleged that some of the new financing was then used to repay older debts, allowing the businesses to continue operating and borrow additional money despite their previous financial problems.
Who are the Sheths?
The Sheths, who share a home in Morganville, presented themselves as a legitimate, family-owned hotel operator, a report by NJ.com said. But the business existed to keep loans flowing against properties that were falling apart — hotels that were “chronically understaffed, underfunded, and many were in gross disrepair,” drawing “public nuisance and accessibility complaints,” code violations and liens, according to the complaint. “DO NOT stay here,” one user wrote on Yelp reviewing one of their hotels. “Worst hotel I have ever been to. I used a whole can of Lysol to decontaminate…” Rajan Sheth has publicly denied the allegations, saying the business is legitimate. “My clients deny they are liable to the United States for the claims that have been filed and look forward to being vindicated at trial,” Richard Scheff, an attorney for the family, said in a statement to NJ.com.
What are the allegations
The Sheths would borrow against a hotel, use the money to pay off an older debt, then borrow again to cover the new one. The Sheths hid their financial history and every time they needed a loan, they’d put a hotel in the name of a “straw owner” — someone whose name is on the paperwork but who has no real control — according to the complaint. Then that “straw owner” would apply for the loan. The applications often “falsified the straw owners’ management experience and personal financial statements,” concealed the company’s ties to the rest of the family’s troubled businesses and sometimes even forged signatures, prosecutors allege. The family “haphazardly manipulated membership interests according to their needs at any given time, leaving a confusing, and often contradictory, trail of corporate organizational and tax records in their wake,” according to the complaint. Once a loan came through, the Sheths diverted the money to pay off an older debt to a different lender that was threatening foreclosure. Then that new loan would go bad too, and the family would go looking for the next one. If they couldn’t get a new loan, the family had one last move -- filing for bankruptcy at the last moment. “The Sheths repeated this cycle many times,” prosecutors alleged.
Sheths sold a New Jersey hotel to themselves
A hotel in Browns Mills was on sale. It was later found that the buyer was a company that belonged to the Sheths only. The family had sold the hotel to itself — and gotten a federal judge to erase most of a taxpayer-backed debt. The lawsuit is civil, not criminal, so no one faces prison time, the report said. But the financial stakes are high: across 133 counts under the False Claims Act and a federal banking-fraud law, prosecutors are asking a judge to order the Sheths to repay what the government lost, triple those damages, and pay a penalty of up to $11,000 for each false claim. They also want the family to return every dollar it pocketed.
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