The Pittsburgh-based bank failed to verify the information in unaudited financial statements filed in connection with the loan applications, the U.S. Justice Department said Friday. Of the 64 loans issued, 36 defaulted, requiring the SBA to pay 75 percent of the outstanding balances. The loans covered the purchase of 98 Uni-Marts, the Justice Department said.
"Banks are required to exercise prudent lending standards when making loans under the (SBA's) Preferred Lender Program," the department said in a statement.
In early 2010, the Business Journal profiled Gurjit and Kanwaljit Mann, who went bankrupt trying to run the Uni-Mart at 4361 N. Front St. in Susquehanna Township. The Manns bought the store with a $1.3 million SBA loan from PNC Bank, on which they defaulted, according to court records.
Uni-Marts, based in State College, filed for bankruptcy in May 2008. The year before, the owners of 172 of its stores brought a class-action suit against the company, alleging it had systematically cheated them.
The company misrepresented store operating costs and profitability to entice them into becoming franchisees, helped arrange for SBA loans, then overcharged them on supplies, they said. Uni-Marts settled the suit for $2 million.
"Millions and millions of dollars flowed back to PNC and Uni-Mart, and these people got nothing," attorney Deborah Hughes told the Business Journal at the time. "Nothing about these loans smelled right."
PNC has no comment on its settlement with the Justice Department, spokesman Fred Solomon said. The department said the settlement addresses allegations only; "there has been no determination of liability."
Bob May, an attorney who represented several local franchisees through bankruptcy, called the settlement "a good outcome."
His clients have moved on since bankruptcy and "are doing fine," he said.