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Despite His Shady Record, USDA Backed Borrower

By Gilbert M. Gaul
Washington Post Staff Writer
Tuesday, December 4, 2007 9:11 PM

Erwin David Rabhan always looked good on paper. His résumé boasted that he ran dozens of businesses, owned a 2,330-acre cattle farm, and was an artist, an author and a major in the Special Forces. In 1970, he ferried Jimmy Carter around in a private plane during Carter's campaign for governor of Georgia.

Tall and well-built, with a shaved head, Rabhan cut a commanding and colorful figure, often showing up for meetings in a jumpsuit and sneakers.

Officials at the U.S. Department of Agriculture were impressed enough to back nearly $15 million in private loans for Rabhan to build a catfish-processing plant in Georgia and purchase a catfish farm in Mississippi.

But Rabhan was not all that he seemed. Woven into his rollicking career path were business failures, sharp questions from federal regulators and mysterious overseas dealings.

Today, the Georgia factory is abandoned. The catfish farm in Mississippi has no catfish. In August, Rabhan was released from federal prison after serving 4 1/2 years for conspiracy to commit bank fraud involving the Georgia loan. He is now awaiting trial on separate fraud charges on the Mississippi loan. Taxpayers stand to lose millions.

Rabhan's shaky business deals offer a rare window into the USDA's Business and Industry Guaranteed Loan Program. Since 1974, the USDA has backed $13.8 billion in private loans in the hope of creating businesses and jobs in rural America. But like Rabhan's, thousands of the loans have gone bad, leading to nearly $1.5 billion in taxpayer losses, a Post analysis shows.

In most cases, the bad loans are secret. USDA officials refuse to disclose the names of the businesses or the lenders, or how much the government has lost guaranteeing specific loans. The Rabhan loans are an exception because the criminal cases generated extensive court records. Those documents and details from administrative hearings show how the USDA awards millions to private businesses annually with little oversight of its spending.

As far back as 1995, a USDA employee in Georgia questioned Rabhan's business claims, internal memos show. But shortly afterward, the agency stopped doing its own due diligence and began relying exclusively on banks to check out applicants. USDA officials did not pass along their concerns about Rabhan to the lenders, allowing him to obtain millions in federally backed loans in 1999 and 2000.

"I don't know how this all got missed," said Lamar C. Walter, a former assistant U.S. attorney who prosecuted Rabhan in Georgia. "But someone at USDA wasn't paying attention."

Rabhan, 81, is now broke and living with his daughter in Massachusetts. He pleaded guilty in the Georgia case but maintains he is innocent of the Mississippi charges. "We have been accused of fraud in Mississippi," said Rabhan's court-appointed attorney, Ken Coghlan. "We absolutely deny that."

Erwin David Rabhan grew up in southern Georgia and attended schools in Savannah. He enlisted in the Army after high school and served in World War II. After the war, he enrolled at the University of Georgia, graduating with a degree in poultry science. According to his r¿sum¿, he went into construction and later operated a discount store in Florida.

In the 1960s, Rabhan shifted his attention to nursing homes, operating facilities in four states, including a 660-bed home in St. Louis that he called "the largest proprietary nursing home in the world." Later, he started a fish-protein company on the West Coast, operated day-care centers in Georgia and bought a small movie studio.

In 1970, Rabhan befriended a rising politician in Georgia named Jimmy Carter. He volunteered his private plane to fly Carter around the state during his campaign for governor. "We became fast friends and I gave considerable support to Carter during his later successful presidential campaign," Rabhan wrote in his r¿sum¿.

A 1976 front-page New York Times article questioned Carter's relationship with Rabhan, pointing out that Rabhan's business ventures were the subject of grand jury investigations in two states and a separate federal probe into whether he had made false statements to obtain mortgages.

A Carter aide played down the relationship but confirmed that Rabhan had been a house guest at the governor's mansion for several weeks. The former president declined to be interviewed by The Washington Post but issued a statement saying he and Rabhan had been friends for more than three decades and calling Rabhan "an accomplished artist, sculptor and gourmet cook."

A number of Rabhan's enterprises fell on hard times. The fish-protein company went out of business, a Missouri bank foreclosed on his nursing homes and day-care centers, and a venture in Iran resulted in a falling-out with his major backer.

In 1978, Rabhan was indicted in Missouri on securities fraud charges for allegedly selling bonds for nursing homes that were never built, according to court records and newspaper accounts. Before the case went to trial, Rabhan was arrested and imprisoned in Iran, where he had traveled on a business deal. He says he was falsely accused of being a spy because of his ties to Carter.

After he was released in 1990, federal prosecutors declined to pursue the old nursing home charges, saying that too much time had passed and that Rabhan had already been in prison for more than a decade. Carter subsequently wrote letters of introduction that Rabhan used in his business deals.

Rabhan began to work on business projects in Africa and the United States. In 1995, he approached a small USDA office in Baxley, Ga., seeking a federal guarantee on a $5 million private loan to build an infant-formula plant near his home. Rabhan projected that the plant would generate nearly $59 million in annual sales and "create over 100 quality jobs," according to his 342-page application.

At the time, the USDA conducted its own due diligence on borrowers, and an employee in the Baxley field office began to examine Rabhan's paperwork. In an Oct. 25, 1995, memo, Verlene Moody wrote that she could not locate a Chicago equipment manufacturer that Rabhan claimed he would use to supply his proposed plant. The telephone number was disconnected. It appeared, Moody concluded, that the equipment company "does not exist."

In an interview with The Post, Rabhan insisted that he had an equipment supplier in Chicago. "I never heard of Verlene Moody," he said.

In any case, he didn't get the loan guarantee.

Two years later, Rabhan approached another USDA office, in Statesboro, Ga. This time, he proposed to build a catfish-processing factory in Wrightsville, about 30 miles from his family's farm. Rabhan had lined up Enterprise National Bank of West Palm Beach, Fla., to lend him $5 million. Now he and the bank were asking the USDA to guarantee the loan.

In the application, which was approved in 1999, Rabhan reported that he had a net worth of $10.4 million and pledged to contribute $2.95 million for machinery. Although USDA employees still reviewed the paperwork for the loan, under new rules, they did little checking of Rabhan's claims.

"We were hoping the bank had the expertise to make all of these investigative inquiries," said Howard Franklin, a former director of USDA business programs in Georgia. "I'm just not sure we weren't led down the garden path by them, too."

Attorneys for Enterprise National Bank said it followed all the standard underwriting and loan-review procedures. The bank ran credit checks, inspected the proposed plant site, and reviewed letters of introduction from Carter and others. Their due diligence did not give an indication of an "increased risk," said John Gross, an Atlanta attorney for the bank.

The bank's review did not uncover that Rabhan had been indicted in Missouri years before or that a number of his businesses had failed, Gross said. The bank blames the government for withholding critical information while allowing Rabhan's loan to proceed.

"It appears there was an active effort by certain officials within the agency to withhold information from the bank," Gross told The Post by e-mail. Specifically, he said USDA officials did not turn over the 1995 memos from Moody that were critical of Rabhan. Had the bank been aware of her concerns, it never would have made Rabhan's loan, Gross said.

"Mr. Rabhan clearly was an accomplished con man," Enterprise National Bank's attorneys wrote in a lengthy document defending its actions, part of an administrative record. USDA lawyers counter that Enterprise was negligent in processing the loan and should have known about Rabhan's past.

Loan Deals Unravel

Even as he was setting up in Georgia, Rabhan was planning an even more ambitious venture. In 1999, he traveled to northern Mississippi to inspect a 1,560-acre catfish farm near Inverness. The following year he agreed to buy Straight Creek Farms for $9.5 million from Jimmy Winemiller, an Arkansas banker and farmer.

Rabhan said the plan was to ship the catfish to his processing plant in Georgia. In 2000, he got Gulf Coast Bank & Trust in New Orleans to lend him the $9.5 million to buy the farm, backed by a 90 percent guarantee from the USDA. Rabhan estimated that he would create 11 new jobs and save 26 others, at a cost of nearly $257,000 per job, records show. The average salary of those jobs: $15,932.

Because of the size of the loan, it was reviewed by both state and national officials at the USDA. William Hagy, the current deputy administrator for business programs and a member of the national review committee, said it appeared that Rabhan had the ability to cover the loan . The committee's written assessment shows that members were impressed by Rabhan's r¿sum¿ and financial claims but did no checking of their own.

As in 1995, a low-level USDA employee tried to warn her superiors about Rabhan, without success. Jean Marie Deloach, based in Statesboro, alerted officials that Rabhan's Georgia catfish plant was months behind schedule and had no equipment. Deloach also passed along information about "Rabhan's failed business ventures" in Africa, records show.

Hagy acknowledged that "there were things brought to our attention." But the USDA decided to approve the loan guarantee. "The decision was based on the current credit history of Mr. Rabhan and the collateral of his loan to proceed," Hagy said.

Rabhan's company made only one payment on the $9.5 million loan and was declared in default in March 2001. The bank foreclosed on the catfish farm and demanded that the USDA honor its guarantee. In June 2001, the agency cut the bank a check for $8.96 million.

Back in Georgia, Rabhan's $5 million loan for the catfish factory was also declared in default. The U.S. attorney's office in Savannah launched an investigation, discovering that Rabhan never contributed the $2.95 million he had pledged to buy equipment. "There was no money. There was no equipment," said Walter, the retired assistant U.S. attorney.

Lee N. Jones, a Birmingham, Ala., contractor whom Rabhan hired to buy the equipment, said Rabhan kept telling him he had the $2.95 million. "And of course the money never came."

Rabhan said he "ran out of money" in Georgia. "About half of it went for the plant," he said. "The rest of it was squandered. I'm not going into that."

In 2002, Rabhan and Jones were indicted on charges of conspiracy to commit bank fraud. Both men pleaded guilty; Rabhan got five years in prison and Jones three. "I just got in deep with Rabhan," Jones said. "I knew at least half of what was going on and should have blown the whistle, and I didn't."

Rabhan said he agreed to plead guilty "to get it over with." He added: "If you look at all the business I was doing, one man couldn't possibly have done all the things they charged I did."

As the Georgia case was going forward, the USDA's office of inspector general opened an investigation of the Mississippi deal. The probe led to Wilbur T. Peer, a top USDA official in charge of business programs. Peer was a small Arkansas farmer active in Democratic politics who came to the USDA during the Clinton administration. He had been part of the national committee that reviewed Rabhan's Mississippi loan, and he later signed the document approving the guarantee.

Investigators came to believe that Peer accepted a $50,000 bribe from Winemiller to approve the guarantee, thereby ensuring that Rabhan would get his loan to buy the catfish farm. In 2006, the government indicted Peer, Winemiller, Rabhan and several others on charges of conspiracy to commit bank fraud. Peer, now in private business, denies the charges. His attorney did not return phone calls or respond to an e-mail message. Winemiller did not return several telephone calls, but he also denies the charges.

Rabhan says he was conned by Winemiller and others in Mississippi. The day after he signed the loan documents in 2000, he said, he traveled to the farm and discovered that the catfish ponds were empty. In 2001, he sued Winemiller for fraud, but the case is on hold. Winemiller denied the allegations in legal filings.

Several of the five charges against Rabhan were dismissed, though that decision is being appealed by the Justice Department. But he still faces the accusation that he fraudulently conspired with Winemiller and the others to get the loan guarantee. A trial is scheduled for March.

Rabhan remains convinced that his catfish plan could have worked.

"We would have had a good deal," he said, "if there were only fish in the water."

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