Stunning SBA 7(a) Fraud May Be Largest In Agency's History. Why Isn't Anyone Talking About It?
$270+ Million Alleged Ponzi Linked to SBA & Fed Main Street Loans, Celtic, UniBank; May Have Led to Ouster of First Fed CEO, Chief Banking Officer
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Stunning SBA 7(a) Fraud May Be Largest In Agency's History. Why Isn't Anyone Talking About It?
Key takeaways:
Lenders, including Celtic, Newtek, and UniBank, extended loans via the Small Business Administration’s flagship 7(a) program to “investors” in a water purification company, WaterStation, that collapsed into bankruptcy and is alleged to have been a Ponzi scheme.
The alleged fraud involves as many as 142 SBA-backed loans totaling as much as $115.6 million — which would make this the single largest fraud in the SBA 7(a) program’s history.
Victims allege that the lenders involved knew or should have known the scheme was fraudulent and that some of the lenders involved actively conspired with WaterStation to perpetrate the alleged fraud.
Some of the lenders involved are aggressively pursuing “investors” who took the loans, even going so far as to threaten to or to actually initiate foreclosure proceedings against their primary residences.
UniBank, which originated 79 SBA 7(a) loans tied to the scheme, has been linked to two other alleged Ponzi schemes, including direct personal involvement from the bank’s CEO, chief credit officer, and director of government guaranteed lending.
When a Ponzi scheme unravels, inevitably there will be a pointing of fingers.
While the people and entities who operated the Ponzi are generally in the greatest legal and financial jeopardy, the collateral damage and second-order impacts are often extensive.
By definition, Ponzi schemes turn on earlier “investors” being paid with funds contributed by later “investors,” rather than with profits generated from the enterprise.
When the music stops, particularly if the Ponzi operator itself is insolvent, which is often the case, such situations often collapse into legal wrangling, including among earlier vs. later “investors,” as victims seek to recoup what they can from where they can.
In this case, WaterStation appears to have taken in at least $270 million in funds.
The exact numbers vary somewhat in the plethora of court filings across numerous civil lawsuits and related federal and state regulatory enforcement actions, but approximately include:
$132 million from individual or groups of “investors.” These funds include SBA 7(a) loans and commercial loans machine owners took and generally provided an unlimited personal guarantee for.
$28.7 million that WaterStation itself borrowed in commercial loans from First Fed as part of the Federal Reserve’s Main Street Lending Program, a $2.8 million SBA 7(a) loan from UniBank, and an additional $7.04 million commercial loan from First Fed to a real-estate entity affiliated with the scheme.
$100 million from a bond offering WaterStation issued.
SBA 7(a) Loans Have Strict Qualification and Underwriting Criteria
The Small Business Administration’s mission is to “help[] Americans start, grow, and build resilient businesses,” with a key focus on access to capital.
The SBA operates a number of programs designed to help small businesses access credit, including microloans of less than $50,000, its 504 program that offers long-term fixed-rate financing for major assets, and its flagship 7(a) program, which provides loan guaranties to lenders.
SMBs can tap loans backed by a 7(a) guaranty for a variety of needs, including working capital, refinancing existing debt, and the purchase and installation of machinery and equipment.
The SBA spearheaded a number of COVID-era relief programs aimed at helping small businesses, like the Paycheck Protection Program and a significant expansion of its Economic Injury Disaster Loan program.
Given the priority was to get funds into the hands of small business owners as quickly as possible and that lenders bore little if any of the credit risk of the COVID-era PPP and EIDL programs, it’s not surprising both saw high levels of waste, fraud, and abuse.
The SBA’s Office of the Inspector General estimates that of the approximately $1.2 trillion in PPP and EIDL loans issued, more than $200 billion were potentially fraudulent.
The alleged SBA loan fraud tied to WaterStation’s apparent Ponzi scheme, at just $115.6 million, pales in comparison to the scope of problems in the PPP and EIDL programs.
But the largest confirmed fraud in the 7(a) program’s history, back in mid-2000s, involved around 76 loans totaling about $76 million, according to an Office of the Inspector General’s report at the time.
Unlike the Paycheck Protection Program, the SBA’s 7(a) program isn’t an initiative that was hastily launched or expanded during COVID. The program, named after part 7(a) of 1953’s Small Business Act, has been around since that piece of legislation created the agency some 72 years ago.
Aspects of the 7(a) program have changed over time, but it has clearly defined qualification requirements for borrowers and origination policies and procedures for lenders making the loans, which are codified in the SBA’s Standard Operating Procedure 50 10 (SOP 50 10).
To qualify for an SBA 7(a) loan, borrowers must be creditworthy, must demonstrate an ability to repay the loan, and must not be able to obtain the desired credit on reasonable terms from non-government-backed sources.
Per SOP 50 10, as part of the lender’s underwriting, the lender should understand and document:
the nature of the business;
the length of time in business under current management;
depth of management experience in the industry or related industry;
description of the business’s management team including principal’s involvement in the daily onsite management of the business or how the daily operations will be managed if the principals are not there on a daily basis;
if the daily operations will be handled under a management agreement, the lender must obtain a copy of the management agreement (unless the management agreement is part of the franchise disclosure documents for a brand listed on the Franchise Directory), review it to determine if it results in an ineligible passive business, and retain in their loan file.
The SBA itself makes the credit decision — unless a lender is part of its “Preferred Lender Program,” in which the SBA delegates authority to underwrite, process, close, and service 7(a) loans to the lender.
Lenders are required to fully secure the 7(a)-guaranteed loans when possible by taking as collateral relevant assets, such as by placing liens on existing or newly purchased assets and equipment. In the WaterStation case, this would be the machines the investors were purportedly purchasing with the proceeds of their loans.
Owners of 20% or more of businesses that take 7(a) loans must provide an unlimited personal guaranty, including their personal residential property, if applicable (both of these requirements become quite important later on in the story.)
The Jeffries of It All
Though the SBA loan piece of WaterStation’s alleged Ponzi has received virtually no coverage, other storylines of the disaster have, owing, in large part, to the embarrassing revelation that a division of investment banking and capital markets giant Jeffries ended up holding the bag on $100 million in bonds the company had issued.
Drawing even more attention are the allegations that an employee of that Jeffries business unit, 3|5|2 Capital, allegedly directed the fund to invest in WaterStation’s bonds — purportedly collateralized by the water purification machines the company was suppose to use the bond proceeds to buy — in order to facilitate his own exit from the Ponzi scheme.
Jeffries has filed numerous civil cases, including against First Fed and the now-former employee it alleges directed the investments, Jordan Chirico.
The lawsuits from a high-profile New York investment firm helped drive headlines in Bloomberg and the Wall Street Journal and local publications in Washington state, where two of the banks involved, First Fed and UniBank, are based.
Banking trade publications covered when UniBank was hit with a related enforcement action and when two senior executives, the CEO and the chief banking officer, abruptly resigned from First Fed last month.
The story even got the Matt Levine treatment, with the cheeky headline, “Jefferies Funded Some Fake Water.”
Chirico, the former Jeffries employee, has pushed back on Jeffries’ allegations against him, arguing that the fund failed to demonstrate he knew of any wrongdoing during the fund’s initial purchase of the WaterStation bond and that others at the fund signed off on all of the investments.
But to date, the coverage that has mentioned the role of the SBA and other commercial loans in the alleged Ponzi scheme has done so only in passing.
No coverage to date has fully documented the allegations that some of the banks involved, through their employees, functionally colluded with WaterStation and its management to defraud machine owners and the SBA, nor the aggregate size of the alleged SBA 7(a) fraud and that it appears to be the largest fraud in the 7(a) program history.
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It wouldn't be possible to do what I do without the support of loyal readers like you.How the COVID-Era CARES Act Turbocharged WaterStation’s SBA Loan Scheme
As is often the case with Ponzi schemes, WaterStation appears to have begun as a legitimate business.
According to a 2022 profile of the company in Vending Times, WaterStation founder Ryan Wear launched his first vending machine business in 1994, while he was still in high school. Over time, Wear launched related businesses, including in product distribution, vending equipment repair, and managing vending machines for third parties.
After selling a chunk of his budding vending empire to a division of Compass Group North America in 2011, Wear began developing what would ultimately become WaterStation by purchasing a water vending machine manufacturing company. Per that 2022 profile, Wear and WaterStation began accelerating growth of the business in 2015 through acquisitions.
According to a May 2025 Washington Department of Financial Institutions statement of charges and tentative finding of fact that found WaterStation and its employees illegally sold unregistered securities, beginning around 2016, the company started marketing WaterStation as a “passive income” opportunity in which investors would purchase water vending machines, and the company would place, manage, and service the machines on their behalf.
WaterStation promoted the opportunity as a “100% passive investment option,” telling prospective investors they could earn between 12%-20% returns. At times, WaterStation even promised it would buy back the machines, which sold for about $8,500 a piece, at 105% of cost if the investors weren’t satisfied.
Around 2017, Wear and WaterStation started pursuing a new strategy for growth: franchising.
WaterStation brought on a number of executives to help pursue this strategy, including former banker Kevin Nooney, who was involved in investor relations and business development; Dick Humphrey, who served as an intermediary to the franchise broker community from 2017-2020; Kristi Humphrey, who served as VP of investor development; and Nick Streeter, who created marketing materials for the company’s franchise/investment opportunities, according to the Washington DFI document.
While, according to the Washington DFI, there was little if any material difference between the purported “franchise” structure compared to the earlier approaches, it did unlock a key source of financing for potential “franchisees” — government-backed SBA loans.
WaterStation applied for SBA eligibility and was issued an SBA Franchise Identifier Code on October 1, 2017, making its franchisees eligible for SBA financing.
But only the “active owner model” was eligible for SBA-backed loans, not the “passive” model WaterStation had emphasized in its marketing material. The SBA franchise directory further specified that the “management agreement,” in which franchisees contracted with WaterStation to manage the machines on their behalves, “may not be used in connection with any SBA-guaranteed loan to a franchisee.”
Despite these clear restrictions, WaterStation helped facilitate franchisees obtaining SBA 7(a) loans.
According to lawsuits filed against WaterStation and some of the lenders involved, in some cases, WaterStation appears to have worked directly with lenders’ loan officers to coach borrowers on how to navigate the process, even going so far as to prepare required loan application paperwork, like business plans and financial statements, on their behalves.
Per the Washington DFI’s statement of charges, WaterStation and its executives appear to have been fully aware of what they were doing: “In an email to an investor, K. Humphrey explained the basics of the scheme: ‘The lender finances the business under a franchise ‘active’ model. In actuality, the borrower (you) are signing the management over to WST to manage in its entirety. This once again defines a passive model for the machine owners.’”
The first WaterStation franchisee to be approved for a standard SBA 7(a) loan was CHUG IT, which had its loan approved on December 13th, 2017, according to publicly accessible SBA records.
During 2018 and 2019, about one or two WaterStation franchisees per month were approved for an SBA-backed loan, for a total of 41 such loans by the time the severity of the COVID pandemic was coming into focus in March 2020.
It appears to have been the pandemic — specifically, the CARES Act, signed by President Trump on March 27, 2020 — that really supercharged WaterStation’s SBA scheme.
A little-noticed provision of the CARES Act provided a number of benefits to existing and new SBA borrowers: SBA guaranty fees of 2.25% would be waived in 2020 and 2021, and the SBA would cover six months of principal and interest payments, up to a $9,000 per month cap.
But these benefits were only available to SBA-backed loans that were disbursed by September 27th, 2020.
Per SBA records, while WaterStation was averaging about 1-2 franchisee loans per month prior to COVID, in 2020, its franchisees had 44 SBA 7(a) loans approved from April 20th to September 24th, or an average of about nine per month during this period, with 33 being approved in September as the deadline approached.
From December 2017 until the last SBA loan was approved in October 2022, 142 SBA 7(a) loans were approved, totaling $115.6 million.
All of the lenders making WaterStation-related loans were part of the SBA’s Preferred Lender Program (PLP), meaning the SBA delegates the underwriting, closing, and servicing to lender. Without PLP status, lenders must submit loan applications to the SBA for approval, which, presumably, would be more likely than the lenders in this case to detect the alleged fraud.
Tiny $440 million asset UniBank, located in Lynnwood, Washington, near WaterStation’s operations, originated 43% of the loans on a dollar basis.
Celtic Bank, with about 20% of the loan volume, and Newtek, with about 18%, were also significant drivers of SBA loans affiliated with WaterStation.
By August 2021, WaterStation received information that the way it structured its offering could constitute a security, according to the Washington DFI document. By mid-2022, WaterStation shifted to selling its investment as a private placement and ceased offering the “franchise” opportunity.
No longer marketing its investment as a “franchise” meant no more SBA loans.
Apparently unable to attract enough retail investors for its private placement offering, WaterStation raised nearly $100 million in the ill-fated Jeffries bond deal in the spring of 2022.
The alleged Ponzi scheme began to come apart when the collateral manager for the bond deal, REVL, discovered around August 2023 that at least 3,000 machines that were suppose to be purchased with the bond proceeds and serve as collateral for the bond didn’t actually exist.
Estimates from plaintiffs in the various lawsuits against WaterStation, its employees, and the banks suggest that around 90% of the machines the company sold never actually existed.
By April 2024, WaterStation was no longer able to maintain the balance required in an interest reserve account, and that May, the trustee for the bond, U.S. Bank, issued a notice of default to WaterStation.
With the scope of the alleged fraud finally becoming clear, 3|5|2, the division of Jeffries, filed suit in July 2024 against its former employee, Jordan Chirico, various WaterStation legal entities, WaterStation founder Ryan Wear, and the company’s CFO, Tyler Sadek.
3|5|2’s complaint includes the bombshell allegation that, in a January 2024 call recorded by Chirico about the devolving situation, WaterStation CFO Sadek — who himself used an SBA-backed loan to invest in a franchise — admitted that WaterStation was “the largest franchise fraud in the history of the United States,” and told company founder Wear that he “was going to jail.”
“Investors” Allege Banks Knew or Should Have Known WaterStation Scheme was a Fraud
As WaterStation’s alleged Ponzi scheme began to unravel, the company had difficulty making the payments it promised to machine owners, some of whom had been told returns of as much as 28% were “guaranteed.”
Despite receiving inconsistent payments or none at all, WaterStation machine owners were still on the hook for the loans they had taken. In addition to the SBA loans, approximately 20 machine owners took standard commercial loans from Washington-based First Fed, according to sources familiar with the situation.
In an attempt to stay current on their loan payments, a number of machine owners tapped savings, drained 401(k)s, or sold other assets in order to avoid defaulting.
As more details about the situation and some of the banks’ alleged involvement with it began to come to light, groups of machine owners who took loans from First Fed and UniBank filed a number of lawsuits beginning in mid-2024.
In those suits, the machine owners allege that the banks had various conflicts of interest and knew or should have known that WaterStation’s business was not legitimate.
UniBank’s Ponzi Scheme Hat Trick
UniBank originated nearly $50 million in SBA loans to WaterStation machine owners and to WaterStation itself across 79 loans.
Larry Houk, a former colleague of WaterStation’s investment relations staffer Kevin Nooney, helped broker many of the SBA-backed loans that UniBank originated to machine owners. Houk, according to a declaration Nooney made in one of the many lawsuits related to the matter, met Nooney in 1991 and later, in 2005, hired him as a senior lending officer at another Washington-area bank.
Not disclosed to machine owners who worked with Houk to apply for loans was that he received a commission from the bank for brokering the transactions — and that his own son worked for WaterStation, both of which pose conflicts of interest, the machine owners argue.
Also unbeknownst to the machine owners was that UniBank’s then-Director of Government Guaranteed Lending, Wan Kim, and then-Chief Credit Officer, Sunny Kim, “coached” WaterStation personnel on how to pitch potential “investors” and how to structure the transactions, some of the machine owners claim in a lawsuit filed in Superior Court in Snohomish County, Washington, in November 2024.
According to that suit, the bank prepared machine owners’ SBA loan applications for them, including using stock business plans, and instructed them merely to “fill in the blanks” and sign the documents.
It seems nearly impossible that UniBank and its staff were unaware that WaterStation’s “franchise” business shouldn’t have been eligible for the SBA 7(a) program — particularly as the director of the government lending program for the bank, Wan Kim, himself secured an SBA 7(a) loan from UniBank for his own WaterStation passive model franchise, according to the Washington DFI document referenced earlier.
Per that document, (emphasis added) “Kim sometimes went to great lengths to perpetuate Water Station’s fraud. On one occasion, he flew to Indianapolis, Indiana to meet with an investor at the food court in the airport so this investor could affix a wet signature to loan documents. Kim informed the same investor that it was acceptable to sign the Service Agreement after the bank approved the loan, even though this was an obvious violation of SBA guidelines.”
The machine owners’ suit against UniBank also points out that UniBank had access to lists of the specific WaterStation machines, including serial numbers, that were suppose to be collateral for the SBA loans it had issued.
UniBank knew or should have known that WaterStation was “selling” the same machine more than once, as duplicate machine serial numbers were listed in multiple machine owners’ loan documents.
Even if UniBank personnel didn’t detect the duplicate machines in the course of underwriting the owners’ loans, UniBank should have noticed if and when it searched and filed UCC paperwork to perfect a security interest in the collateral purportedly banking the loans — the WaterStation machines.
Shockingly, though perhaps not surprisingly, WaterStation isn’t the only alleged Ponzi that UniBank has been linked to.
In an unrelated case in Texas that UniBank is a party to, the receiver for Clean Energy Technology Association, Inc. (CETA) describes the business, which purported to sell coal distillation and carbon capture devices, as a Ponzi scheme.
The receiver’s report in that case notes that “Unibank employee Wan Kim (“Kim”), and others, approved and caused Unibank to fund investments in various fraudulent schemes as if they were small business loans,” even though such loans cannot be used to make investments.
The same report documents UniBank’s involvement making loans to WaterStation “franchisees,” saying (emphasis added):
Water Station Management LLC and its affiliates (“WaterStation”) offered investments similar to CETA, in that WaterStation created a “franchise” investment that mimicked the supposed performance of water filtration machines. It was described as a “passive owner” model. That meant the investor was nominally an owner of one or more water filtration machines, but, in fact, all of the operations were handled by WaterStation. The returns paid to investors were supposedly tied to the revenues of the filtration machines, but it was a Ponzi scheme.
According to the receiver’s report, the same UniBank loan officer, Wan Kim, also caused the bank “to fund investments in a similarly structured ATM-based Ponzi scheme,” though ATM-related business do not typically qualify for SBA loans.
First Fed Used Bond Deal Proceeds to Pay Itself, 3|5|2 Lawsuit Says
Houk, the loan broker, also connected WaterStation and aspiring machine owners to First Fed. According to WaterStation investor relations manager Nooney’s declaration, Houk had a relationship with First Fed’s vice president of commercial lending, Kasi O’Leary.
First Fed made three loans to WaterStation entities totaling $28 million as part of the Federal Reserve’s Main Street Lending Program. A requirement of the Main Street Lending Program is that borrowers provide quarterly audited financials to their lenders.
When they were due in 2022, WaterStation was unable to provide the required audited financials — which should’ve been a red flag to First Fed, machine owners argue in a suit against the bank.
By early 2023, First Fed held WaterStation in default, but subsequently entered into a new series of credit agreements and workout terms, including WaterStation granting First Fed deeds of trust in 20 or more properties that machine owners allege were bought with funds intended for the purchase of water machines.
Houk, the loan broker, also helped arrange typical commercial loans (non-SBA) for machine owners to finance their purported purchases from WaterStation.
According to sources familiar with the case, approximately 20 machine owners took such loans from First Fed, where, the sources said, the loan application and underwriting process was perfunctory, limited to “an email with minimum info,” with loan applications being approved in about two weeks.
Machine owners suing First Fed allege that, because it had previously reviewed WaterStation’s financials, the bank had advanced notice of the company’s fraudulent nature, but extended loans to them anyway. Plaintiffs in one of the suits against First Fed argue that “First Fed knew or should have known that Mr. Wear was operating a Ponzi scheme through WaterStation.”
First Fed extended loans to the machine owners, they argue, “to prop up WaterStation with additional third-party investments so that First Fed could be pushed up into the higher rungs of the pyramid where there was a possibility it could be repaid. In doing so, First Fed knowingly defrauded” machine owners who took loans from the bank, they argue.
Like the UniBank SBA loans, the water machines that were intended to be purchased with the First Fed loan proceeds were intended to be collateral.
As part of the loan underwriting and disbursement process, First Fed had access to purchase and sale records and knew or should have known that WaterStation was selling the same machine more than once, machine owners argue in a suit against the bank.
Machine owners who took loans from First Fed aren’t the only ones suing the bank.
3|5|2, the division of Jeffries that is out about $100 million on its bond deal with WaterStation, is also suing the bank, alleging that WaterStation founder Ryan Wear “was only able to accomplish the [bond] fraud by entering a conspiracy with First Fed, as well… Jordan Chirico (a former 352 Fund portfolio manager),” the other WaterStation-related entities, and other companies Wear controlled.
The 3|5|2 lawsuit alleges that by August 2022, First Fed began an investigation in WaterStation and its finances, which confirmed that the purported machines were not generating enough revenue to cover machine owners’ loan payments to First Fed.
First Fed also discovered, the lawsuit says, that the machines that were supposed to have been purchased with First Fed’s loans to “investors” had been pledged as collateral in the 3|5|2 bond deal, as serial numbers listed in the loan documents also appeared in the collateral schedule of the bond indenture.
The suit further alleges that WaterStation submitted fake purchase orders and invoices to tap the proceeds of the bond issuance, held by U.S. Bank as trustee, and used those proceeds not to buy water machines, but instead to pay “franchisees” promised returns.
First Fed was aware of the requirements of the bond deal, but facilitated WaterStation diverting these funds because it enabled WaterStation to continue paying on the various loans it owed to First Fed and enabled machine owners to keep up with their loans payments to the bank, 3|5|2’s suit alleges.
Celtic, NewTek, and the Other SBA Lenders
UniBank, which originated more than four in ten of the SBA 7(a) loans that went to WaterStation “investors,” and First Fed, which extended traditional commercial (not SBA) loans to WaterStation itself and “investors,” have attracted the most attention to date. But the other 11 firms that processed SBA 7(a) loans may have legal and regulatory exposure here as well.
Apart from UniBank, Celtic approved $23 million, non-bank lender NewTek approved $20.6 million, Meridian Bank approved $8.4 million, with the other lenders approving $4 million or less in SBA 7(a) loans to WaterStation machine owners.
There haven’t been any lawsuits or public reporting about these lenders as of yet. But they seem likely to be exposed to similar types of claims as UniBank and First Fed, namely that the “franchises” they were extending loans for were passive, and thus ineligible for SBA-backed loans, and failing to verify the existence of and place liens on collateral — the water machines — which likely would have revealed the alleged fraud.
As was the case with UniBank and its executive in charge of SBA lending, Wan Kim, the Celtic executive who oversaw SBA lending at the bank, Scott Foster, also appears to have had a conflict of interest: he was a significant investor in WaterStation himself, via a company he owned together with his wife, YNNEJ, LLC. Foster invested around $3 million into WaterStation, per records reviewed by Fintech Business Weekly.
$2.4 million of that investment in WaterStation came from an SBA-backed loan that Foster and his wife’s LLC took from Meridian Bank.
Everyone Loses When A Ponzi Scheme Collapses (Except The Lawyers)
There have been at least twenty civil lawsuits filed related to the collapse of WaterStation’s alleged Ponzi scheme, though many have overlapping sets of claims and some have been consolidated.
The impact on “investors” in the Ponzi, particularly those that took loans, has been severe. Despite the payments from WaterStation to investors ceasing, many borrowers attempted to continue making payments, going so far as to deplete their savings, liquidate retirement funds, and sell other assets, according to documents filed in the various lawsuits.
Still, many of the lenders involved have continued to seek repayment, in some cases pursuing aggressive action up to and including threatening to or actually initiating foreclosure proceedings for borrowers’ primary residences.
The Washington DFI’s case described the impact on investors in part by writing, “One person described his current financial situation as ‘crippling.’ Two others described it as a ‘nightmare.’ Families have been forced to divert money from other sources, such as savings, to cover their mortgages and living expenses. Two investors reported negative health outcomes from the financial strain: one person’s hair fell out, and the other experienced chest pains so severe she was forced to visit the emergency room.”
Jordan Chirico, the WaterStation investor and employee of 3|5|2, the Jeffries business unit, is facing litigation from his former employer and a criminal investigation over his role in the bond deal.
First Fed, with $2.2 billion in assets and $172.7 in total bank equity, is big enough and well capitalized enough to weather this storm — even if its Chief Executive Officer and Chief Banking Officer weren’t able to.
Both abruptly resigned last month in the wake of the Jeffries lawsuit, though a spokesperson for the bank insists the WaterStation matter had nothing to do with it, telling Fintech Business Weekly that their exits from the bank are “not connected” to the matter and that CEO Matt Deines’ decision to resign (with no successor in place) “was made by mutual agreement between Matt and the Board,” as “[a]fter 6 years with Matt as CEO, the Board and Matt agreed that it was time for a transition.”
UniBank appears to be facing substantially greater risks than First Fed. In a separate statement of charges from the Washington DFI division of banks, the regulator detailed the involvement not only of Wan Kim, the SBA loan officer, and Sunny Kim, the chief credit officer, but also the bank’s then-CEO, Peter Park.
According to that DFI document, the three formed a company that personally invested in CETA, the clean energy Ponzi scheme, and caused UniBank to approve at least 10 SBA 7(a) loans to investors in that Ponzi scheme totaling more than $10 million.
Wan Kim also formed or was a general partner in two other companies that invested in the same Ponzi, with those companies or their owners taking at least five loans from UniBank to do so. Kim earned a commission for arranging these loans.
The Washington DFI concluded (emphasis added), “Wan Kim, Peter Park, and Sunny Kim acted dishonestly and breached their fiduciary duty to the Bank by failing to disclose their personal ties and investments to CETA. Wan Kim acted dishonestly and grossly abused his credit authority role and violated Bank policies and safe and sound lending practices by not disclosing this conflict in any of the credit memos presented for approval and for continuing to make loans to Bank borrowers where obvious conflicts existed.”
While the Washington state regulator had sought a permanent ban on the three participating in any manner in the conduct of affairs of a bank in the state, the final consent order banned Peter Park, the former CEO, and Sunny Kim, the former credit officer, for just one year — and stayed (paused) that prohibition.
Wan Kim agreed to a 10-year prohibition, but the ban is stayed for 9.5 years, meaning he will face only a 6-month ban, from October 2025 to April 2026, per the consent order. According to his LinkedIn, Wan Kim currently is employed as a vice president of small business lending at Seattle-area Summit State Bank.
The practices of its executives caught up with the bank, with the bank and its holding company, U & I Financial Corp., getting hit with a public enforcement action related to the issues last October.
UniBank’s ability to survive WaterStation and the two other alleged Ponzis it has links to is an open question.
As it has been forced to reckon with the questionable loans it has written, UniBank has seen its total equity capital plunge from about $80 million at the end of 2023 to below $30 million at the end of 2024.
Year to date, the bank has posted a net loss of $1.3 million, continuing to eat into its equity. With $11.3 million in non-performing loans vs. a $5.2 million loan loss reserve — and facing significant litigation and regulatory risk — UniBank’s financial position is likely to deteriorate further.
As of the end of the second quarter, UniBank had a leverage ratio of 7.18%, a CET1 capital ratio of 9.22%, and a total capital ratio of 10.43%.
What the future holds for WaterStation founder Ryan Wear and the other company executives involved in the matter is unclear. The Washington DFI action against the company and its executives seeks to impose fines for the illegal sale of unregistered securities.
The DFI has proposed fining Wear $250,000 and fining other company executives involved in the matter between $30,000 and $75,000.
Given the aggregate size of the alleged Ponzi, the alleged involvement of numerous banks and bank loans in funding it, the use of SBA 7(a) loans, and the $100 million bond deal, it seems unlikely this is the last we’ve heard of this story.
UniBank, Celtic Bank, Newtek, and 3|5|2 parent Jeffries did not respond to requests for comment.
Ryan Wear, Kevin Nooney, Wan Kim, and Sunny Kim did not respond to voice messages and texts requesting comment.
Everything Else: Open Banking Drama Continues, Evolve Bleeds More Red Ink, Varo Burns Another $20M
If you made it this far, congratulations!
There were a number of other interesting fintech and banking news items last week, including the shocking development that the Consumer Financial Protection Bureau intends to formulate a new open banking rule to replace the one finalized last October, the latest on the financial condition of Evolve Bank & Trust, and Varo’s continued inability to turn things around.