We have a commercial line of credit that has gone bad. There are numerous bad things about this loan, but basically it is a large dollar unsecured line of credit to A Professional Law Corporation. The purpose was to support litigation cost associated with personal injury cases. The customer is going bankrupt. The bank has the impression that the attorney has been using the line of credit for personal expenses.

We have a letter from the attorney which confims that the line of credit was for the purpose of and to be paid from litigation. Then we have the customer's purpose statement on the application.

Loan fraud? Will just the suspicion that the proceeds were not used to finance litigation costs for personal injury cases, but in fact used for personal expenses be enough?

I have to suggest you consult your own legal counsel because it's possible you will be able to reach the assets of the individual if the loan to the corporation was used for personal purposes. That may be the way to go if the corporation is filing bankruptcy and the individual isn't.

We have contacted legal counsel, but I am trying to determine if I have enough information to file a SAR for loan fraud. I don't have real evidence that the funds were used personally, just a suspicion that it was.

If the funds went through the corporation it could be hard to make a case for loan fraud without something specific. It is possible that personal funds were put into the firm and then he reimbursed himself out of loan funds.

It looks like he made draws from the line of credit, deposited them into the business account, then used the funds for payroll, to pay back the interest due monthly on the loan, and make checks payable to himself with the memo section of the check marked "draw". He occasionally would depost funds from a line of credit at a neighboring bank and would make checks payable to that same bank to pay toward the line of credit there.

I have come across a few deposits for settlements. But these funds were never applied to the loan. They were disbursed to the client and the remainder was withdrawn by a check payable to the attorney.

Sounds like someone should be focusing on firing a loan officer to me. Large unsecured loan to support litigation efforts? - next thing you know they will be making venture capital loans.

If you have a suspicion - file.

Well these activities sure don't sound kosher:

He occasionally would depost funds from a line of credit at a neighboring bank and would make checks payable to that same bank to pay toward the line of credit there.

I have come across a few deposits for settlements. But these funds were never applied to the loan. They were disbursed to the client and the remainder was withdrawn by a check payable to the attorney.

Your suspicions are very well founded. The proceeds were used for operating capital. If your customer signed an applicaction indicating the proceeds were for litigation support expenses, check "false statement" on the SAR. There are no extra costs involved in checking "commercial loan fraud" as well.

"Champerty" is when someone invests in the possible outcome of a law suit. That's what your bank effectively agreed to do. That is incredibly risky when the loan is in connection with a single law suit that a lender is capable of evaluating. Frankly, I think it would be unheard of to give the attorney a line of credit to use with any case he or she saw fit. Regardless, that is not where your loss came from.

Thank you all for the feedback!