Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 1 of 9 PageID# 81

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

Richmond Division

UNITED STATES OF AMERICA

V. Criminal No. 3:16-cr-00141

MICHAEL P. KLEKAMP,

Defendant.

STATEMENT OF FACTS

Had this case gone to trial the United States would have proven each fact beyond a reasonable doubt. The Government would have relied on the testimony ofeyewitnesses and exhibits to prove its case. The defendant stipulatesthat the factual allegations contained in the Criminal Information and the Statement of

Facts are true in every material respect, and that all the events occurred in the

Eastern District ofVirginia.

A. Introduction

1. The defendant, MICHAEL P. KLEKAMP, a resident ofKeswick,

Virginia, was the founder and President of Capitol Components and Millwork, Inc.

("CCM"). Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 2 of 9 PageID# 82

CCM's Business

2. CCM was a corporation organized under the laws ofthe Commonwealth ofVirginia in or about 2004 with its principal place ofbusiness located in

Culpeper, Virginia. CCM was involved in the manufacture, fabrication and distribution ofarchitectural millwork items such as doors, trim, cornices, wood panels, etc., for mid to high-end residential and commercial buildings in the

Washington, D.C. metropolitan area. CCM's customers frequently paid on credit creating an account receivable for CCM. An account receivable is thus an amount owed by a customer for whom a product has already been delivered or a service already performed. Companies can sometimes use their receivables as collateral for borrowing money, as long as the customer is not overdue more than 90 days.

3. CCM did not employ a Controller, ChiefFinancial Officer or other staff. Until November 2015, KLEKAMP controlled all accounting and financial operations for CCM, with the exception ofa part-time bookkeeper, who assisted with monthly and quarterly accounting.

4. An essential component ofCCM's business was a source offunds for its business operations. KLEKAMP used a revolving commercial from The Fauquier Bank primarily secured CCM's and . Inventory is an that is intended to be sold in the ordinary course of business. Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 3 of 9 PageID# 83

It may not be immediately ready for sale. Inventory can also serve as collateral for borrowing money.

Fauquier Bank's Loan to CCM

5. The Fauquier Bank ("Bank"), a Virginia Banking Corporation organized under the laws ofthe Commonwealth ofVirginia, was a financial institution insured by the Federal Deposit Insurance Corporation. Its main office was located in Fauquier, Virginia in the Eastern District ofVirginia.

6. On October 9, 2008, the Bank and the defendant KLEKAMP, on behalf of CCM, entered into an asset based lending agreement. As such, they signeda

Revolving Commercial Note ("Note") and Amended and Restated Loan and

Security Agreement (herein collectively "Loan Agreement") whereby the Bank agreed to lend CCM $3.5 million for its business operations. From 2009 until

2015 the line was increased numerous times to a final amount of$1L5 million.

The loan was to be secured by all of CCM's , especially the accounts receivable and inventory (the "collateral"). The Bank perfected its security interest in the Collateral by filing a UCC-1 Financing Statement withthe Clerk of the State

Corporation in Richmond, Virginia. The Bank also required defendant

KLEKAMP and partner to execute personal guarantees promising to payany unpaid loan balance. Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 4 of 9 PageID# 84

7. In entering into the Loan Agreement, the Bank was assuming two risks, a

credit risk and an asset risk. The credit risk was that the borrower, CCM, could not

· pay the promissory note; the asset risk was that the collateralizing assets would not

be of sufficient value to satisfy the remaining debt of CCM to the Bank if CCM

defaulted on the note. The Loan Agreement thus contained many provisions to

protect the Bank against both of these risks.

A. On a monthly basis, CCM was required to submit a Certified

Borrowing Base Certificate which stated, among other things, ( 1) the total amount

of CCM's accounts receivable, (2) the eligible accounts receivable (generally those

not more than 90 days overdue), (3) the total inventory, and (4) inventory eligible

to secure the Bank's loan. This Certificate also had the following compliance

certification and warrantee: "Borrower hereby certifies that the information

contained on the Borrowing Base Certificate is correct and complete. Borrower

also warrants that no default as specified [in the Loan Agreement] and any

amendments thereto, have occurred."

B. On a quarterly basis, CCM was required to submit an inventory

report whose accuracy was attested to by an outside certified public accounting

firm.

C. On an annual basis, CCM was required to submit an audited

4 Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 5 of 9 PageID# 85

by an outside certified public accounting firm.

B. The Scheme

8. From in or about 2012 and continuing thereafter up to the Fall of2015, in the Eastern District ofVirginia and elsewhere, MICHAEL P. KLEKAMP, the defendant herein, knowingly executed and attempted to execute a scheme and artifice to defraud The Fauquier Bank, a financial institution that was insured by the Federal Deposit Insurance Corporation, and to obtain money, funds, credits and other propertyowned by and under the custody and control ofThe FauquierBank, by means ofmaterially false pretenses, representations, and promises, as more particularly set forth herein.

9. The initial Note and Loan Agreement, entered into by the Bankandthe defendant KLEKAMP, was not induced or obtained by fraud.

C. Manner and Means

10. It was partof the scheme that, by misrepresenting the true amount of the collateral and the true financial condition ofCCM, the defendant would and did unjustly enrich himself as a result ofobtaining money from the Bank's revolving credit line, which by April 2015 had reached $11.5 million.

11. It was a further part ofthe scheme that the defendant would and did:

(a) create false internal CCM records that made it appear that (i)CCM's

5 Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 6 of 9 PageID# 86

accounts receivable, its principal asset securing its loan from the Bank, were significantly larger and more current than they actually were, thereby inflating the borrowing base and thus the amount that CCM was legitimately able to borrow, and (ii) CCM's total inventory was more than it actually was; and

(b) create and submit to the Bank: (i) fraudulent monthly borrowing base certificates which, among other things, fraudulently overstated CCM's total and eligible accounts receivable and total eligible inventory, also known as the borrowing base, a key determinant for CCM's eligibility for the amount, if any, of future loan advances and whether CCM was in default; (ii) fraudulent inventory reports that overstated the total amount of inventory; (iii) fake quarterly letters ostensibly from an outside certified public accounting firm rendering an unqualified opinion on the correctness of CCM's inventory reports; and (iv) fake annual audited financial statements for CCM ostensibly from an outside certified public accounting firms.

12. It was a further part ofthe scheme that KLEKAMP would induce the

Bank to increase the credit line to CCM, to extend thematurity date, and to advance funds to KLEKAMP. As a result ofthe fraudulent overstatement of collateral and of CCM's financial condition, the Bank's asset risk, credit risk, and overall risk ofloss was significantly higher than it realized. Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 7 of 9 PageID# 87

13. It was a further part ofthe scheme that on or about October 25, 2015,

KLEKAMP submitted to the Bank a Borrowing Base Certificate for September 31,

2015 fraudulently stating there was approximately $17 million oftotal accounts receivable and inventory securing the Bank's $1L5 million credit line. In fact, there was no morethan $3.4 millionoftotal accountsreceivable and inventory securing the line. And contrary to the fake financial statements submitted to the

Bank, CCM was in such poor condition, that it could not repay the interest or principal amount ofthe loan. In or about November 2015, The Bank had to force

CCM into a receivership which wound up CCM's affairs. TheBank ultimately lost approximately $10.5 million.

D. The Executions

14. From at least 2012 to 2015, within the Eastern District ofVirginia and elsewhere, the defendant, MICHAEL P. KJLEKAMP, knowingly and willfully executed and attempted to execute the scheme and artifice described in Paragraphs

One through Thirteen herein, in that KLEKAMP submitted to the Bank a series of false and fraudulent Borrowing Base Certificates and Inventory Reports which fraudulently overstated by millions ofdollars the collateral securing CCM's line of credit from the Bank. Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 8 of 9 PageID# 88

The defendant admits that he intentionally, not by accident or mistake,

committed the above described acts.

I have consulted with my attorney regarding this Statement ofFacts. I

knowingly and voluntarily agree that each ofthe above-recited facts is true and

correct and that had this matter gone to trial the United States could have proven

each one beyond a reasonable doubt.

Date MICHAEL P. K ^KAMP Defendant

I am counsel for the defendant. I have carefully reviewed this Statement of

Facts with him and, to my knowledge, his decision to agree to this Statement of

Facts is an informed and voluntary decision.

Date ' ! PaulWjill Assistant Federal Public Defender Attorney for Defendant Case 3:16-cr-00141-HEH Document 13 Filed 12/09/16 Page 9 of 9 PageID# 89

Respectfully submitted,

DANA J. BOENTE UNITED STATES ATTORNEY

By: David T. Maguire Assistant United States^ttorney