UPDATE: On July 8, 2024, attorneys for Michael Esposito and Sawyer Savings Bank agreed to permanently dismiss this case. On July 10, the bank’s lawsuit was closed. On July 11, Mr. Esposito’s Chapter 7 bankruptcy proceeding was closed.
An Ulster County bank wants to get back the bulk of a $525,000 loan it claims was misused by an insurance broker who later declared bankruptcy.
Sawyer Savings Bank of Saugerties accused Michael G. Esposito of fraud, in a Jan. 16, 2024 complaint filed in U.S. Bankruptcy Court, Poughkeepsie.
Esposito of Highland, Sullivan County, obtained the loan “by misrepresenting his and his company’s liabilities,” the complaint states, and “then dissipated the proceeds of the loan.”
“We believe the allegations against Mr. Esposito are without merit,” Poughkeepsie attorney Gregory T. Dantzman said in an email, “as we expect the litigation will show.”
Esposito formed DenTen Insurance Services in 2021 and applied to the bank for a $525,000 loan to fund start-up costs.
He indicated that DenTen had no liabilities, the complaint states, and he acknowledged that the loan, guaranteed by the U.S. Small Business Administration, had to be secured by a first-lien that gave the bank a right to his business assets.
In January 2022, when the loan was issued, Esposito allegedly acknowledged that the funds would be used only for working capital and that nothing significant had changed in the nearly four months since applying for the loan.
But just two weeks after he had applied for the loan, according to the bank, Esposito had made a deal with Satellite Agency Network Group, an alliance of independent insurance agencies based in New Hampshire. He agreed to pay commissions and a share of profits for access to the network, and he gave Satellite Agency first-lien security interest in DenTen’s assets.
Sawyer claims it would not have loaned money to Esposito had it known about the deal, because his minimal assets and his liability under the Satellite Agency agreement made him uncreditworthy.
Sawyer also claims that Esposito violated terms of the bank loan by using $170,000 to buy insurance brokerages in Pawling, Dutchess County, and Burnt Hills, Saratoga County, without the bank’s knowledge or consent.
Acquisitions, the complaint states, do not qualify as expenditures for working capital.
By 2023, DenTen was struggling, according to the complaint, with Esposito attributing the hardship to over-estimating new business revenue and over-budgeting for marketing, software and development.
In March 2023, still unaware of DenTen’s acquisitions, the bank agreed to defer loan payments for five months.
In October 2023, Esposito filed for personal Chapter 7 liquidation. He declared $49,426 in assets and $842,020 in liabilities.
Sawyer argues that Esposito should not be allowed to discharge his loan obligations in bankruptcy court because he had obtained the credit by making false representations with the intent to deceive the bank.
The bank is demanding $488,000.
Sawyer is represented by Wappingers Falls attorney Mary K. Ephraim.
