NEW BRUNSWICK, NJ — You could say it was a bad bet.

A New Brunswick man admitted last week to defrauding a bank when he used more than $2 million in government-backed small business loans to pay off gambling debts and other personal expenses, rather than buying and upgrading a restaurant, according to an announcement from the U.S. Department of Justice.

John Cheng, 58, pleaded guilty on July 19 to loan application fraud before U.S. District Judge Claire C. Cecchi in Newark federal court, according to the news release.

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Cheng, a New Brunswick resident, struck a plea deal that would require him to pay more than $2.6 million in restitution to BNB Hana Bank, which lent him the money, according to court documents. Cheng would be forced to give up $1.7 million in proceeds of the crime.

The plea agreement didn’t make any recommendations for a possible prison sentence. Instead, it noted that the decision is up to the judge.

The charge against Cheng carries a maximum penalty of 30 years in prison and a $250,000 fine, or twice the gain from the bogus loan application, according to the government.

Cheng’s scheduled to be sentenced on Oct. 25. At that time, the judge may choose to accept or reject the terms of the plea agreement.

In December 2007, Cheng applied for a $1.75 million loan and a $2 million commercial loan from the Small Business Administration, according to the Justice Department. He claimed that he wanted the money to buy a restaurant in Skillman, New Jersey.





He claimed he planned to use the money to purchase and improve the restaurant. The windfall would also pay for machinery, equipment and working capital, according to the government.

Through its loan guaranty program, the government kicked the loan applications to BNB Hana Bank. The Small Business Administration essentially promised to “repay a percentage” of the loans if Cheng defaulted, according to the news release.

The bank provided Cheng with nearly $2.1 million in March 2008. He then used the money to pay off gambling debts, help out family members and make good on a federal tax bill, the government claimed.

Government documents show that Cheng’s alleged fraud went unnoticed until 2014.

The FBI’s Newark office took credit for leading the investigation into Cheng. Assistant U.S. Attorney Jacob T. Elberg, who heads the Newark Health Care and Government Fraud Unit, represents the government in the matter.