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Mortgage Fraud Charges Target Execs

thestreet.comMar 14, 2012

By Antoine Gara

NEW YORK (TheStreet) -- The Securities and Exchange Commission has charged top executives at now-defunct Thornburg Mortgage with fraudulently hiding the mortgage lenders problems as the financial crisis put the company on the brink in 2008.

Once the nation's second largest independent mortgage company after now Bank of America(BAC_)-owned Countrywide Financial, Thornburg Mortgage is alleged by the SEC to have misstated its income by over $400 million, falsely recording a fourth quarter profit in its 2007 annual report. The SEC complaint says that the company, which offered and repackaged "jumbo" mortgages - loans larger than $417,000 - failed to disclose more than $300 in margin calls to its auditors as it tried to survive a liquidity crisis.

In its complaint, the SEC charged former Thornburg Chief Executive Larry Goldstone, CFO Clarence Simmons and CAO Jane Starrett with fradulently conspiring mask a series of margin calls that draining the firms cash as it reported its 2007 annual report on Feb. 28, 2008. After not disclosing those liquidity impacts, Thornburg was able to raise $1.35 billion in a bankruptcy-averting measure in April 2008.

Thornburg began to fall behind on a new round of margin calls shortly thereafter, forcing a March disclosure of its liquidity problems. Nevertheless, after a string of multi-billion dollar losses, Thornburg filed for bankruptcy in May 2009.

The SEC alleges that Goldstone, Simmons, and Starrett schemed to deceive Thornburg's auditor and investors into believing the company had met its fourth quarter margin calls. However, behind the scenes, the firm was late in meeting calls from at least three of its lenders and possibly already in default, according to the SEC. The firm was able to meet all of its outstanding margin calls just hours before the filing of its annual report, where the liquidity issues were not disclosed.

For the SEC, Wednesday's charge may be its biggest criminal complaint related to the underwriting and securitization of mortgages, after withdrawing a criminal prosecution of Countrywide Financial Chief Executive Angelo Mozillo in a $67.5 million settlement in 2010. Last year, Lee B. Farkas, the former head of mortgage lender Taylor, Bean & Whitaker was sentenced to 30-years in prison on fraud charges first brought by the SEC in 2010.

After being criticized for not prosecuting bankers and mortgage brokers for activities leading to the financial crisis, the SEC now says it has filed crisis-related enforcement actions against 98 individuals and entities.

After Thornburg filed for bankruptcy late in 2009, the firm's bankruptcy trustee Joes Sher said that the company's top executives paid themselves bonuses and stole company money as they hatched a scheme to launch a new firm in the days and months ahead of the lender's demise.

"We are profoundly disappointed by the S.E.C.'s lawsuit, which is based on unfounded claims, emails taken out of context and inaccurate interpretations of management's actions surrounding the company's financial filings at the height of the financial crisis in February and March 2008," said Goldstone and Simmons of Thornburg Mortgage, while Starrett also contested the complaint according to statements obtained by the New York Times.

For more on the financial crisis and bankruptcies, see why you need to spend money to make money on the MF Global repayment.

Back to March 2012 Archive

CFLA was founded by the Nation's Leading Foreclosure Defense Attorneys back in 2007 to serve the Foreclosure Defense Industry and fight pervasive Bank Fraud. Since opening our virtual doors, CFLA has rapidly expanded to become the premier online legal destination for small businesses and consumers. But as the company continues to grow, we're careful to hold true to our original vision. For us, putting the law within reach of millions of people is more than just a novel idea—it's the founding principle, just ask Andrew P. Lehman, J.D.. With convenient locations in Houston and Los Angeles, you can contact Our National Account Specialist and General Manager / Member Damion W. Emholtz at 888-758-2352 for a free Mortgage Fraud Analysis or to obtain samples of work product, including cutting edge Bloomberg Securitization Audits, Litigation Support, Quiet Title Packages, and for more information about our Nationally Accredited and U.S. Department of Education Approved "Mortgage Securitization Analyst Training Certification" Classes (3 days) 24 hours for approved CLE & MCLE Credit (Now Available Online).

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