Posts

SEC Charges Thornburg Mortgage with Fraud

/in /by

The Securities and Exchange Commission today charged the senior-most executives at formerly one of the nation’s largest mortgage companies with hiding the company’s deteriorating financial condition at the onset of the financial crisis. The plan backfired and the company lost 90 percent of its value in two weeks.

The SEC alleges that Thornburg Mortgage Inc. chief executive officer Larry Goldstone, chief financial officer Clarence Simmons, and chief accounting officer Jane Starrett schemed to fraudulently overstate the company’s income by more than $400 million and falsely record a profit rather than an actual loss for the fourth quarter in its 2007 annual report. Behind the scenes, Thornburg was facing a severe liquidity crisis and was unable to make on-time payments for substantial margin calls it received from its lenders in the weeks leading up to the filing of its annual report on Feb. 28, 2008.

According to the SEC’s complaint filed in federal court in New Mexico, even though Thornburg was violating lending agreements by failing to make on-time payments, the executives were unwilling to disclose the severity of their liquidity crisis to investors and Thornburg’s auditor.

For example, in a February 25 e-mail from Starrett to Goldstone and Simmons, she said, “We have purposefully not told [our auditor] about the margins calls.” Goldstone, Simmons, and Starrett scrambled to satisfy all outstanding margin calls and then timed the filing of the annual report to occur just hours later in order to precede additional margin calls and avoid full disclosure. As Goldstone had earlier stated to Simmons and Starrett in an e-mail, “We don’t want to disclose our current circumstance until it is resolved.” The intention was “to keep the current situation quiet while we deal with it.”

The SEC alleges that the executives’ plan to never disclose the delayed margin call payments fell through when they were unable to raise cash quickly enough to meet more margin calls received soon after filing the annual report. When Thornburg began to default on this new round of margin calls, it was forced to disclose its problems in 8-K filings with the SEC. By the time the company filed an amended annual report on March 11, its stock price had collapsed by more than 90 percent. Thornburg never fully recovered and filed for bankruptcy on May 1, 2009.

Contact Fort Lauderdale securities fraud attorney Howard N. Kahn, Esq. if you or someone you know has been the victim of securities fraud or commercial mortgage fraud. Mr. Kahn is an experienced mortgage fraud and securities litigation attorney. He works with commercial lenders, borrowers, and investors in cases involving mortgage fraud or securities litigation. You can contact him at 954-321-0176 or online.

SEC Proposes Identity Theft Rules

/in /by

The Securities and Exchange Commission yesterday proposed a rule designed to protect investors from identity theft. Broker-dealers, mutual funds, and other SEC-regulated entities are being asked to implement identity theft safety programs that will establish and detect appropriate “red flags.”

Risk factors that a financial institution or creditor would be required to consider as a red flag for covered accounts include:

(1) the types of covered accounts it offers or maintains;
(2) the methods it provides to open its covered accounts;
(3) the methods it provides to access its covered accounts; and
(4) its previous experiences with identity theft.

Risk factors are likely to vary across account types. For example, margin accounts will differ from advisory accounts, and red flags for business accounts will be different than consumer accounts.

The SEC proposal was issued jointly with the Commodity Futures Trading Commission (CFTC) under Section 1088 of the Dodd-Frank Act. The proposed rules are substantially similar to rules adopted in 2007 by the FTC.

Click on the link for a full copy of the SEC/CFTC identity theft proposal.

Contact Fort Lauderdale securities attorney Howard N. Kahn, Esq., if you or someone you know has been the victim of identity theft in regard to an investment or brokerage account. Mr. Kahn is an experienced securities attorney and FINRA arbitrator. Contact him at 954-321-0176 or online.