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H&R Block Subsidiary to Pay Over $28M to Settle Charges Related to Subprime ...

18.05.12

Option One, which is now known as Sand Canyon Corporation, agreed to pay $28.2 million to settle the SEC’s charges.

The SEC alleges that Option One promised investors in more than $4 billion worth of RMBS offerings that it sponsored in early 2007 that it would repurchase or replace mortgages that breached representations and warranties. But Option One did not tell investors about its deteriorating financial condition and that it could not meet its repurchase obligations on its own.

“Option One’s financial condition deteriorated significantly as its large subprime mortgage lending business suffered from the collapse of the U.S. housing market,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The company nonetheless concealed from investors that its perilous finances created risk that it would not be able to fulfill its duties to repurchase or replace faulty mortgages in its RMBS portfolios.”

Kenneth Lench, Chief of the SEC Division of Enforcement’s Structured and New Products Unit, added, “We will take action against those who fail to disclose or downplay important facts that make an investment riskier, even if those risks do not materialize. We remain committed to uncovering misconduct involving complex financial instruments including RMBS.

Source: LoanSafe

Fannie Mae's Former Chief Fights to Clear His Name

18.05.12

, And putting his mansion up for sale. Yet Mudd didn’t really leave Fannie Mae behind. In December 2011 the Securities and Exchange Commission sued him for allegedly misleading Fannie Mae investors about the company’s stake in subprime loans. Fortress directors offered to let Mudd stay on if he settled the matter quickly, according to two people with direct knowledge of the board’s thinking. Instead, he left Fortress to fight the charges full-time. His stint at Fannie Mae “cost me two jobs,” says Mudd, 53. “I’ve told my legal team, ‘If you use the word “settle,” I will fire you.’ ”

In March, Mudd asked a federal judge to dismiss the SEC complaint on grounds that during his tenure Fannie Mae filed detailed data on risky loans the company held. His lawyers also argued that the SEC failed to show Mudd had a motive, financial or otherwise, to deceive shareholders. No ruling is expected on the motion to dismiss before June.

The stakes are high for both Mudd and the agency. Losing the case could cost him some of the millions he earned during his four years as Fannie Mae’s CEO and make him a symbol of the excesses that blew up the housing market. For the SEC, a failed lawsuit would heighten criticism from lawmakers and others that the agency hasn’t held enough top executives accountable for taking risks that led to the worst recession since the 1930s. “They’ve got to show some scalps,” said Adam Pritchard, a University of Michigan law professor who previously served in the SEC’s Office of the General Counsel. “Anybody can file a case. It’s another thing to win it.”

Source: BusinessWeek