Former CEO of now-defunct reverse mortgage lender Live Well Financial, Michael C. Hild, has been arrested by the Federal Bureau of Investigation (FBI) in connection with an alleged bond fraud committed between 2015 and 2019. Co-conspirator Darren Stumberger, formerly Live Well EVP and Eric Rohr, chief financial officer, were also charged in the alleged scheme and have pleaded guilty.
The arrest was announced late Thursday by Geoffrey S. Berman, United States Attorney for the Southern District of New York, and William F. Sweeney Jr., Assistant Attorney General for the FBI's New York office, according to a statement issued by the United States Attorney's Office for the Southern the district of New York.
Hild has since been released for an unsecured bond following an initial court appearance.
Hild has been charged with five criminal offenses: one counts each of conspiracy to commit securities fraud; on conspiracy to commit wire and bank fraud; securities fraud; of wire fraud and of bank fraud. The maximum possible verdict is 1
“Hild's arrest was in connection with a scheme, from in or about September 2015 to in or about. May 2019, to fake the value of a portfolio of bonds owned by Live Well to induce various securities dealers and at least one financial institution to lend more money to Live Well – through repurchase agreements (& # 39; repo & # 39;) and collateral loans – than they otherwise would have known the actual value of Live Well's bond portfolio, the statement reads.
This allowed Live Well to exponentially expand its bond portfolio from approximately 20 bonds with a stated value of $ 50 million in 2014 to approx. 50 bonds with a stated value of $ 500 million at the end of 2016, the release states.
In addition, the federal government has also charged two other Live Well leaders, CFO Eric Rohr and EVP Darren Stumberger. Those charges were unsealed in accordance with Hild's arrest Thursday, and both men have pleaded guilty and are cooperating with authorities, Berman said in a statement.
"As alleged, Michael Hild orchestrated a scheme to trick Live Well's lenders by churning up the value of their mortgaged bonds by over $ 140 million," Berman said in a statement. "This allegedly allowed Live Well to Borrow money well over the value of the collateral it set up. For its part, Hild used these poorly obtained funds to gain control of the company and increase its own compensation by nearly 700 percent, while cumulatively exposing lenders to $ 65 million in unsecured loans to the company, which is now bankrupt. "
" As CEO of Live Well Financial Inc., Hild allegedly inflated the true value of the company's bond portfolio and used this false information to obtain loans that the company would otherwise not be able to obtain, "says the FBI's Sweeney. “The dealers and financial institution that lent the money are now in possession of bonds that do not have the promised value as collateral. The FBI is committed to working with our law enforcement partners to ensure that this type of behavior ceases to exist. "
Restriction of assets, civil charges, bond release
Prior to Hild's arrest on Wednesday, the federal government obtained an injunction for restraining assets held directly or indirectly by Hild and as such purchased with dividend of the alleged scheme. These assets include various Richmond properties and business interests that Hild maintained.
The sudden closure of Live Well Financial in May 2019 led the company to write down the value of its bond portfolio by approximately $ 141 million with "an effort to liquidate the company," the statement states.
Hild has also been indicted separately by the Securities and Exchange Commission (SEC) in a civil case.
"Hild's & # 39; self-generating cash machine & # 39; was a brave scam through which Hild enriched himself at the expense of Live Wells counterparts," said Daniel Michael, head of the SEC's Complex Financial Instruments Unit in a statement. " strongly the risk of misappropriation of assets, and we will remain focused on pursuing those who falsely represent the value of their securities. "
Hild was allegedly arrested Thursday morning in Richmond, and was arraigned that afternoon in the United States District Court for the Eastern District Virginia, where he was released on a $ 500,000 unsecured bond, according to Richmond Times-Dispatch reporting.
Hild must appear next in the U.S. District Court for the New York Southern District on September 5.
" Mr. Hild is deeply disappointed that the government has chosen to respond to the business failure of Live Well Financial by alleging corporate fraud, said Vernon E. Inge Jr., a lawyer who presents Hild in Richmond.
Inge Jr. Claims that Hild cooperated fully with investigations conducted by the SEC and the US Attorney's Office, and that Live Well's business failure does not constitute a crime.
"While Live Well unfortunately failed, not every business failure is a corporate crime," Inge Jr said.
U.S. District Judge Ronnie Abrams has been assigned the case against Hild. U.S. District Judge Edgardo Ramos has been assigned to Rohr's case, while Stumberger's case will go to U.S. District Judge J. Paul Oetken.
Arrest follows abrupt Live Well closure, bankruptcy
This is the latest in a series of unfolding events about the abrupt closure of Live Well Financial, which RMD learned about on May 3. The closure was followed by more than 100 layoffs at the company's headquarters in Richmond, Va., Which led to the filing of a class action lawsuit from a former employee who was trying to recover lost wages. Live Well intends to challenge that suit.
Live Well was forced into Chapter 7 bankruptcy in June by a coalition of creditors requesting liquidation of the company's assets to pay down outstanding debt. Counsel for the creditors involved in filing forced bankruptcy previously indicated that both the financial operations of Live Well at-large and Hild in particular got the attention of both the FBI and the SEC, and culminated with Thursday's events.
Multichannel lender Open Mortgage announced in the wake of the Live Well closure that it had hired the core team of Live Well lending executives, in addition to approximately 50 former Live Well sales and operations employees to expand retail, wholesale, major agents – and closed seller loans.
Due to the volume of origin before closing, Live Well Financial is still technically a top 10 reverse mortgage lender based on the latest approval data from Reverse Market Insight (RMI). It is currently ranked No. 7 as of July with 1,062 endorsements in 2019.
Read the statement on U.S. Attorney's Office for the South District of New York, and the release of the Securities and Exchange Commission.