Three former executives of reverse mortgage lender Live Well, including the CEO and CFO, have been charged with defrauding lenders of around $130 million by grossly inflating the value of bonds that served as collateral for loans.
The charges against CEO Michael Hild, CFO Eric Rohr, and Executive Vice President Darren Stumberger came three months after the collapse of Live Well, which was forced into bankruptcy by three of its lenders in June.
In a civil complaint filed on Thursday, the U.S. Securities and Exchange Commission said Hild directed a “brazen” scheme that generated millions of dollars in loan proceeds to which Live Well was not entitled and Rohr was “aware of all aspects of the scheme.”
Live Well allegedly used loan proceeds to finance a bond-buying spree that generated still further ill-gotten gains in the form of interest payments on the bonds, fund “lavish” compensation packages for Hild, and pay additional compensation to Rohr and Stumberger. The value of Live Well’s bond portfolio ballooned from $71 million to more than $570 million in just 18 months.
Hild has been arrested in a parallel criminal case in which Rohr and Stumberger have already pleaded guilty. Rohr served as Live Well’s CFO from 2008 to 2018.
“Through this alleged scheme – which Hild called a ‘self-generating money machine’ – Live Well was able to borrow tens of millions of dollars more from its lenders … than it could have borrowed had the bonds been priced accurately,” the SEC said.
Live Well, a long-time player in the reverse mortgage space, opened a bond trading desk after acquiring a portfolio of $50 million worth of reverse mortgage-backed bonds in September 2014. Its agreements with lenders required that any bond it sought to use as collateral be priced by a third-party pricing service.
After convincing the service to stop publishing its own independent valuations, Live Well allegedly began in September 2015 to submit inflated valuations to the service while knowing that its lenders “were not aware that the pricing service had become a mere pass-through for Live Well’s purported valuations.”