By Jonathan Stempel
NEW YORK (Reuters) - The U.S. government on Thursday charged the founder of reverse mortgage provider Live Well Financial Inc with engineering a $140 million fraud by inflating the value of its bonds, in what he called a "self-generating money machine."
Michael Hild, 44, who was also Live Well's chief executive, generated more than $24 million of compensation tied to the scheme, which ran from September 2015 to May 2019, according to federal prosecutors in Manhattan who announced the charges.
Founded in 2005, Live Well said it would close on May 3 and terminate its employees, after authorities said the Richmond, Virginia-based company failed to repay lenders sitting on tens of millions of dollars of losses.
Live Well later took a $141 million writedown, and was put into Chapter 7 bankruptcy on July 1 following a request by three lenders: affiliates of Flagstar Bancorp Inc (N:FBC), Industrial and Commercial Bank of China Ltd (SS:601398) and South Korea's Mirae Asset Financial Corp.
Hild, who lives in Richmond, was charged with bank fraud, securities fraud, wire fraud and two conspiracy counts. Three counts carry maximum 30-year prison terms.
Live Well's former Chief Financial Officer Eric Rohr and head trader Darren Stumberger pleaded guilty to related charges and are cooperating.
The U.S. Securities and Exchange Commission filed civil charges against the men and Live Well. Rohr and Stumberger partially settled.
Steven Feldman, a lawyer for Hild, declined to provide immediate comment. Lawyers for Rohr and Stumberger declined to comment. Live Well's lawyer was not immediately available for comment.
Reverse mortgages allow homeowners aged 62 or older to borrow against equity in their homes. Loan balances become due when the homeowners die, move or sell their homes.
Hild was accused of scheming to persuade an outside pricing service to stop publishing its own valuations of Live Well bonds, and instead to use Live Well's preferred valuations.
Prosecutors said this induced Live Well's lenders to extend more credit than its bonds could support, allowing its reported portfolio to swell tenfold to $500 million in 16 months.
Authorities said Live Well held an emergency meeting in January 2017 after a nosy lender asked to spot-check bond valuations, threatening to expose the scheme.
The SEC said Rohr suggested that Hild find a dealer who was "willing to be slimy" by corroborating wrong valuations.
"I feel like I'm about to throw up right now," Rohr allegedly said.
The next day, Hild said he feared that allowing a spot-check risked letting "the genie out of the bottle," the SEC said.
The criminal case against Hild is U.S. v Hild, U.S. District Court, Southern (NYSE:SO) District of New York, No. 19-cr-00602.