May 12, 2021
We got one pie. We got two hungry whistleblowers eager to cut into that pie. But they have to wait. The SEC's Claims Review Staff ("CRS") needs to issue the all important Preliminary Determination. Oh my . . . CRS recommended that Claimant 1 be awarded $18 million and Claimant 2, $4 million. And now we got a battle over how the SEC sliced the pie!
In an Indictment filed in the United States District Court for the Western District of Oklahoma, Ronald J. McCord, Chairman /founder of First Mortgage Company, LLC ("FMC"), an Oklahoma City-based mortgage lending and loan servicing company, was charged with 24-counts of bank fraud, money laundering, and making a false statement to a financial institution; and he pled guilty to five counts. In accordance with the plea, the government agreed not to advocate at sentencing for a sentence above 104 months, McCord will be ordered to pay restitution an forfeit proceeds. As alleged in part in the DOJ Release:.
]M]cCord admitted to defrauding Spirit Bank ("Spirit") and Citizens State Bank ("Citizens")-two state-chartered financial institutions-as well as their respective residential mortgage subsidiaries, American Southwest Mortgage Corporation ("Mortgage Corp.") and American Southwest Mortgage Funding Corporation ("Funding Corp."). An independent audit discovered that McCord had sold more than $14,100,000.00 in Spirit/Mortgage Corp. and Citizens/Funding Corp. loans "out of trust" by failing to repay Spirit/Mortgage Corp. when certain Spirit/Mortgage Corp.-initiated loans were refinanced or otherwise paid off. At the time of this discovery, FMC carried outstanding balances of about $200,000,000.00 and $140,000,000.00 on the Spirit/Mortgage Corp. and Citizens/Funding Corp. lines of credit, respectively.
Upon learning of McCord's conduct, Spirit/Mortgage Corp. and Citizens/Funding Corp. terminated future warehouse lending to FMC, and instituted new notification requirements that required McCord to assign FMC-funded mortgages to Spirit/Mortgage Corp. and Citizens/Funding Corp., to ensure the title companies handling those mortgages sent payoffs directly to the banks. McCord admitted at yesterday's plea hearing that he filed the assignments as required, but then caused the mortgages to be released on two properties-in Leland and Denver, North Carolina-after collecting the mortgage payoffs.
Spirit/Mortgage Corp. and Citizens/Funding Corp.'s refusal to fund new FMC mortgages prompted McCord to seek out a new warehouse lender. In early 2017, McCord began negotiating with CapLOC, LLC, a North Carolina-based mortgage lending business, and offered to sell FMC's mortgage lending business in exchange for quick funding from CapLOC. At yesterday's plea hearing, McCord admitted that he made a materially false statement and representation to CapLOC in the course of those negotiations, in order to influence CapLOC's actions.
Finally, in 2017, FMC serviced approximately 12,000 loans worth a total of approximately $1,800,000,000.00 for the Federal National Mortgage Association ("Fannie Mae"). McCord admitted at the plea hearing that he defrauded Fannie Mae by diverting escrow monies intended to pay homeowners' taxes and insurance premiums to cover FMC's operating expenses. McCord also admitted that he then laundered the proceeds by causing a wire transfer from FMC's operating account to a custom home builder, as payment towards construction of McCord's home in Colorado.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Hung Sam submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Hung Sam was first registered in 2013, and between February 2013 and December 2020, he was registered with Wells Fargo Clearing Services, LLC. The AWC asserts that Sam "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Sam violated FINRA Rules 3240 and 2010. Accordingly, the self regulator imposed upon Sam a $5,000 fine, and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
In September 2020, while he was registered through WFCS, Sam borrowed $230,000
from a WFCS customer (Customer 1). WFCS's written supervisory procedures only
allowed its registered representatives to borrow from customers who were immediate
family members, and only after obtaining the firm's prior written approval. Sam and
Customer were not related, and Sam did not seek WFCS's approval before obtaining the
Sam and Customer 1 each had lawyers represent them in negotiating and drafting
documents to formalize the loan agreement. The terms of the loan require Sam to make
monthly interest payments of 8% for one year, after which time he is required to repay
the entire principal amount. To date, Sam has made all required payments.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Lance Damion Lienart submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Lance Damion Lienart entered the industry in 1995 and by June 2009, he was registered with Morgan Stanley. The AWC asserts that Leinert "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Leinert violated FINRA Rule 2010. Accordingly, the self regulator imposed upon Leinert a $5,000 fine, and a two-month suspension from associating with any FINRA member in all capacities. As alleged in part in the AWC:
At all relevant times, Morgan Stanley authorized employees to seek and obtain
reimbursement for certain types of expenses, including expenses incurred during business
meals with customers. To seek reimbursement for those expenses, the firm required
employees to identify on their expense reports the names of all the individuals who
attended the meals. Between January 2018 and May 2019. Respondent incurred actual
expenses during business meals with customers. However, during that period,
Respondent submitted expense reports and received reimbursement for multiple meals,
which collectively cost approximately $1,600, in which Respondent inaccurately stated
that particular customers attended, even though they were not present.
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Jue-Hua Rae Yau submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC alleges that Jue-Hua Rae Yau was first registered with Edward Jones in 2009. The AWC asserts that Yau "does not have any relevant disciplinary history." In accordance with the terms of the AWC, FINRA found that Yau violated FINRA Rules 3270 and 2010. Accordingly, the self regulator imposed upon Yau a $5,000 fine, and a one-month suspension from associating with any FINRA member in any capacity. As alleged in part in the AWC:
[R]espondent prepared tax returns for a firm customer every year from 2014
to 2019, in exchange for compensation, without disclosing that activity to the firm.
When the firm commenced interviews with Respondent about this conduct, Respondent
falsely told the firm that she had not prepared tax returns for any firm customer.
However, Respondent subsequently acknowledged to the firm that she had engaged in the
When we were kids, we were warned that we would drown if we went back into the water so much as a minute before the magical "one hour." Then there was that story about how swallowed gum stayed in your stomach for seven years. Not six years. Not eight years. But seven. And, of course, someone knew someone who knew a kid who had a brother who swallowed gum on a dare and it didn't come out for . . . you got it . . . seven years. In a recent federal case, we got seven years between a FINRA regulatory settlement and a federal court's opinion that what was agreed to all those years ago is going to stay on the books. Which proved a hard wad of gum for the respondents to swallow.
As readers of the BrokeAndBroker.com Blog know, I am a critic of inarticulate legal writing -- be that a pleading, motion papers, awards, opinions, orders, or any number of press releases. In a recent ruling on a motion before the District of Connecticut, Senior District Judge Charles S. Haight, Jr. shows how it should be done -- he pens an enchanting, entertaining, comprehensive, and superbly edited opinion.