The Securities and Exchange Commission today charged Live Well Financial, Inc. and its CEO, Michael Hild, both of Richmond, Va., with perpetuating a multi-million dollar bond mismarking scheme against Live Well's short-term lenders. The complaint also charges Live Well's CFO, Eric Rohr, and Executive Vice President, Darren Stumberger, both of whom consented to partial judgments against them.
The SEC alleges that Live Well, under the direction of Hild, fraudulently inflated the value of its portfolio of complex reverse-mortgage bonds. According to the complaint, Hild directed Live Well to submit falsely inflated bond prices to an industry-leading pricing service, who he knew would simply publish the prices Live Well gave it. As Hild was aware, most of Live Well's lenders relied on those inflated prices in loaning money to Live Well through repurchase securities transactions. 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 through the securities transactions than it could have borrowed had the bonds been priced accurately and was able to fund lavish compensation packages for Hild and others. During the 18 months following the implementation of the scheme, Live Well's bond portfolio shot up in value from $71 million to $570 million. According to the complaint, the fraudulent scheme collapsed in 2019 when Live Well's lenders sought to sell the bonds back to Live Well and Live Well did not have the requisite funds to complete the repurchase securities transactions, leaving its counterparties exposed to losses in excess of $80 million.
"Hild's 'self-generating money machine' was a brazen fraud through which Hild enriched himself at the expense of Live Well's counterparties," said Daniel Michael, Chief of the SEC's Complex Financial Instruments Unit. "This case starkly underscores the risks of improperly valuing assets, and we will remain focused on pursuing those who misrepresent the value of their securities."
The SEC's complaint charges Live Well, Hild, Rohr, and Stumberger, with violations of the anti-fraud provisions of the federal securities laws. The complaint seeks a permanent injunction, disgorgement of ill-gotten gains along with prejudgment interest, financial penalties, and officer and director bars against Hild and Rohr. Stumberger and Rohr have consented to the entry of a partial judgment that permanently enjoins them from future violations of the charged provisions of the federal securities laws.
In a parallel action, the U.S. Attorney's Office for the Southern District of New York today announced criminal charges against Hild, Rohr, and Stumberger.
The SEC's investigation was conducted by Gregory Smolar and Jeff Leasure of the Complex Financial Instruments Unit and Robert Gordon of the Atlanta Regional Office under the supervision of Natalie Brunson and Reid Muoio of the Complex Financial Instruments Unit. The litigation is being conducted by Mr. Gordon, Mr. Smolar, and H.B. Roback of the Atlanta Regional Office. The SEC acknowledges the assistance and cooperation of the U.S. Attorney's Office for the Southern District of New York and the FBI in this matter.