Former CEO Of Live Well Financial Convicted In Connection With $200 Million Bond Fraud Scheme
APR 30, 2021 | REPUBLISHED BY LIT: MAY 3, 2021
Audrey Strauss, the United States Attorney for the Southern District of New York, announced that MICHAEL HILD, the founder and former chief executive officer of Live Well Financial, Inc. (“Live Well”), was convicted today of securities fraud, wire fraud, and bank fraud charges in connection with a scheme to fraudulently inflate the value of a portfolio of bonds owned by Live Well in order to induce various securities dealers and at least one financial institution into loaning more money to Live Well – through repurchase (“repo”) agreements and collateralized loans – than they otherwise would have had they known the actual value of Live Well’s bond portfolio.
The scheme allowed Live Well to grow its bond portfolio exponentially, from approximately 20 bonds with a stated value of approximately $50 million in 2014 to approximately 50 bonds with a stated value of over $500 million by the end of 2016. In May 2019, in conjunction with an effort to wind down the company, Live Well wrote down the value of its portfolio by over $200 million.
Manhattan U.S. Attorney Audrey Strauss said: “As a unanimous jury found, Michael Hild obtained millions of dollars in secured loans for Live Well Financial by grossly inflating the value of bonds used as collateral. Hild deceived a third-party pricing service by providing it with inflated marks, resulting in the pricing service publishing valuations for the bonds far in excess of market value.
Lenders were hoodwinked into lending far more than they otherwise would have. The house of cards came crashing down with the unwinding of Live Well and the revelation to lenders that the bond portfolio had been overvalued by $200 million.
Now, Michael Hild awaits sentencing for his crimes.”
According to the evidence presented during the trial:
Live Well’s Bond Portfolio and Repurchase Agreements
Live Well was a Richmond, Virginia-based company that originated, serviced, and securitized government-guaranteed reverse mortgages known as Home Equity Conversion Mortgages (“HECMs”).
In or about 2014, Live Well acquired a portfolio of approximately 15 bonds, each entitling the holder to receive a portion of the interest payments, but not the principal payments, from a particular pool of reverse mortgages (“HECM IO bonds.”).
Live Well purchased the HECM IO bond portfolio for approximately $50 million. At the same time that Live Well purchased the HECM IO bond portfolio, HILD established within Live Well a New York City-based trading desk to manage and grow Live Well’s bond portfolio.
Live Well financed the acquisition and growth of its bond portfolio through a series of loans in which Live Well used its bond portfolio as collateral. The majority of Live Well’s lenders were securities dealers whose lending arrangements with Live Well were structured as bond repurchase agreements, also known as “repo agreements.”
A repo agreement is a short-term loan in which both parties agree to the sale and future repurchase of an asset within a specified contract period. The seller sells the asset to the lender with a promise to buy it back at a specific date and at a price that includes an interest payment.
Functionally, a repo agreement is a collateralized loan in which title of the collateral is transferred to the lender.
When the loan is repaid by the borrower, the collateral is returned to the borrower through a repurchase.
Additionally, at least one of Live Well’s lenders was an FDIC-insured bank, and its lending arrangement with Live Well was structured as a secured loan, with certain bonds held as collateral by a third-party custodian.
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The Scheme to Mismark the Bond Portfolio
Live Well’s financing agreements with all but one of the lenders required that any bond that Live Well sought to borrow against be priced by a third-party pricing source in order to determine the market value of the bond as of the measurement date. The lenders then used the value of the bond, coupled with the application of a haircut of generally 10% to 20%, to determine the amount of money to lend Live Well.
The lenders generally relied on a particular widely utilized subscription service (the “Pricing Service”) to price various securities.
In or about September 2014, HILD and his co-conspirators embarked on a scheme to cause the Pricing Service to publish valuations for the bonds that far exceeded actual market prices.
By doing so, the conspirators induced the lenders to extend credit to Live Well far in excess of the prices for which the bonds could be sold in the market. The inflated prices were based on a set of market assumptions that the conspirators called “Scenario 14.”
HILD was aware that if the lenders had known that the Pricing Service was publishing bond prices that did not reflect fair value, meaning the price at which a lender could sell the bond in the market if necessary to recoup its capital, they would have refused to use those prices in determining how much money to loan to Live Well.
To prevent the Pricing Service and the lenders from learning that the prices did not reflect market value, HILD directed his co-conspirators at Live Well to take steps to conceal their provision of inflated marks to the Pricing Service.
Ultimately, due to the asset overvaluation and the purchase of additional bonds using the capital generated by the scheme, Live Well grew the purported value of its bond portfolio to over $500 million by December 2016.
In addition to using the liquidity generated by the scheme to expand Live Well’s bond portfolio, in or about September 2016, HILD used $18 million generated from the repo lenders to buy out the preferred stockholders in Live Well.
The elimination of the preferred stockholders gave HILD control of the company and allowed him to substantially increase his personal compensation.
Accordingly, HILD’s compensation jumped from approximately $1.4 million in 2015, to approximately $5 million in 2016, approximately $9.7 million in 2017, and over $8 million in 2018.
In or about late 2018, the chief financial officer of Live Well resigned after HILD refused to reduce the compensation he was receiving from the company.
In or about May 2019, the company’s interim chief financial officer informed HILD that he would not sign the company’s interim financial statements because he believed that the company’s carrying value for the HECM IO bond portfolio was significantly overstated.
In or about May 2019, Live Well announced that it would cease operations and unwind. After the announcement of Live Well’s closing, Live Well’s interim chief financial officer provided a balance sheet to Live Well’s lenders showing that Live Well had reduced the value of its bond portfolio by over $200 million.
HILD, 46, of Richmond, Virginia, was convicted of five counts: one count of conspiracy to commit securities fraud; one count of conspiracy to commit wire and bank fraud; one count of securities fraud; one count of wire fraud; and one count of bank fraud.
Count One carries a maximum sentence of five years in prison, Counts Two, Four, and Five each carry a maximum sentence of 30 years in prison, and Count Three carries a maximum sentence of 20 years in prison.
The charges also contain a maximum fine of $5 million, or twice the gross gain or loss from the offense.
The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
HILD is scheduled to be sentenced at 10:00 a.m. on August 20, 2021, by U.S. District Judge Ronnie Abrams, who presided over the trial.
Ms. Strauss praised the investigative work of the FBI and also thanked the Securities and Exchange Commission.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Jordan Estes and Scott Hartman are in charge of the prosecution.
Live Well Financial CEO Used Lenders ‘Like an ATM’ U.S. Says
Teary Ex-CEO Tells Jury Mortgage Co.’s Failure Not His Fault
Live Well Financial founder Michael Hild cried Wednesday as he recalled the bankruptcy of his business, but prosecutors who say he illegally overvalued the company while paying himself $24 million pushed back after Hild told Manhattan jurors he was “just along for the ride” and wasn’t to blame.
APR 14, 2021 | REPUBLISHED BY LIT: APR 29, 2021
The chief executive officer of defunct reverse mortgage provider Live Well Financial Inc. used lenders “like an ATM,” enriching himself by borrowing against bonds whose value he conspired to inflate by more than $200 million, prosecutors said at the start of Michael C. Hild’s fraud trial.
Hild, 46, schemed with other Live Well executives to increase the reported value of a pool of bonds used as collateral for loans, Assistant U.S. Attorney Jordan Estes told jurors in opening statements on Wednesday. The testimony of those executives will be part of the government’s case against Hild, Estes said, in addition to recorded phone calls and emails.
According to prosecutors, Richmond, Virginia-based Live Well generated more than $100 million in revenue during the course of the alleged scheme that began in September 2015 and fell apart in May 2019, when Live Well wrote down the value of the bond portfolio by $141 million and announced it would cease operations. Hild received $24 million in compensation during that time, the government says.
Three of Live Well’s lenders forced the firm into liquidation in June 2019. The lenders claimed to have lost more than $130 million.
Hild has pleaded not guilty to charges of conspiracy, securities fraud, wire fraud and bank fraud. The most serious charges carry a maximum of 30 years in prison, though he would probably be sentenced to much less if convicted.
Laura and Michael Hild
Credit: 2018, Daniel Sangib, Min/Times-Dispatch
Hild has claimed he is being prosecuted for the company’s failure. His lawyer told jurors on Wednesday that they should focus on the issue of his client’s intent and find him not guilty.
“Did Mr. Hild have good intent — was he acting in good faith?” the lawyer, Ben Dusing asked. “Or, on the other hand, did he try to defraud people?”
Former Live Well Chief Financial Officer Eric Rohr and former head trader Darren Stumberger have pleaded guilty and are cooperating in hopes of receiving more lenient sentences. Stumberger, the first prosecution witness, began his testimony on Wednesday after opening statements.
Stumberger told jurors about “Scenario 14,” which he said was the internal name for a practice of giving inflated bond values to a third-party valuation firm that was supposed to be independent. Hild called the system a “self-generating money machine,” Stumberger said, since the higher valuations allowed the company to borrow more money from lenders.
The case is U.S. v. Hild, 19-cr-00602, U.S. District Court, Southern District of New York (Manhattan).
Hon. Ronnie Abrams, S.D.N.Y
Faces of 2019: Michael Hild’s civil charges filed by SEC put on hold
APR 14, 2021 | REPUBLISHED BY LIT: APR 29, 2021
Laura and Michael Hild
Credit: 2018, Daniel Sangib, Min/Times-Dispatch
How you know him: Michael C. Hild founded the fast-growing mortgage company Live Well Financial in 2005 and served as its CEO until the company abruptly shut down on May 3, laying off its 103 employees, most of whom worked at the company’s corporate offices in Chesterfield County.
In late August, Hild was arrested and charged by federal prosecutors with five criminal counts alleging he was a mastermind in a multimillion-dollar bond fraud scheme.
Hild pleaded not guilty in federal court in New York City in September to the five charges.
His trial date is set for Oct. 13. If convicted on all five counts, he faces a maximum sentence of 115 years in prison. The charges also contain a maximum fine of $5 million.
Hild, 45, is accused of fraudulently inflating the value of Live Well Financial’s portfolio of complex reverse-mortgage bonds by more than $140 million.
“Mr. Hild is deeply disappointed that the government has chosen to respond to the business failure of Live Well Financial by alleging corporate fraud,” according to a statement in late August from one of his lawyers, Vernon E. Inge Jr. in Richmond. “While Live Well unfortunately failed, every business failure is not a corporate crime.”
What’s new: Hild also faces five civil charges that were filed by the U.S. Securities and Exchange Commission at the same time he was charged on criminal counts.
Michael Hild at Siegel's Supermarket
Credit: 2018, Joe Mahoney, Min/Times-Dispatch
But those civil charges have been put on hold until his criminal case is completed.
Federal prosecutors had requested the action, and received approval in early December, saying that courts frequently postpone civil proceedings when there is a parallel criminal prosecution.
“A stay in such circumstances is especially appropriate because requiring Hild to answer or otherwise respond to the complaint in this matter could require him to take positions that could prejudice him in the criminal case, and any exchange of discovery beyond that which is contemplated under the proposed stay would be asymmetrical and could allow Hild to circumvent the criminal discovery rules and improperly tailor his defense to the government’s evidence in the criminal case,” according to the motion filed in federal court by Geoffrey S. Berman, the U.S. attorney for the Southern District of New York.
Lawyers for Hild told prosecutors that their client consented to the request for a stay.
Meanwhile, 10 properties in and around the Hull Street corridor in the Manchester neighborhood of South Richmond were sold in mid-December at an auction that generated a total of $4.676 million, which includes a 10% buyers premium added onto the highest bid.
The properties were owned by Church Hill Ventures LLC, Kingfisher LLC and Gardenia LLC — entities controlled by Laura Dyer Hild and her husband. Laura Hild is listed as the owner on several of the limited liability companies while her husband is sometimes listed as the managing member, federal court records show.
She has not been charged with any crimes.
The Virginia Credit Union, along with the Hilds and the federal government, sought the auction on the properties to “preserve their value pending a resolution of the criminal charges and a final adjudication of the government’s forfeiture claims,” according to federal court documents.
A federal court judge signed an order in late August prohibiting Hild or his wife from selling more than two dozen properties owned directly or indirectly by Laura Hild because prosecutors believe that those properties were purchased with proceeds of his alleged fraudulent schemes.