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First Mortgage Settles SEC RMBS Fraud Charges

money-investigateCalifornia-based First Mortgage Corporation, a lender that issued Ginnie Mae residential mortgage-backed securities (RMBS) backed by loans it originated, has agreed to pay $12.7 million to settle fraud charges brought on by the Securities and Exchange Commission (SEC).

The SEC announced that the company and six senior executives will pay to settle charges that they "orchestrated a scheme to defraud investors" in the sale of residential mortgage-backed securities guaranteed by Ginnie Mae.

“FMC and its senior executives abused their privileged access to Ginnie Mae’s securitization program by allowing greed to corrupt their business practices,” said Andrew Ceresney, Director of the SEC's Division of Enforcement. “It is critical that we hold senior management fully accountable for this kind of misconduct, which we were able to accomplish here quickly due to the cooperation of company insiders.”

From March 2011 to March 2015, First Mortgage and the six senior executives pulled current, performing loans out of Ginnie Mae RMBS by falsely claiming they were delinquent in order to sell them at a profit into newly-issued RMBS, the SEC alleges. In addition, First Mortgage caused its Ginnie Mae RMBS prospectuses to be "false and misleading" by improperly and deceptively using a Ginnie Mae rule that gave issuers the option to repurchase loans that were delinquent by three or more months, the SEC said.
First Mortgage was not immediately available for comment.
The executives charged with fraud in the SEC’s complaint agreed to the following settlements:
  • Chairman and CEO Clement Ziroli Sr. agreed to a $100,000 penalty.
  • Company President Clement Ziroli Jr. agreed to pay 411,421.98 plus $27,203.92 in interest and a $200,000 penalty.
  • CFO Pac W. Dong agreed to pay a $100,000 penalty.
  • SVP Ronald T. Vargas, who headed FMC’s capital markets department, agreed to pay a $60,000 penalty.
  • SVP Scott Lehrer agreed to pay a $50,000 penalty.
  • Managing Director of the servicing department Edward Joseph Sanders agreed to pay disgorgement of $51,576.51 plus $6,811.19 in interest.  Sanders cooperated in the SEC’s investigation.

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