Angel Oak Capital Advisors, the investment management arm of non-QM lender Angel Oak Cos., has agreed to pay $1.75 million to settle charges brought by the U.S. Securities and Exchange Commission (SEC) alleging that the company misled investors about the delinquency rates in a 2018 private-label securitization involving fix-and-flip loans.
Also charged in the case, according to the SEC, was Ashish Negandhi, the portfolio manager for Angel Oak Capital Advisors. Negandhi also agreed to settle the charges and pay a penalty of $75,000.
At the core of the case is the allegation by the SEC that Atlanta-based Angel Oak Capital Advisors and Negandhi were seeking to protect the reputation of the company’s securitization business and avoid an early repayment to investors triggered by loan delinquencies reaching a predefined level. The SEC alleges that Angel Oak raised $90 million through a March 2018 securitization of “loans made to borrowers for the purpose of purchasing, renovating and selling residential properties” — also known as fix-and-flip loans, which were originated by an Angel Oak-affiliated entity.
“Shortly after the [securitization] deal closed, loan delinquency rates increased unexpectedly,” the SEC alleges.
Angel Oak and Negandhi, consequently, “artificially reduced delinquency rates,” the SEC claims. That was accomplished by diverting funds being held for borrowers to complete property renovations and redirecting them to “instead pay down outstanding loan balances.”
“Because Angel Oak and Negandhi did not disclose these actions, the performance data regularly disseminated to investors provided an inaccurate view of the actual delinquency rates on the mortgages in the securitization pool as well as the securitization’s compliance with the early repayment trigger,” the SEC alleges.
A spokesperson for Angel Oak offered the following comment on the SEC case:
“While not admitting or denying the findings, Angel Oak Capital Advisors accepts the ruling set forth by the SEC relating to a 2018 securitization involving fix-and-flip mortgage loans. The Angel Oak affiliate mortgage company has not originated these loans since 2019, and all senior noteholders in the securitization received full payment of principal and interest.”
Osman Nawaz, chief of the complex financial instruments unit of the SEC’s Division of Enforcement, said Angel Oak and Negandhi painted a misleading picture for investors by failing to disclose the improper use of funds “while continuing to issue larger securitizations.”
“Firms must provide investors with full and accurate information regarding the performance of an investment, even after closing, to ensure the integrity of our markets,” Nawaz said.
The SEC found that Angel Oak Capital Advisors and Negandhi violated antifraud provisions of U.S. securities regulations. Angel Oak and Negandhi, without admitting or denying guilt, agreed to a cease-and-desist order, a censure and the payment of civil monetary penalties, according to the SEC.