Former CEO of now-defunct reverse mortgage lender Live Well Financial, Michael C. Hild, has been arrested by the Federal Bureau of Investigation (FBI) in connection with an alleged bond fraud committed between 2015 and 2019. Co-conspirators Darren Stumberger, former Live Well EVP and Eric Rohr, Chief Financial Officer were also charged in the alleged scheme and have pleaded guilty.

The arrest was announced late Thursday by Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Field Office of the FBI, according to a statement released by the United States Attorney’s Office for the Southern District of New York.

Hild has since been released on an unsecured bond after an initial appearance in court.

Criminal charges

Hild has been charged with five criminal counts: one count each of conspiracy to commit securities fraud; of conspiracy to commit wire and bank fraud; of securities fraud; of wire fraud and of bank fraud. The maximum possible sentence is 115 years, and they also carry a maximum fine of $5 million, according to the United States Attorney’s Office.

“Hild’s arrest was in connection with a scheme, from in or about September 2015 through in or about May 2019, 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 statement reads.

This allowed Live Well to exponentially grow its bond portfolio from approximately 20 bonds with a stated value of $50 million in 2014 to approximately 50 bonds with a stated value of $500 million by the end of 2016, the release said.

Additionally, the federal government has also charged two other Live Well executives, CFO Eric Rohr and EVP Darren Stumberger. These charges were unsealed in concert with Hild’s arrest Thursday, and both men have pleaded guilty and are cooperating with authorities, Berman said in a statement.

“As alleged, Michael Hild orchestrated a scheme to deceive Live Well’s lenders by fraudulently inflating the value of its mortgage-backed bonds by over $140 million,” said Berman in a statement. “This allegedly enabled Live Well to borrow money well over the value of the collateral it put up. In turn, Hild used these ill-gotten funds to gain control of the company and increase his own compensation by nearly 700 percent, while exposing lenders cumulatively to $65 million in unsecured loans to the company, which is now in bankruptcy.”

“As CEO of Live Well Financial Inc., Hild allegedly inflated the true value of the company’s bond portfolio and used this false information to obtain loans the company otherwise would not have been able to obtain,” said the FBI’s Sweeney. “The dealers and financial institution that lent the money are now in the possession of bonds that don’t hold the value promised as collateral. The FBI is committed to working with our law enforcement partners to ensure this type of behavior ceases to exist.”

Restraining assets, civil charges, release on bond

Prior to Hild’s arrest on Wednesday, the federal government obtained a post-indictment restraining order restraining assets owned directly or indirectly by Hild and, as such, purchased with proceeds of the alleged scheme. These assets include various Richmond-area properties and business interests that Hild maintained.

The abrupt closure of Live Well Financial in May 2019 caused the company to write down the value of its bond portfolio by approximately $141 million with, “an effort to wind down the company,” the statement said.

Hild has also been separately charged by the Securities and Exchange Commission (SEC) in a civil case.

“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 in a statement. “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.”

Hild was reportedly arrested Thursday morning in Richmond, and was arraigned that afternoon in the United States District Court for the Eastern District of Virginia, where he was released on an unsecured bond of $500,000 according to reporting from the Richmond Times-Dispatch.

Hild must appear next in the U.S. District Court for the Southern District of New York on Sept. 5.

“Mr. Hild is deeply disappointed that the government has chosen to respond to the business failure of Live Well Financial by alleging corporate fraud,” says Vernon E. Inge Jr., a lawyer representing Hild in Richmond.

Inge Jr. contends that Hild cooperated fully with the investigations carried out by the SEC and the U.S. Attorney’s Office, and that the business failure of Live Well does not constitute a crime.

“While Live Well unfortunately failed, every business failure is not a corporate crime,” Inge Jr. said.

United States District Judge Ronnie Abrams has been assigned the case against Hild.  United States District Judge Edgardo Ramos has been assigned Rohr’s case, while Stumberger’s case will go to United States District Judge J. Paul Oetken.

Arrest follows abrupt Live Well closure, bankruptcy

This is the latest in a series of unfolding events concerning the abrupt closure of Live Well Financial, which RMD learned about on May 3. The closure was followed by more than 100 lay-offs at the company’s Richmond, Va. headquarters, which led to the filing of a class action lawsuit from a former employee attempting to recover lost wages. Live Well intends to challenge that suit.

Live Well was forced into Chapter 7 bankruptcy in June by a coalition of creditors seeking liquidation of the company’s assets in order to pay off outstanding debts. Counsel for the creditors involved with the forced bankruptcy filing previously indicated that both the financial activities of Live Well at-large and Hild specifically gained the attention of both the FBI and SEC, culminating in Thursday’s events.

Multichannel lender Open Mortgage announced in the wake of the Live Well closure that it had hired the core team of mortgage lending executives from Live Well, in addition to approximately 50 former Live Well sales and operations employees to expand its retail, wholesale, principal agent and closed-loan seller mortgage channels.

Due to its origination volume prior to closing, Live Well Financial is still technically a top 10 reverse mortgage originator based on the most recent endorsement data by Reverse Market Insight (RMI). It is currently ranked at number 7 as of July with 1,062 endorsements in 2019.

Read the statement at the U.S. Attorney’s Office for the Southern District of New York, and the release from the Securities and Exchange Commission.