Michael Hild grilled over details of bond fraud scheme
The criminal fraud trial of Richmond businessman Michael Hild is headed into its third week, building up to the crescendo of Hild taking the stand to testify in his own defense.
The prospect of Hild’s expected testimony was confirmed by
his attorney, Benjamin Dusing, who discussed it with the prosecution and Judge
Ronnie Abrams at the end of Friday’s proceedings after the jury had left for
the day.
That brief discussion capped the second week of the trial,
which is being held in federal court in Manhattan. Hild, founder and former CEO
of Chesterfield-based mortgage company Live Well Financial, is charged with
securities fraud, mail fraud and bank fraud in connection with allegations of a
massive bond pricing scheme that led to the company’s collapse in 2019.
Three former Live Well executives have been charged in the
matter. Hild has pleaded not guilty. The other two, former Executive Vice
President Darren Stumberger and CFO Eric Rohr, have pleaded guilty and have
been key witnesses in the trial.
Last week featured three days of grueling testimony by Rohr,
who was grilled both by the prosecution and Dusing on Wednesday, Thursday and
Friday.
Rohr, who was Live Well’s original CFO and served in that
role until he left the company in December 2018, about six months before its
collapse, said he met Hild while both were working at Capital One in Richmond.
Rohr joined Hild at Live Well when the company was still
focused mainly on originating and servicing reverse mortgages.
He described how the company eventually got into the
business of packaging those mortgages into bonds and selling them to the
secondary investor market.
Rohr told prosecutors the original goal of the bond business
was to find an extra revenue stream to help stabilize the company’s financials.
The logic was that the steady interest income from the bonds would counteract
the fluctuations of the reverse mortgage origination business, which Rohr
described as more volatile.
Where the company went astray, Rohr said, was when it began
pricing the bonds itself, rather than relying on a third-party pricing agency.
And for reasons that are the crux of the trial, it began to price the bonds
above market value, while using those same bonds as collateral to continually
take out loans from several lenders.
The company’s main lenders were Mirae Asset Securities,
Flagstar Bank and the Industrial and Commercial Bank of China. Representatives
from each of those banks testified last week.
Mirae’s Richard Misiano testified that at one point the
company made a margin call on a Live Well note, demanding Live Well pay around
$600,000 after the value of the collateral had diminished. Hild, on a recorded
call with Mirae that was played during the trial, claims the company didn’t
have the cash to pay the margin call.
Prosecutors then presented evidence that Live Well paid Hild
$2 million in the four month period preceding that call.
Misiano said Mirae was left with a $110 million hole when Live
Well collapsed.
Perhaps the most emotional testimony last week was that of
former Live Well employee Hayden Novikoff.
Novikoff was an analyst at the now-defunct
Chesterfield-based reverse mortgage lender. Among his duties was to submit
prices of Live Well’s reverse mortgage bonds to the secondary market.
Novikoff testified that he was aware of the inflated prices
and his conscience eventually got the best of him. He told his bosses he no
longer wanted to be involved in submitting the inflated information.
“I was very confident that this was wrong and that the
lenders were being misled and I was feeling an incredible amount of guilt about
being a party to it,” Novikoff said.
He said he told the company he would quit if the practice
continued. He said Live Well ultimately continued the same practice by having
someone else send the prices through an email account that didn’t connect back
to any specific employee.
But Novikoff, who was not charged in the case, said the
matter for him came to a head when he got a knock on the door of his home.
“Two SEC agents knocked on my door at my apartment in
Richmond and showed me some document. This wasn’t something I ever saw
happening in my career.”
He left Live Well in June 2018.
Rohr also described instances at Live Well when he could no
longer stomach his involvement, despite years when his pay included $1 million
bonuses.
The prosecution at one point asked Rohr how he felt about
marking up the bond prices internally while telling lenders the higher prices
were coming from a third party.
“I did not feel good about that. I knew it was wrong,” Rohr
said.
Another such anecdote involved a time Hild wanted to be
compensated by Live Well for personal guarantees he pledged on Live Well loans.
It was at a time when the bond pricing practices were beginning to leave the
company in a precarious position.
Despite that position, Rohr said Hild insisted on the
company repaying him for the guarantees.
“It was in that moment I realized he wasn’t going to put the
best interests of the company in front of his. At that point I was done,” Rohr
said.
He resigned in December 2018. He was charged along with Hild
and Stumberger in May 2019 and pleaded guilty in August 2019.
When asked by the prosecution why he pleaded guilty, Rohr
said: “Because I am guilty.”
He faces a max of 105 years in prison, though that’s a
highly unlikely sentence. His lowest possible punishment includes no jail time.
“I do not want to go to prison,” Rohr said, when asked why
he’s cooperating and testifying.
Monday’s proceedings will begin around 10 a.m. with the
prosecution expected to call additional witnesses. Dusing said Hild is expected
to take the stand this week as the defense presents its case.
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