The Securities and Exchange Commission has charged an Atlanta-based company with misleading investors about the firm’s delinquency rates, the SEC announced.
The defendants, Angel Oak Capital Advisors, LLC and its portfolio manager Ashish Negandhi, reached a settlement with the SEC in which Angel Oak agreed to pay a penalty of $1.75 million, while Negandhi will pay $75,000.
According to the charges, Angel Oak raised $90 million from investors in 2018 through the first-ever securitization of what were known as “fix-and-flip” loans. These involved loans made to borrowers for the purpose of buying, renovating and selling residential properties. If delinquencies reached a certain level, Angel Oak was committed to speeding up its obligation to return funds to certain investors. The loan delinquency rates rose unexpectedly after the $90 million deal closed.
That caused Angel Oak and Negandhi to be concerned about financial harm and damage to their image from an early repayment, the SEC said. The company then allegedly took funds set aside to pay back borrowers for renovations to their properties, and instead diverted those funds to pay off the loan balances as a way to artificially reduce the delinquency rates. These actions were not disclosed to investors, who thus were given an inaccurate view of the delinquency rates on the mortgages in the securitization pool.
“Angel Oak and Negandhi failed to disclose the firm’s improper use of funds while continuing to issue larger securitizations, which painted a misleading picture for investors,” said Osman Nawaz, Chief of the Division of Enforcement’s Complex Financial Instruments Unit. “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.”
Angel Oak and Negandhi were found to have violated the antifraud provisions of the Securities Act of 1933, and the antifraud provisions of the Investment Advisers Act of 1940. The defendants did not admit or deny the findings, but did agree to a cease-and-desist order, a censure, and the monetary penalties.
The attorneys at Lewitas Hyman have decades of experience dealing with securities fraud cases and have a deep understanding of how capital markets and financial service firms are intended to work to protect investors. If you think your financial professional or firm engaged in misconduct that caused you investment losses, contact Lewitas Hyman at (888) 655-6002 or through our online contact form for a no-cost evaluation of your matter.