Atlanta-based Angel Oak Capital Advisors, LLC and its portfolio manager Ashish Negandhi recently settled securities fraud allegations brought by the Securities and Exchange Commission (SEC) in connection with alleged inaccurate disclosures about mortgage delinquency rates made to investors in AOMT 2018-PB1 notes, according to an Order Instituting Administrative and Cease-and-Desist Proceedings under the review by attorney Alan Rosca.
Investor rights attorney Alan Rosca of the Rosca Scarlato LLC law firm and his colleagues are investigating conduct related to Angel Oak Capital Advisors’ alleged dissemination of misleading data to AOMT 2018-PB1 investors. Investors who are concerned about their investment in AOMT 2018-PB1 notes may contact attorney Alan Rosca or his colleagues for a free case evaluation and discussion of potential options, or to provide any useful information by calling 888-998-0530, via email at arosca@rscounsel.law, or through the contact form on this webpage.
Angel Oak Capital Advisors and Ashish Negandhi Allegedly Raised $90 Million Through Securitization of “Fix-and-Flip” Loans
The SEC describes the “fix and flip” loans as short term, high interest loans issued to borrowers to purchase a property for the purpose of renovating and later selling the improved property or converting the property to a rental unit. According to the Cease-and-Desist order, in March 2018, Angel Oak Capital Advisors through Angel Oak Mortgage Trust allegedly issued AOMT 2018-PB1 notes and raised $90 million from investors through a reportedly novel securitization of a pool of “fix and flip” loans. The AOMT 2018-PB1 notes were divided in senior notes or Class A, and junior notes, or class R. The face value of senior notes was $63 million and were allegedly initially purchased by institutional investors and banks, while the junior notes were allegedly held by two private funds advised by Angel Oak, the order states. According to the SEC, during the revolving period, the AOMT 2018-PB1 notes traded in the secondary market.
The offering materials received by investors in the AOMT 2018-PB1 notes allegedly described, among others, length of the revolving period, the operation of certain early amortization triggers, and the purpose and intended use of funds held in the loan in progress (LIP) accounts. One amortization trigger was allegedly triggered when the average of 60+ day delinquencies on the loans over three months would exceed 15% of the unpaid balance for two months.
According to the SEC, the fix and flip loans were allegedly originated and later serviced by Angel Oak Prime Bridge, an affiliate of Angel Oak Capital Advisors. Angel Oak Prime Bridge was allegedly responsible for the disbursements made from the LIP accounts, that were allegedly conditioned by an inspection by a third party and were based on receipts of work performed.
Angel Oak Capital Advisors and Ashish Negandhi Allegedly Violated Federal Antifraud Provisions
“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,” Osman Nawaz, Chief of the Division of Enforcement’s Complex Financial Instruments Unit
The SEC alleged in its order that after the AOMT 2018-PB1 offering closed, the loan delinquencies in the underlying loan pool allegedly began to increase. According to the order, if delinquencies reached a pre-defined threshold Angel Oak had an obligation to return funds to certain investors earlier that projected. An early amortization caused by high delinquency rates soon after the closing of the offering would have allegedly impacted the reputation of Angel Oak and its affiliates, including the two private funds that held the junior notes, the order states. Particularly, an early repayment of principal and interest to senior Class A noteholders would have allegedly led to insufficient funds to repay the junior class R noteholders, allegedly resulting in financial loss to the private funds, according to the order.
In an alleged attempt to lower the mortgage loan delinquency rates, and unbeknownst to investors, Angel Oak Capital Advisors and its affiliated entities diverted funds from the LIP accounts to make interest payments on delinquent loans, the SEC alleges. According to the Cease-and-Desist Order, if Angel Oak wouldn’t have used LIP funds to repay delinquent loans, Class A Noteholders would have received early repayment of their principal investment in November 2018. The order further states that in connection to Angel Oak’s failure to disclose to investors the diversion of funds from the LIP accounts, the company allegedly disseminated false and misleading information to noteholders and prospective investors.
As a result, the Commission alleged that Angel Oak and Negandhi violated the antifraud provisions of the Securities Act of 1933, and the Investment Advisers Act of 1940. Without admitting or denying SEC’s findings, Angel Oak Capital Advisors and Negandhi allegedly agreed to pay a penalty of $1.75 million and $75,000, respectively, in addition to being censured.
The Commission also noted that, to preserve the deterrent effect of the civil penalty, Angel Oak and Negandhi agreed that in any action brought by private investors arising out of the same facts, Angel Oak and Negandhi shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of any award of compensatory damages by the amount of any part of their payment of a civil penalty in this action.
Finally, it is important to note that, as of the date of this article, there has not been a finding of liability as to the complaints or allegations mentioned in this article, unless otherwise indicated. Any reader should also read the original sources hyperlinked in this blog for accuracy, including any BrokerCheck report and/or record of any disciplinary or regulatory action. Those sources are incorporated by reference into the text of this blog and are the governing materials in case of any inconsistencies or typos in this blog.
Potential Options for AOMT 2018-PB1 Noteholders
Investors who have concerns about their investments in AOMT 2018-PB1 notes should discuss their case with a securities attorney. The Rosca Scarlato LLC lawyers have extensive experience in pursuing compensation on behalf of investors who experienced losses as a result of violation of securities law. They take cases like this on a contingency fee basis, advance all the costs, and only get reimbursed if the case is won. Investors are not required to pay any fees or expenses if there is no recovery.
Investor rights attorney Alan Rosca and his team are investigating the allegations involving Angel Oak Capital Advisors’ alleged improper diversion of funds and dissemination of misleading data regarding delinquency rates. Contact attorney Alan Rosca or his colleagues at 888-998-0530, via email at arosca@rscounsel.law, or through the contact form on this webpage, to discuss potential options. All consultations are free.
