The Securities and Exchange Commission (“SEC”) charged three mortgage executives at Thornburg Mortgage, Inc. (“Thornburg”), formerly the nation’s second largest independent mortgage company after Countrywide Financial Corporation. According to the SEC, the executives made fraudulent misrepresentations and omissions about Thornburg’s financial condition, margin call activity and liquidity.
In August 2007, Thornburg was late in meeting margin calls from at least three lenders, thereby placing it at risk of being declared in default of its lending agreements. Subsequently, Defendants allegedly misrepresented to Thornburg’s auditor that the firm had not experienced any non-compliance issues with its contractual obligations. By concealing its margin crisis and making arrangements to make late payments on the defaulted margin calls, the executives mislead its auditor and the investing public. On February 28, 2008, just a few hours after making the final late payment on its margin calls, Thornburg timely filed its annual report. By filing timely, Thornburg avoided disclosing additional margin calls. The annual report overstated the company’s income by more than $400 million, and falsely recorded a profit rather than an actual loss for the fourth quarter. The executives’ intention was “to keep the current situation quiet while we deal with it.”
Thornburg eventually disclosed its problems to the SEC, and on March 11, 2008, filed an amended annual report. By this time, Thornburg’s stock price had collapsed by more than 90 percent. Thornburg filed for bankruptcy on May 1, 2009.