NEW YORK (Reuters) - Three former senior executives of American Home Mortgage Investment Corp AHMIQ.PK, one of the biggest U.S. mortgage companies, were charged with involvement in an accounting fraud, the U.S. Securities and Exchange Commission said on Tuesday.
The regulator said in a statement that former chairman and CEO Michael Strauss and former CFO Stephen Hozie fraudulently understated first-quarter 2007 loan loss reserves by tens of millions of dollars, converting the company’s loss into a fictional profit.
The pair and former controller Robert Bernstein faced civil charges of misleading American Home Mortgage’s auditor, among other violations, according to the complaint in Manhattan federal court.
Lawyers for all three men could not immediately be reached for comment.
The company, which was the No. 10 mortgage lender in the United States, filed for bankruptcy protection in 2007 amid the mortgage meltdown that contributed to the financial crisis.
“Strauss and Hozie also made misleading disclosures about the riskiness of the mortgages that the company originated and held,” the regulator said.
It said American Home Mortgage originated the majority of its loans in 2006 on a “stated income” basis without verifying the borrower’s income.
Strauss settled the charges without admitting or denying any wrongdoing, agreeing to pay more than $2.45 million. He also agreed to be barred for five years from working as an officer or director of a public company.
Litigation against Hozie and Bernstein would continue, the regulator said.
“These senior executives did not just occupy a front row seat to the mortgage meltdown — they were part of the show,” said Robert Khuzami, director of the SEC’s Division of Enforcement.
“As the housing market imploded, these executives kept secret that the company’s holdings were collapsing like a house of cards.”
According to the complaint, Strauss and Hozie understated
American Home Mortgage’s reserves even though the company’s internal analysis showed it needed at least $38 million in additional reserves.
The three misled the firm’s internal auditor about the adequacy of first quarter 2007 reserves and Strauss and Hozie misled investors about the company’s liquidity.
The case is Securities and Exchange Commission v Michael Strauss, Stephen Hozie and Robert Bernstein 09-04150 U.S. District Court for the Southern District of New York (Manhattan)
Reporting by Grant McCool; Editing by Brian Moss