U.S. authorities charge former CEO in alleged fraud scheme

Former executive allegedly involved in scheme to inflate the value of company’s bond portfolio

The former CEO of a failed U.S. financial firm is facing charges in connection with an alleged US$140 million scheme to defraud securities dealers by mismarking its bond portfolio.

The U.S. Attorney’s Office for the Southern District of New York brought charges against Michael Hild, founder and former CEO of Live Well Financial, Inc., on Thursday.

Hild, 44, is facing five charges, including securities fraud, wire fraud, bank fraud and conspiracy, for his role in an alleged scheme to fraudulently inflate the value of his company’s bond portfolio. He was arrested in Virginia.

The U.S. Securities and Exchange Commission (SEC) also filed separate civil charges against Hild on Thursday. The allegations have not been proven in either case.

According to U.S. authorities, the alleged scheme was designed to “induce various securities dealers and at least one financial institution into loaning more money to Live Well — through repurchase (repo) agreements and collateralized loans — than they otherwise would have had they known the actual value of Live Well’s bond portfolio.”

Allegedly, the firm provided inflated prices for its bonds to a third-party pricing service that its lenders relied on as part of the financing arrangements.

“The inflated bond prices allowed Live Well to substantially increase its access to cash at the expense of the lenders, who were deceived into lending sums of money that, in many instances, exceeded the true market value of the collateral by substantial sums,” the indictment said.

The government also unsealed charges today against Live Well’s former CFO, Eric Rohr, and the firm’s former head trader, Darren Stumberger. They have both pleaded guilty and are cooperating with the government.

“As alleged, Michael Hild orchestrated a scheme to deceive Live Well’s lenders by fraudulently inflating the value of its mortgage-backed bonds by over $140 million. This allegedly enabled Live Well to borrow money well over the value of the collateral it put up,” said Geoffrey Berman, Manhattan U.S. attorney.

“In turn, Hild used these ill-gotten funds to gain control of the company and increase his own compensation by nearly 700 per cent, while exposing lenders cumulatively to $65 million in unsecured loans to the company, which is now in bankruptcy,” he added.

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