Opinion ID: 4541112
Heading Depth: 3
Heading Rank: 4

Heading: SEC Civil Enforcement Action and

Text: Consent Agreement In May 2016, the SEC initiated a civil enforcement action against FMC and its corporate officers in the U.S. District Court for the Central District of California (“District Court”). J.A. 427, 440; see J.A. 427–43 (SEC District Court Complaint). The SEC alleged that, “[f]rom March 2011 through March 2015, FMC and [its corporate officers] misled investors” in its Ginnie Mae-guaranteed MBS by “falsely claiming to both [Ginnie Mae] and investors that certain mortgage loans in [FMC’s] securities were delinquent when, in fact, such loans were current.” J.A. 428. The SEC explained that FMC had violated the Guaranty Agreements by “improperly exercis[ing]” its repurchase option on loans. J.A. 429. FMC had delayed the transfer of “full curing [borrower] payments” into a custodial account, Case: 19-1798 Document: 42 Page: 8 Filed: 06/12/2020 8 FIRST MORTGAGE CORPORATION v. UNITED STATES falsely pushing the borrower’s account into delinquency and eligibility for repurchase. J.A. 429. FMC then applied the delayed payments to bring the loan current and “back into FMC’s inventory,” J.A. 429, to be re-purchased at par, re-pooled, and re-sold as an MBS “at market rates, which reflected a premium over par[,]” J.A. 435–36; see J.A. 429 (explaining that “par” is “essentially the remaining principal balance on the loan”). The SEC alleged that FMC accrued “$7.5 million in illicit profits as a result of the practice,” J.A. 437, all while FMC was certifying to Ginnie Mae that FMC was in compliance with the Guaranty Agreements, J.A. 436. In June 2016, the SEC and FMC entered into a consent agreement. J.A. 455–60 (Consent Agreement). FMC, “[w]ithout admitting or denying the allegations [in the SEC District Court Complaint,] . . . consent[ed] to the entry of . . . final [j]udgment” against FMC. J.A. 455; see J.A. 462–65 (Final Judgment). FMC agreed to pay $7.5 million in disgorgement, approximately $500,000 in prejudgment interest, and $3.75 million in civil penalties. J.A. 464. FMC further agreed to “not take any action or make or permit to be made any public statement denying, directly or indirectly, any allegation in the [SEC District Court] [C]omplaint or creating the impression that the [SEC District Court] [C]omplaint is without factual basis” and to “not make or permit to be made any public statement to the effect that [FMC] does not admit the allegations of the [SEC District Court] [C]omplaint, or that this Consent [Agreement] contains no admission of the allegations, without also stating that [FMC] does not deny the allegations.” J.A. 458. The Consent Agreement provided that it did not “affect[] [FMC’s] . . . right to take legal or factual positions in litigation or other legal proceedings in which the [SEC] is not a party.” J.A. 458. In July 2016, Case: 19-1798 Document: 42 Page: 9 Filed: 06/12/2020 FIRST MORTGAGE CORPORATION v. UNITED STATES 9 the District Court entered this Consent Agreement as its final judgment. J.A. 462–65 (Final Judgment). 2