THE BASIS POINT

Thornburg Execs Respond To SEC Fraud Charges

I freely admit that I am a fan of the old Thornburg Mortgage, in theory: make sense deals, almost regardless of loan amount, that filled the niche between agency paper and Alt-A, or subprime.

So it was disappointing when the SEC said three Thornburg executives (ex-CEO Larry Goldstone, ex-CFO Clarence Simmons and ex-Chief Accounting Officer Jane Starrett) conspired to conceal disastrous conditions at the investor, and overstated Thornburg’s income by more than $400 million in 2007.

The SEC is seeking unspecified fines and restitution from them and wants them to be barred from serving as officers or directors of any public company. As we remember, Thornburg faced “a severe liquidity crisis” in early 2008 and its lenders were demanding payments the company wasn’t able to meet.

A couple of the ex-Thornburg executives responded to the SEC’s lawsuit, with some phrases very similar to Quicken’s statement of the Freeman vs. Quicken Loans case (“wholly without merit” comes to mind).

The courts will decide if the $400 million is due to a mark-to-market requirement that resulted from an accounting issue (FASB 157) that was triggered by the repo market, or fraud.

By the way, a few folks wrote to say that they though Bank of Internet was Thornburg reborn. BofI Federal Bank has replaced Thornburg in the market with “niche, make-sense loan programs for borrowers with assets but that fall outside the typical Fannie/Freddie box.” BOFI lends in all 50 states and will allow both wholesale and correspondent relationships.

But BofI isn’t comprised of ex-Thornburg folks. It’s an unrelated entity.

Here’s what former Thornburg CEO Larry Goldstone is doing now.
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