While it’s Richmond businessman Michael Hild who’s on trial in Manhattan for criminal fraud charges, it was one of his former bond traders and alleged co-conspirators who got grilled last week during the case’s first week of testimony.
Darren Stumberger, who has already pleaded guilty for his role in the multi-million bond pricing scheme that toppled Hild’s now-bankrupt Chesterfield-based mortgage company Live Well Financial, was pelted with three straight days of questions from federal prosecutors and Hild’s defense attorney.
Stumberger took the stand midday Wednesday and his testimony consumed the entire day Thursday and Friday. He was finally let down just after 4 p.m. and the court ended for the weekend.
The trial opened Wednesday morning with opening statements from the U.S. Attorney’s Office and Hild’s attorney, Benjamin Dusing.
The prosecution told the jury the case is “about greed and lies.”
“We’re here today because Michael Hild defrauded his lenders,” said Assistant U.S. Attorney Jordan Estes.
That was a reference to the government’s claims that from 2015 to 2019, Hild, who was Live Well’s founder and CEO, helped mastermind a scheme to defraud the company’s lenders by falsely inflating the value of a portfolio of reverse mortgage bonds, in order to induce the lenders into loaning more money to Live Well than they otherwise would have.
The lenders were Mirae Asset Securities, Flagstar Bank and the Industrial and Commercial Bank of China. The government alleges that over time the scheme overvalued the bonds by more than $200 million and that Hild personally pocketed more than $20 million as a result. The lenders have continued to jockey for repayment in Live Well’s bankruptcy case, which is ongoing.
“Ladies and gentlemen, he was using the lenders as an ATM,” Estes said of Hild.
Dusing took a different approach in his opening statement, first introducing himself as being from Kentucky and playfully apologizing to the Manhattan jurors for any Southern accent they might detect in him.
He then focused on directing the jurors as to where they might find the truth over the course of the trial, noting that the 12 jury members were separated and confined by plexiglass barriers due to protective measures instituted in the courtroom in light of the pandemic.
“You’re going to have to look around plexiglass to find the truth,” Dusing said.
He also explained how the trial would deal heavily in Live Well’s reverse mortgage bonds, which he described as some of the most complicated financial instruments known to man.
“The truth is found within the complexity,” he said.
Dusing then informed them of how grueling the trial might be time-wise. It’s expected to run several weeks.
“Here’s how long: As long as it takes to ascertain the truth. The truth takes as long as truth takes,” he said.
Hild, who built Live Well from scratch beginning in 2005 after working as an executive at Capital One, has pleaded not guilty and has remained free on bond after being indicted and arrested in the case in 2019. He faces charges of securities fraud, mail fraud and bank fraud.
Dusing reminded the jury that the burden is on the prosecution to prove those charges. He asked them to consider the true nature of Hild’s intent.
“Did Mr. Hild have good intent? Was he acting in good faith or did he intentionally try to defraud people? That is the issue.”
“At the end of all this I will appear before you and ask all of you to find Michael Hild not guilty because the facts compel that result.”
Prosecutors had the first crack at Stumberger, an experienced Wall Street bond trader who came over to Live Well when the company acquired a portfolio of bonds and traders in 2014.
Using evidence including calls recorded by Stumberger, the prosecutors tried to paint a picture that Hild ordered and led Live Well’s practice of pricing its reverse mortgage bonds in-house, rather than relying on a third-party and subsequently pricing them higher than the actual value. The goal, allegedly, was to continue to be able to borrow money and to avoid triggering margin calls from lenders due to the fact that the bonds were allegedly declining in value.
Dusing then spent considerable time with Stumberger trying to prove that Hild only knew but so much about how the prices were being manipulated and that Live Well set its own prices not to deceive but because the bonds were so complex that even a third-party pricing firm couldn’t figure out how to do it properly, even after Live Well hired it to do so.
That’s where “Scenario 14” comes in. That was the code for the alleged fraud, the process by which Live Well allegedly artificially inched up the supposed market price of its reverse mortgage bonds.
The government tried to show that Live Well increased the prices to manipulate lenders and to do so incrementally as not to draw too much attention that they were above the going market rate. Dusing tried to prove that Scenario 14 was a good faith effort to value the bonds “intrinsically.”
The bulk of the recordings used thus far were made by Stumberger, who said he started doing so after becoming nervous of what was happening at Live Well, particularly related to the pricing.
He said he and others at Live Well learned internally that the SEC was investigating the company as early as 2017. Stumberger said he eventually reached out to the SEC on his own and was in communication with them even while still on Live Well’s payroll. He said his compensation during the heart of the period at question was more than $1 million a year.
The trial will resume at 10 a.m. this morning before Judge Ronnie Abrams. An audio broadcast of the trial is available to the general public at (888) 363-4749 and with access code 1015508#.
Among other witnesses expected to testify is former Live Well CFO Eric Rohr, who like Stumberger has pleaded guilty to his role in the bond scheme and is cooperating with federal authorities in the hopes of a more lenient punishment.