Hild trial week 2 recap: CFO grilled over details of bond fraud scheme

Michael Hild’s federal criminal trial for charges of securities fraud, mail fraud and bank fraud is entering its third week in Manhattan. He is expected to take the stand in his own defense this week. (BizSense file)

The criminal fraud trial of Richmond businessman Michael Hild is headed into its third week, building up to the crescendo of Hild taking the stand to testify in his own defense.

The prospect of Hild’s expected testimony was confirmed by his attorney, Benjamin Dusing, who discussed it with the prosecution and Judge Ronnie Abrams at the end of Friday’s proceedings after the jury had left for the day.

That brief discussion capped the second week of the trial, which is being held in federal court in Manhattan. Hild, founder and former CEO of Chesterfield-based mortgage company Live Well Financial, is charged with securities fraud, mail fraud and bank fraud in connection with allegations of a massive bond pricing scheme that led to the company’s collapse in 2019.

Three former Live Well executives have been charged in the matter. Hild has pleaded not guilty. The other two, former Executive Vice President Darren Stumberger and CFO Eric Rohr, have pleaded guilty and have been key witnesses in the trial.

Last week featured three days of grueling testimony by Rohr, who was grilled both by the prosecution and Dusing on Wednesday, Thursday and Friday.

Rohr, who was Live Well’s original CFO and served in that role until he left the company in December 2018, about six months before its collapse, said he met Hild while both were working at Capital One in Richmond.

Rohr joined Hild at Live Well when the company was still focused mainly on originating and servicing reverse mortgages.

He described how the company eventually got into the business of packaging those mortgages into bonds and selling them to the secondary investor market.

Rohr told prosecutors the original goal of the bond business was to find an extra revenue stream to help stabilize the company’s financials. The logic was that the steady interest income from the bonds would counteract the fluctuations of the reverse mortgage origination business, which Rohr described as more volatile.

Where the company went astray, Rohr said, was when it began pricing the bonds itself, rather than relying on a third-party pricing agency. And for reasons that are the crux of the trial, it began to price the bonds above market value, while using those same bonds as collateral to continually take out loans from several lenders. The government claims the lenders were unaware that the prices were coming directly from Live Well, rather than a third party, and didn’t reflect true market value.

The company’s main lenders were Mirae Asset Securities, Flagstar Bank and the Industrial and Commercial Bank of China. Representatives from each of those banks testified last week.

Mirae’s Richard Misiano testified that at one point the company made a margin call on a Live Well note, demanding Live Well pay around $600,000 after the value of the collateral had diminished. Hild, on a recorded call with Mirae that was played during the trial, claims the company didn’t have the cash to pay the margin call.

Prosecutors then presented evidence that Live Well paid Hild $2 million in the four month period preceding that call.

Misiano said Mirae was left with a $110 million hole when Live Well collapsed. He said that the bank would not have made the loans if it had known the bond pricing was coming directly from Live Well.

Perhaps the most emotional testimony last week was that of former Live Well employee Hayden Novikoff.

Novikoff was an analyst at the now-defunct Chesterfield-based reverse mortgage lender. Among his duties was to submit prices of Live Well’s reverse mortgage bonds to the secondary market.

Novikoff testified that he was aware of the allegedly inflated prices and his conscience eventually got the best of him. He told his bosses he no longer wanted to be involved in submitting the inflated information.

“I was very confident that this was wrong and that the lenders were being misled and I was feeling an incredible amount of guilt about being a party to it,” Novikoff said.

He said he told the company he would quit if the practice continued. He said Live Well ultimately continued the same practice by having someone else send the prices through an email account that didn’t connect back to any specific employee.

But Novikoff, who was not charged in the case, said the matter for him came to a head when he got a knock on the door of his home.

“Two SEC agents knocked on my door at my apartment in Richmond and showed me some document. This wasn’t something I ever saw happening in my career.”

He left Live Well in June 2018.

Rohr also described instances at Live Well when he could no longer stomach his involvement, despite years when his pay included $1 million bonuses.

The prosecution at one point asked Rohr how he felt about marking up the bond prices internally while telling lenders the higher prices were coming from a third party.

“I did not feel good about that. I knew it was wrong,” Rohr said.

Another such anecdote involved a time Hild wanted to be compensated by Live Well for personal guarantees he pledged on Live Well loans. It was at a time when the bond pricing practices were beginning to leave the company in a precarious position.

Despite that position, Rohr said Hild insisted on the company repaying him for the guarantees.

“It was in that moment I realized he wasn’t going to put the best interests of the company in front of his. At that point I was done,” Rohr said.

He resigned in December 2018. He was charged along with Hild and Stumberger in May 2019 and pleaded guilty in August 2019.

When asked by the prosecution why he pleaded guilty, Rohr said: “Because I am guilty.”

He faces a max of 105 years in prison, though that’s a highly unlikely sentence. His lowest possible punishment includes no jail time.

“I do not want to go to prison,” Rohr said, when asked why he’s cooperating and testifying.

Monday’s proceedings will begin around 10 a.m. with the prosecution expected to call additional witnesses. Dusing said Hild is expected to take the stand this week as the defense presents its case.

An audio broadcast of the trial is available to the general public at (888) 363-4749 and with access code 1015508#.

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Ed Christina
Ed Christina
8 months ago

Another such anecdote involved a time Hild wanted to be compensated by Live Well for personal guarantees he pledged on Live Well loans. It was at a time when the bond pricing practices were beginning to leave the company in a precarious position.”

So, Hild made personal garuntees, but wanted to be compensated for what exactly? Was he making LiveWell pay off loans he took out in hs name?

Any finnace people want to clear this up?