Angel Oak Capital Advisors (Angel Oak) agreed to pay a $1.75 million settlement to the U.S. Securities and Exchange Commission (SEC). And portfolio manager Ashish Negandhi will settle the charges for $75,000.
The firm is the investment management arm of non-QM lender Angel Oak Companies. The Atlanta-based firm is one of Georgia’s fastest-growing companies. And its lending platform set records in 2021.
The SEC alleged the company misled investors in the 2018 private-label securitization. The $90M in fix-and-flip loans was advertised as “a first of its kind” by the company.
The SEC said that to protect the reputation of Angel Oak’s securitization business it misled investors. The company was also trying to avoid early repayment to investors that would be triggered by loan delinquencies.
“Shortly after the [securitization] deal closed, loan delinquency rates increased unexpectedly,” the SEC alleges.
Negandhi and Angel Oak “artificially reduced delinquency rates,” the SEC claims. That was accomplished by diverting funds being held for borrowers to complete property renovations and redirecting them to “instead pay down outstanding loan balances.”
“Because Angel Oak and Negandhi did not disclose these actions, the performance data regularly disseminated to investors provided an inaccurate view of the actual delinquency rates on the mortgages in the securitization pool as well as the securitization’s compliance with the early repayment trigger,” the SEC claimed.
Chief of the complex financial instrument unit of the SEC’s Division of Enforcement, Osman Nawaz, said that misleading investors by failing to disclose the improper use of funds “while continuing to issue larger securitizations” violated multiple SEC laws.
“Firms must provide investors with full and accurate information regarding the performance of an investment, even after closing, to ensure the integrity of our markets,” Nawaz said.
The SEC found that Angel Oak and Negandhi violated antifraud U.S. securities regulations. And have agreed to the $1.75 million settlement from the company. And $75,000 from Negandhi. The company was also hit with a cease-and-desist order and a censure.
A statement from Angel Oak
“While not admitting or denying the findings, Angel Oak Capital Advisors accepts the ruling set forth by the SEC relating to a 2018 securitization involving fix-and-flip mortgage loans. The Angel Oak affiliate mortgage company has not originated these loans since 2019, and all senior noteholders in the securitization received full payment of principal and interest.”