Angel Oak to pay $1.75M fine to settle SEC charges
The Securities and Exchange Commission (SEC) today charged Atlanta-based Angel Oak Capital Advisors, LLC and its portfolio manager Ashish Negandhi for misleading investors about the firm’s fix-and-flip loan securitization’s delinquency rates. Angel Oak and Negandhi have agreed to settle charges and pay a penalty of $1.75 million and $75,000, respectively.
According to the SEC’s order, in March 2018, Angel Oak raised $90 million through a first-of-its-kind securitization of loans made to borrowers for the purpose of purchasing, renovating, and selling residential properties, also known as “fix-and-flip” loans, which were originated by an Angel Oak-affiliated entity. The deal included a provision that would accelerate Angel Oak’s obligation to return funds to certain investors if delinquencies reached a pre-defined threshold. Shortly after the deal closed, loan delinquency rates increased unexpectedly.
Concerned about the reputational and financial harm its securitization business would suffer from an early repayment, Angel Oak and Negandhi artificially reduced delinquency rates by improperly diverting funds ostensibly held to reimburse borrowers for renovations made to the mortgaged properties, 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’s order finds that Angel Oak and Negandhi violated the antifraud provisions of the Securities Act of 1933, and that Angel Oak violated, and Negandhi caused Angel Oak’s violation of, the antifraud provisions of the Investment Advisers Act of 1940.
Without admitting or denying the SEC’s findings, Angel Oak and Negandhi agreed to a cease-and-desist order, a censure, and the imposition of civil monetary penalties in the amounts referenced above.