The Eleventh Circuit denied an appeal by a mortgage lender to have a Florida
jury’s fraud verdict thrown out. CEO Robert A. DiGiorgio, appealed
to have the court overturn the decision that he committed mortgage fraud
regarding deficient loans used in mortgage-backed securities. The court
finding resulted in a $2.7 million judgment against him, and the circuit
court found that the jury had enough evidence to support the guilty verdict.
Mr. DiGiorgio pleaded the court to undo the ruling in the suit filed against
him by the Securities and Exchange Commission or give him a retrial because
of lack of evidence. The three-judge panel denied his appeal, finding
that there was overwhelming evidence that DiGiorgio lied to the Government
National Mortgage Association (Ginnie Mae) about the quality of loans
used in securities sold by his company.
Radius Capital Corporation, along with CEO DiGiorgio, argued that misrepresentations
that were made in regards to the quality of loan packages were only made
to Ginnie Mae and not to the general public, and therefore could not have
violated securities law. The appeals court ruled against him, however,
based on an interpretation of Securities and Exchange Commission Rule 10b-5.
U.S. District Judge John E. Steele refused to grant a new trial, stating
that the jury instructions were not prejudiced against DiGiorgio, and
that case evidence produced against him supported the jury’s decision.
The circuit court, in hearing the appeal, refused to reverse the lower
In issuing its ruling, the panel wrote, “The jury’s verdict
was not against the great weight of the evidence,” The type of false
information on the GinnieNET forms — e.g., invalid Social Security
numbers, false case numbers and falsified employment information —
was quite particular.”
Originally filed by the SEC in 2011, the suit alleged Radius Capital had
made assurances to Ginnie Mae, and other investors, that mortgages backing
the securities were insured by the FDIC, when in fact, nearly three-quarters were not.
The suit was based on the defendants packaging high-interest loans made
to low-income borrowers into residential mortgage-backed securities (RMBS)
that were backed by Ginnie Mae and sold off to investors.
According to the suit, Radius allegedly sold 15 RMBS between December 2005
and October 2006, totaling more than $23 million. The sale of the securities
resulted in profits of $1 million for the lender and Mr. DiGiorgio.
The government argued that contrary the company’s claims, over 70
percent of the loans packaged in the securities were not insurable under
FHA guidelines and contained inflated appraisals, incorrect social security
numbers, and falsified employment documents.
The SEC contends that after the mortgages backing the RMBS defaulted, Ginnie
Mae was forced to make good on the obligations with the investors. The
complaint stated that Ginnie Mae was required to pay investors the remaining
principal balance on the loans that defaulted, even though they were not
insurable. The losses topped several million dollars.
In 2013, the case was dismissed in part, when it was found that five of
the RMBS in question were issued before 2006 and fell outside the 5-year
statute of limitations for civil relief. Judge Steele barred the SEC from
seeking civil penalties on those five securities.
But, in February 2014, the jury found that DiGiorgio lied or made false
statements to Ginnie Mae in regards to the issuance of $23 million in
RMBS guaranteed by the government.
The case is being heard in the U.S. Court of Appeals for the Eleventh District
as Securities and Exchange Commission v. Robert A. DiGiorgio, case number 15-12004.
Kevin Kim orcall us at (949) 298-8050 today, for more information.