Michael C. Hild, founder and CEO of the now-defunct Chesterfield County-based Live Well Financial, was arrested by federal officials and charged with five criminal counts in a $140 million bond fraud scheme.
In a separate action, the U.S. Securities and Exchange Commission filed civil charges against Hild.
In addition to criminal charges against Hild, the federal government also charged Eric Rohr, who served as Live Well Financial’s chief financial officer from 2008 to late 2018, and Darren Stumberger, the company’s former head trader from 2014 until March 2019, for their part in the alleged scheme.
Rohr and Stumberger each have pleaded guilty to five criminal counts and are cooperating with the government.
Hild was arrested in Richmond on Thursday morning, federal officials said, in connection with a scheme where they alleged he fraudulently inflated the value of the company’s portfolio of complex reverse-mortgage bonds in order to induce various securities dealers and at least one financial institution into loaning more money to the fast-growing mortgage lender and servicer.
The scheme enabled him to fund lavish compensation packages for himself and to take full control of Live Well Financial, according to the indictment.
“As alleged, Michael Hild orchestrated a scheme to deceive Live Well’s lenders by fraudulently inflating the value of its mortgage-backed bonds by over $140 million,” said Geoffrey S. Berman, the U.S. Attorney for the Southern District of New York
“This allegedly enabled Live Well to borrow money well over the value of the collateral it put up,” he said in a statement. “In turn, Hild used these ill-gotten funds to gain control of the company and increase his own compensation by nearly 700%, while exposing lenders cumulatively to $65 million in unsecured loans to the company, which is now in bankruptcy.”
The alleged scheme, which took place between September 2015 through May of this year, allowed Live Well to grow its bond portfolio from about 20 bonds with a value of $50 million in 2014 to 50 bonds with a value of $500 million by the end of 2016. In May, Live Well wrote down the value of its portfolio by about $141 million.
The government alleges that Hild directed Live Well to submit falsely inflated bond prices to an industry-leading pricing service, which he knew would simply publish the prices Live Well gave it.
“As CEO of Live Well Financial Inc., Hild allegedly inflated the true value of the company’s bond portfolio and used this false information to obtain loans the company otherwise would not have been able to obtain,” FBI Assistant Director William F. Sweeney Jr. said in a statement. “The dealers and financial institution that lent the money are now in the possession of bonds that don’t hold the value promised as collateral.”
Hild, 44, is charged with five counts: one count of conspiracy to commit securities fraud; one count of conspiracy to commit wire and bank fraud; one count of securities fraud; one count of wire fraud; and one count of bank fraud.
If convicted on all five counts, he faces a maximum sentence of 115 years in prison. The charges also contain a maximum fine of $5 million.
He was arraigned Thursday afternoon before a magistrate in the U.S. District Court for the Eastern District of Virginia in Richmond. He was released on a $500,000 unsecured bond. He had to surrender his passport and agree not to leave Virginia except for certain reasons.
Hild also must appear before U.S. District Judge Ronnie Abrams at 2:30 p.m. on Sept. 5 in New York City
“Mr. Hild is deeply disappointed that the government has chosen to respond to the business failure of Live Well Financial by alleging corporate fraud,” according to a statement from one of his lawyers, Vernon E. Inge Jr. in Richmond.
“He cooperated fully in the U.S. Securities & Exchange Commission’s investigation and the U.S. Attorney’s Office investigation, met with the SEC and answered its questions, and interacted extensively with the U.S. Attorney’s Office to answer its questions,” according to the statement. “While Live Well unfortunately failed, every business failure is not a corporate crime.”
Hild is being represented in his criminal case by Steven Feldman and Bill Donnelly from the Murphy & McGonigle law firm in New York.
Rohr and Stumberger each face 105 years in prison on the criminal charges and to make restitution.
The SEC’s complaint charges Hild, Rohr and Stumberger with violations of the anti-fraud provisions of federal securities laws.
Under the alleged scheme, the SEC claims Live Well Financial was able to borrow tens of millions of dollars more from its lenders through the securities transactions than it could have borrowed had the bonds been priced accurately.
The scheme enabled it to fund lavish compensation packages for Hild and others, the SEC claims.
“Hild’s ‘self-generating money machine’ was a brazen fraud through which Hild enriched himself at the expense of Live Well’s counterparties,” said Daniel Michael, chief of the SEC’s Complex Financial Instruments Unit.
Hild’s salary jumped from about $1.4 million in 2015, to $5 million in 2016, $9.7 million in 2017, and to more than $8 million in 2018, according to the U.S. Attorney’s office.
In 2016, the criminal complaint alleges that Hild used $18 million generated from bond repurchase agreements to buy out the preferred stockholders in Live Well Financial. The elimination of the preferred stockholders gave Hild exclusive control of the company.
Hild founded the fast-growing mortgage company in April 2005.
Live Well Financial abruptly shut down on May 3 and laid off its 103 employees, most of whom worked at the company’s corporate offices in the Boulders office complex in Chesterfield. The company provided little details as to why the company had to close, only saying at the time that it was ceasing operations because of what it called “sudden and unexpected developments.”
But according to the SEC complaint, the scheme collapsed this year when Live Well’s lenders sought to sell the bonds back to Live Well and the company did not have the necessary funds to complete the repurchase securities transactions, leaving those lenders exposed to losses in excess of $80 million.
The scheme came to a head in May when the company’s unnamed interim chief financial officer informed Hild that he would not sign the company’s interim financial statements because he believed that the company’s carrying value for bond portfolio was significantly overstated. The interim CFO was handling the company’s finances since Rohr had resigned in late 2018.
After shutting down, Live Well’s interim CFO provided a balance sheet to lenders showing that the company had reduced the value of its bond portfolio by about $141 million.
A judge in U.S. Bankruptcy Court in Delaware on July 1 granted a motion by three creditors of Live Well Financial to put the company into involuntary bankruptcy protection.
The three creditors had claimed in June that the SEC and the bank fraud division of the FBI were investigating Live Well Financial.
Federal law enforcement officials on Wednesday obtained a restraining order prohibiting Hild from taking any actions with assets — including various real estate properties and business interests in the Richmond area — owned directly or indirectly by Hild that he allegedly purchased with proceeds from the scheme.
While Hild ran Live Well Financial, he and his wife, Laura Dyer Hild, have in recent years amassed nearly three dozen properties through Church Hill Ventures LLC in Richmond’s Manchester, Blackwell and Swansboro neighborhoods with plans to redevelop those properties.
Church Hill Ventures has opened Hot Diggity Donuts and The Butterbean Market & Café, both on Hull Street. In the same block is the Dogtown Brewing Co. brewery and restaurant that opened this year.
It also bought the former Siegel’s grocery store building off Bainbridge and Hull streets in South Richmond.
The Hilds also own Anderson’s Neck Oysters, an oyster farm along the York River in King and Queen County.
Laura Dyer Hild is listed as the registered agent on the various limited liability corporations for the businesses or real estate, according to records with the State Corporation Commission.
It is not known who actually owns those businesses. Being a registered agent does not mean ownership. A registered agent is simply a person who can receive notices or official government notifications on behalf of the business.
Five of those entities — Church Hill Ventures, Hot Diggity Donuts, The Butterbean, Dogtown Brewing and Anderson’s Neck — initially listed Michael Hild as the registered agent. The registered agent’s name was changed to his wife on Sept. 7, 2018.