A defendant in a civil securities case who is also the target of a criminal investigation by the Department of Housing and Urban Development’s Office of Inspector General says that mortgagees on government-insured loans are unjustly being accused of criminal fraud because of their underwriting decisions and not because of actual criminal activity. He hopes to have the case against him dismissed.
In March, the Securities and Exchange Commission announced that it filed a civil injunctive action against Robert A. DiGiorgio and his company Radius Capital Corp. The case was filed on March 17 in U.S. District Court for the Middle District of Florida.
The government claims that DiGiorgio and his defunct company tried to defraud Ginnie Mae and MBS investors by issuing 15 mortgage-backed securities filled with loans that the defendants claimed were to be insured by the Federal Housing Administration — even though more than a hundred of the 154 underlying loans were not FHA-insurable.
“Radius never even applied for FHA insurance for most of the uninsured loans and failed to submit the up-front mortgage insurance premiums it had collected from borrowers at closing to the FHA which were required for the loans to be insured,” the SEC stated.
But DiGiorgio vehemently disagrees with the SEC’s characterization of his activities.
In a telephone interview with MortgageDaily.com, DiGiorgio said that there are no allegations of fraudulent appraisals, phony tax returns or fake social security numbers. He said that the allegations all relate to alleged poor underwriting and don’t relate to mortgage fraud or straw buyers.
“This will be the first time ever in history that an underwriter’s discretion is going to tried to be turned into a fraud complaint,” DiGiorgio said. “The chilling fact of this is that the government, in an attempt to reach out and find the most defenseless trophies, they’re going to now broaden the term of ‘fraud’ to include … somebody’s opinion of an underwriting.”
He explained that FHA’s minimal rules can be overridden with compensating factors. He questioned why mortgage fraud is alleged just because FICO scores might be lower.
Radius, DiGiorgio said, had around five branches and “made a couple hundred thousand dollars a year.” The company was founded in 1995 and ended operations around 2006.
He noted that when the company no longer met Ginnie’s minimum staff and net worth requirements, Ginnie took over the business “and it was their job from that point to get the loans insured which they botched.”
DiGiorgio, who has since left the industry, said it doesn’t make sense that the rules are being applied retroactively, in his case from 2005 to 2006, “when the government themselves, under both Clinton and Bush, had pushed the underwriting of the major lenders to be lower.”
He said that the government has spent $400,000 over the past five years investigating him — with nothing to show for their efforts. He said that the SEC’s allegations were so vague that his attorney didn’t even answer the complaint and immediately filed a motion for dismissal.
At this point, he said, the SEC is grabbing at anything it can.
“They’re not going to find the Bernie Madoffs of the world, because those are the guys who have the money to defend themselves,” he explained. “They’re going to come after me because I look just like Bernie Madoff on paper if you get enough guys like me.”
DiGiorgio said much of the government’s litigation is motivated by an investigation being conducted by the HUD’s Office of Inspector General. He said a grand jury has been probing him and others “for the longest time.” But he is unaware of any indictment being filed and suspects they don’t have enough evidence to move forward.
He said that he followed the advice of his criminal attorney and isn’t talking to HUD. So HUD, according to DiGiorgio, “is trying to do an end runaround around my Fifth Amendment” by getting the SEC to request the information through a civil complaint.
But since a dismissal has been requested in the SEC’s civil lawsuit — a motion to dismiss was filed by DiGiorgio on May 15 — HUD isn’t getting any information from the SEC’s case.
A memorandum filed in support of the motion to dismiss indicated that the fraud alleged by the SEC was merely pre-printed forms that are required by HUD and Ginnie Mae and were used by Radius.
“Put simply, plaintiff has failed to allege any actionable misrepresentation that Mr. DiGiorgio or Radius actually ‘made,'” the filing states. “For these reasons and because plaintiff’s complaint otherwise fails to meet the threshold requirements of Rules 9 and 12, Federal Rules of Civil Procedure, the court should dismiss the plaintiff’s complaint.”
“It’s just one arm of the government helping the other, and … this is an egregious … abuse of power,” DiGiorgio said in the interview. “If I didn’t have the right counsel right now, I’d be in jail.”
His counsel, a federal public defender, reportedly stepped up to the plate on his behalf from the beginning and got some help from a former SEC attorney.
He claims that the government isn’t hesitating to put innocent people in jail in its zest to find high-profile culprits for the mortgage crisis — something he referred to as “rather disgusting.”
“I’m outraged because I think there’s other people going to jail and other people being fined enormous amounts of money when they didn’t do anything wrong,” he concluded.
Securities and Exchange Commission, Plaintiff, v. Radius Capital Corp. and Robert A. DiGiorgio, Defendants.
Case 2:11-cv-00116-JES-DNF, March 7, 2011 (U.S. District Court for the Middle District of Florida).
