Atlanta-based Angel Oak Capital Advisors and one of its employees have agreed to pay fines to settle civil charges by the Securities and Exchange Commission that the company shifted money around to mislead investors in securitized loans used to buy, rehab and flip houses.
The company “improperly” moved money around to hide how many of its loans were not being paid back on time, SEC officials said.
Angel Oak agreed to pay a penalty of $1.75 million, while portfolio manager Ashish Negandhi will pay $75,000, according to an administrative filing made public Wednesday by the SEC.
The company does not deny the SEC charges, but also does not admit that they are true, a spokesman told the Atlanta Journal-Constitution.
However, the firm and Negandhi “painted a misleading picture for investors,” said Osman Nawaz, chief of the complex financial instruments unit in the SEC’s enforcement division. “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.”
The company was founded in 2009 and Negandhi has been with the company since 2010. Angel Oak has about $21 billion in assets under management, according to the SEC filing.
Part of Angel Oak’s business was making loans to people and companies that were buying, renovating and selling homes, transactions known as “fix and flip” loans.
In 2018, it raised $90 million from investors to be loaned to those flippers, something of a market innovation, the SEC said. Angel Oak was the first to build a pooled financial device just for that business, an arrangement that called for investors to reap a return as those loans were paid off.
However, if there was a rise in delinquencies — that is, an increase in the number of borrowers who were late to pay back their loans — Angel Oak was committed to speeding up payment of returns to some investors. And that provision was triggered soon after raising the $90 million, according to the SEC.
“Shortly after the deal closed, loan delinquency rates increased unexpectedly,” the SEC said.
That spurred fear at Angel Oak of both losing money and having its image tarnished, the SEC said.
The company had funds that had been set aside to pay back borrowers for making renovations to properties. The company diverted those funds — improperly, the SEC said — to pay off the loan balances, which made the delinquency rate look lower.
That maneuver violated the antifraud provisions of the Securities Act of 1933 and the Investment Advisers Act of 1940, according to the SEC.
In a statement to the AJC, an Angel Oak spokesperson said the company affiliate that made those loans has not made any “fix and flip” loans since 2019.
Moreover, all the “senior noteholders” in the pool have been paid back in full, including interest, he said.
The company is not fighting the allegations, the spokesperson said. “While not admitting or denying the findings, Angel Oak Capital Advisors accepts the ruling set forth by the SEC.”
Angel Oak has about 950 employees overall, the majority of them in Atlanta. The company also has offices in New York City and Seattle.
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