Angel Oak Capital Advisors LLC agreed Wednesday to pay a $1.75M penalty to the Securities and Exchange Commission to settle allegations that it misled investors about its fix-and-flip securitization delinquency rates.
According to the SEC order, Angel Oak raised $90M in March 2018 through a 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 level, the SEC said. Soon after the transaction closed, loan delinquency rates increased unexpectedly.
The SEC alleges that Angel Oak and portfolio manager Ashish Negandhi artificially reduced the delinquency rate by using funds intended to reimburse borrowers for renovations made to the mortgaged properties to instead pay down mortgage balances. Neghandi agreed to pay $75K in the settlement, the SEC said.
“Angel Oak and Negandhi failed to disclose the firm’s improper use of funds while continuing to issue larger securitizations, which painted a misleading picture for investors,” said Osman Nawaz, chief of the SEC Division of Enforcement’s Complex Financial Instruments Unit.
The company did not immediately respond to a request for comment.
Angel Oak Mortgage, which is externally managed and advised by Angel Oak Capital Advisors, has no connection with the SEC matter, a spokesperson for Angel Oak Capital Advisors told Seeking Alpha.