The SEC announced today that it is has charged two former executives at American Home Mortgage Investment Corp. — CEO Michael Strauss and former CFO Stephen Hozie — with accounting fraud and making false and misleading disclosures to conceal the company’s worsening financial condition in early 2007 as the subprime crisis emerged. The SEC alleges that Strauss and Hozie fraudulently understated American Home Mortgage’s first quarter 2007 loan loss reserves by tens of millions of dollars, converting the company’s loss into a fictional profit. The SEC further alleges that Strauss and Hozie misled investors about the financial condition of the company, including the riskiness of the mortgages originated and held by American Home Mortgage.
The SEC also charged Strauss, Hozie and the company’s former controller, Robert Bernstein, with misleading American Home Mortgage’s auditor. Strauss has already settled the SEC’s charges by agreeing to pay more than $2.45 million and consenting to a five-year officer and director bar. The litigation against the other defendants is ongoing.
Commenting on the case, Robert Khuzami, Director of the SEC’s Division of Enforcement, stated that “[t]hese senior executives did not just occupy a front row seat to the mortgage meltdown – they were part of the show. As the housing market imploded, these executives kept secret that the company’s holdings were collapsing like a house of cards.” James A. Clarkson, Acting Director of the SEC’s New York Regional Office, added that “[a]s alleged in our complaint, these defendants suppressed the warning signs of the mortgage crisis and its impact on American Home Mortgage’s business to the detriment of investors and the broader market.”
According to the SEC, counsel for the defendants are as follows:
For Bernstein: Frank Wohl at Lankler Siffert & Wohl LLP
For Hozie: Carl (“Chip”) Loewenson, Jr. at Morrison & Foerster LLP
For Strauss: Peter Bresnan at Simpson Thatcher & Bartlett LLP