Monday, 27 September 2021 18:11

SEC Charges Principals of Subprime Automobile Finance Company with Fraud


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The Securities and Exchange Commission on Sept. 23 announced fraud charges against two former executives of a subprime automobile finance company for misleading investors about the subprime automobile loans that backed its $100 million offering.

The SEC's complaint, filed in U.S. District Court for the Northern District of Illinois, alleges James Collins and Robert DiMeo, the former principals of Honor Finance LLC, were responsible for false and misleading statements about, and engaged in deceptive conduct regarding, Honor's servicing practices in connection with the Honor Automobile Trust Securitization 2016-1 (HATS).


The complaint alleges Honor packaged together several thousand automobile loans Honor funded to serve as collateral for the HATS offering, which raised $100 million through the sale of interest-bearing notes to investors.


According to the SEC's complaint, Collins and DiMeo took various steps designed to artificially inflate the value of the collateral underlying HATS. Specifically, the complaint alleges Collins and DiMeo were responsible for, among other things, including loans in the deal that were not eligible to be included in the securitization vehicle, extending loan repayment dates without borrower knowledge and forgiving payments due from delinquent borrowers.


The complaint claims, because of these improper practices, the servicing and performance information Honor provided to investors at the time of the offering and in later monthly reports was false.


"Investors in asset-backed securities are entitled to the same full and accurate disclosure as investors in other types of securities," said Osman Nawaz, acting chief of the SEC's Complex Financial Instruments Unit. "This case reflects our continued and resolute commitment to policing offerings in this space."


"We charge Collins and DiMeo with intentionally...

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