Jury issues mixed decision in Thornburg fraud case - Albuquerque Journal

Jury issues mixed decision in Thornburg fraud case

SANTA FE – A federal court jury this week cleared two former executives of Thornburg Mortgage, once New Mexico’s largest publicly held company, of five counts and was hung on five others after a trial on civil accounting fraud charges.

GOLDSTONE: Disputes the SEC charges
GOLDSTONE: Disputes the SEC charges

The Securities and Exchange Commission maintained in a 2012 lawsuit that the Thornburg leaders – Larry Goldstone, Clarence G. Simmons III and Jane E. Starrett – hid the company’s deteriorating financial condition at the onset of the housing market collapse by issuing misleading statements and half truths, including by overstating income by $428 million in a 2007 annual report.

Starrett, who was Santa Fe-based Thornburg Mortgage’s chief accounting officer, reached a settlement with the SEC late last month, just before the trial started in front of U.S. District Judge James O. Browning in Albuquerque. She agreed to pay a $25,000 penalty and can’t practice as an officer or director of an SEC-regulated company for three years.

The claims against Goldstone, who was CEO, and Simmons, the lender’s chief financial officer, proceeded to trial. After Wednesday’s verdicts, the SEC can still retry the counts on which the jury couldn’t reach unanimous consent, which include the most serious allegations of fraud or lying to auditors.

“Our hope is that reason and rationality will prevail,” and the SEC will drop the case, said Randall Lee of Los Angeles, among the attorneys representing Goldstone and Simmons.

“I think the verdict sent a pretty resounding message about the weakness of the SEC case as whole,” Lee added. “… We’re gratified that the jury apparently saw through the overblown and over-hyped nature of the case.”

Of Goldstone and Simmons, he added, “The fact that this case has been hanging over their heads for eight long years is a travesty.” He said both still live in Santa Fe and work in consulting.

SEC Enforcement Division Director Andrew Ceresney said in statement: “The jury deliberated for several days but was unable to reach unanimous verdicts on the fraud or lying to auditor claims. We believe strongly in our case and we will continue to explore all options, including a prompt retrial.”

Goldstone and Simmons have always disputed the SEC charges. They said they had been singled out “for not having the clairvoyance to anticipate an unprecedented financial system crisis.” Journal phone messages left for Goldstone and Simmons were not returned Thursday.

The SEC sought unspecified fines and restitution from Goldstone, Simmons and Starrett, and wanted them to be barred from serving as officers or directors of any public company. Thornburg Mortgage’s 2009 bankruptcy filing, listing $36.5 billion in assets, was among the largest in U.S. history.

Among the lawsuit claims the jury couldn’t decide on was whether Goldstone violated federal law and SEC rules or made reckless or false statements when he said in a CNBC interview in 2008 that Thornburg Mortgage had “the liquidity and cash available to support the portfolio,” and reported in an email to the company’s Investor Relations Group that it still had sufficient operating cash. Also undecided were claims that they made false statements to, or misleadingly omitted facts for, an accountant.

According to the jury’s verdict form, Goldstone and Simmons were cleared of claims that they violated the law by falsifying “any book, record, or account of a public company” and failing to keep records “which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of Thornburg.” However, the jury couldn’t reach agreement on similarly worded allegations, but with wording about whether the two executives acted recklessly.

Earlier this month, Judge Browning ruled that some information on the incomes of Goldstone and Simmons could be put before the jury as a possible motive for fraud. His decision on that issue said, “Some people do not tell the truth and cross the line when times get tough.

The high salaries suggest a motive, in that Mr. Goldstone and Mr. Simmons had skin in the game.” He noted that the SEC said in a court filing that Goldstone made about $7.7 million in 2006, $6.6 million in 2007 and $5.1 million in 2008, and that Simmons made $1.3 million in 2006 and 2007, and $450,000 in 2008.

Garrett Thornburg, the mortgage’s company’s namesake founder and board chairman before the collapse, was not named as a defendant in the SEC action or otherwise implicated in SEC complaint. Thornburg Mortgage changed its name to TMST Inc. in the midst of its collapse in an effort to separate still-thriving Thornburg Investment Management from the mortgage lender’s problems.

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