Fraud Charges Filed Against Auto Loan Servicer, Executives

Jack Humphrey, Regulatory journalist
April 15, 2011 /

After selling securities that were not registered in the Securities and Exchange Commission, an auto loan servicer and its three executives have funneled millions of dollars of investments to their personal accounts.

The financial regulator has eventually charged Massachusetts-based subprime auto loan servicer Inofin Inc. and three executives of the firm with fraud for misleading investors about their lending practices and for defrauding investor money.

According to the complaint filed before the federal court in Boston, three executives of Inofin, namely Michael Cuomo, Kevin Mann, and Melissa George, diverted more than $110 million from hundreds of investors, which they successfully raked by selling unregistered notes.

The SEC claimed that the investors were made to believe their investments would be used to fund a subprime auto loan and that they were told to expect 9 to 15 percent in return for a subprime lent by the loan servicer to borrowers at an average rate of 20 percent.

However, the SEC continued, Cuomo and Mann opened four used car dealerships and real estate property developments using one-third of investor money beginning 2004.

From 2006 to 2011, the loan servicer made material misrepresentations to its financial reports to hide its negative net worth and a declining financial condition, the SEC added. The worsening performance of Inofin was accordingly due to its failure to disclose its activities and the sale of some of its auto loan portfolio at a ‘substantial discount’ from 2007 to 2009.

During this period, Inofin had suffered heavy shortages in its cash, which it allegedly concealed from investors, and instead misrepresented the business as still profitable.

The SEC compounded the charges with violations of the antifraud and registration provisions of the federal securities laws on grounds that Cuomo, Mann, and George maintained Inofin’s license to operate as a motor vehicle sales finance company. They allegedly falsified the financial statements submitted to Massachusetts Division of Banks, the licensing authority.

The three agreed to the entry of civil injunctions against them and disgorgement of illegal profits with prejudgment interest and financial penalty.

Similarly, the SEC also sued as relief defendants two sales agents — David Affeldt and Thomas Keough – who offered to sell the unregistered securities. The complaint claimed that they generated more than $500,000 in referral fees between 2004 and 2009 for the illegal transaction.

The SEC emphasized that the loan servicer has never been registered in the commission to offer securities.

 

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