LoanDepot CEO Tony Hsieh Accused Of Trying To Push Garbage Loans To Investors And Running LoanDepot Like A Frat House
A bombshell lawsuit alleges LoanDepot CEO Tony Hsieh of trying to dump garbage loans on investors. The suit alleges LoanDepot closed loans without the proper documentation. It also states this was done to increase LoanDepot’s value ahead of its IPO.
Thus, disregarding proper underwriting etiquette and procedures.
Hsieh allegedly made the demand during a production meeting in August 2020. Hsieh allegedly screamed, “I am Mello Clear, and we must immediately close loans regardless of documentation.”
Richards claims executives at LoanDepot allegedly didn’t bat an eye at Hsieh’s tactics.
Richards claims Hsieh stressed the point two months later. Hsieh allegedly announcing that the sales team needs to “close all loans, close without credit reports, close without documentation and close all loans.”
Did LoanDepot CEO Tony Hsieh Encourge Employees To Break The Law?
Closing loans without documentation violates federal laws including the Dodd-Frank Act. Dodd-Frank requires mortgage originators to follow minimum standards for all mortgage products. Federal law prohibits lenders from making loans unless they reasonably determine that the borrower can repay the loan. Lenders must also be able to prove credit worthiness along with current and expected income.
Richards filed the lawsuit in California Superior Court in Orange County. She alleges that her refusal to comply with Hsieh’s demands resulted in her demotion in November.
Soon after, Richards claims executives at LoanDepot hatched a strategy dubbed “Project Alpha.”
Hsieh allegedly personally oversaw Project Alpha. Project Alpha identified over 8,000 loans that were closed without proper documentation. As a result, Hsieh put 200 processors in charge of closing these loans. LoanDepot gave processors bonuses at the end of the year for reclosing the loans.
Richards oversaw 4,000 employees before her demotion.
Richards resigned from the company in March 2021.
Did LoanDepot CEO Tony Hsieh Run LoanDepot Like A Fraternity House?
Richards also makes multiple allegations that male executives created an Animal House environment. They have also enforced a “misogynistic frat house culture”
LoanDepot disputed Richards’ claims. Richards worked in senior roles at Wells Fargo, Bank of America, Caliber Home Loans and Countrywide Financial before joining loanDepot.
LoanDepot went public in February by selling 3.85 million shares at $14 and raising $54 million. The company filed SEC reports that showed its revenues increased from $1.3 billion in 2019 to $4.3 billion in 2020. The company originated about $100.7 billion in loans in 2020.
Hsieh is the largest shareholder of LoanDepot. As a result, has been the biggest beneficiary of the IPO. Last year he took advantage of a one-time discretionary performance bonus of $42.5 million.
LoanDepot has moved to appoint new faces to their board of directors. The copany has appointed former deputy HUD Secretary Pamela Hughes Patenaude and Mike Linton. Linton is a marketing expert who currently serves as chief revenue officer at genomics firm Ancestry.
The company was trading at $6.98 late Thursday afternoon, with a valuation of $2.1 billion.
Read More About LoanDepot CEO Tony Hsieh: