A former employee is suing The Change Co. CDFI LLC, an Anaheim, Calif.-based nonbank mortgage lender that is certified as a Community Development Financial Institution (CDFI), alleging that it “falsifies information on its annual certification by mischaracterizing its loans.”
That accusation was among several included in a wrongful termination lawsuit filed June 20 in Superior Court in Orange County, Calif., by Adam Levine, who had served as chief of staff for the company's CEO Steve Sugarman.
Levine is a former assistant White House press secretary under President George W. Bush, as well as previously serving as a senior aide to former U.S. Senator Daniel Patrick Moynihan, D-N.Y. He also worked in the finance industry, including as a vice president at Goldman Sachs.
A CDFI is a privately owned financial institution that promotes financial inclusion and economic development in poorer communities. CDFIs can receive federal funding through the Treasury Department, as well as from private sources that include individuals, corporations, and religious institutions.
The lawsuit states that, under federal law, CDFIs “are required to provide annual documentation attesting that 60% of the loans made by the institution go to the target markets that they are certified by the Treasury Department to serve.”
The Change Co. CDFI LLC and its subsidiary, Change Lending LLC, recently announced it had closed its seventh securitization of its proprietary Community Mortgages, and that it was the first such securitization to earn an AAA rating for the senior A1 class.
The company previously has said that since becoming a CDFI in 2018, it has funded over $25 billion in loans to more than 75,000 families, and that over 70% of its loans have been to Black, Latino, and low- and moderate-income borrowers and communities.
In his lawsuit, Levine states he began working at the company in 2021, at its office in Pacific Palisades, Calif. The complaint states that, in mid-February 2023, he “uncovered and began reporting illegal activity by company employees” to Sugarman, as well as to General Counsel Alan Lindeke, board member Jeffrey Seabold, and former Los Angeles Mayor Antonio Villaraigosa, who chairs the company’s board of directors.
In addition to his allegation that The Change Co. was “mischaracterizing the race, ethnicity, and income level of borrowers,” Levine’s accusations also include:
- Potential securities fraud: The company bundles the loans it makes and resells them on credit markets as residential mortgage-backed securities (RMBS). The lawsuit claims the company falsely represents to RMBS buyers the contents of the underlying loans by mischaracterizing them “in the same way it misleads government authorities in its annual certifications and other filings.”
- After-hours criminal activity: The complaint states that a company employee hosted after-hours parties on company premises that were “advertised to the public and for which a cover charge was collected.” It states that Levine told company officials he believed “criminal activities were occurring at these parties, including potentially drug use and sexual assault.”
- Illegal recordings: Levine claims the company installed cameras inside its Pacific Palisades office that record not only video but sound, and did not post notices in the building that video and sound were being recorded. The lawsuit states that while recording employees might not be illegal, recording those not affiliated with the company without their consent violates California law. The lawsuit claims Levine attended meetings during which the company “surreptitiously recorded conversations” with (former NBA star) Magic Johnson; (former NFL quarterback ) Colin Kaepernick; Phoenix Suns owner Jahm Najafi; (former Major League Baseball star) Dave Winfield; and former Federal Reserve Vice Chairman Randal Quarles.
- Potential SEC violation: The complaint claims the company may have violated a Securities and Exchange Commission order that Steve Surgarman’s brother, Jason Sugarman, not have any association with the securities industry. In February 2023, the SEC entered into a consent judgment with Jason Sugerman for his role in a scheme to defraud Native American pension funds. The lawsuit states that Levine “encouraged Steven Sugarman to appoint an outside law firm to certify to regulators, investors, shareholders, and other stakeholders that Jason Sugarman had no material business relationship” with The Change Co., and that Villaraigosa agreed. Steve Sugarman refused that suggestion, and “retaliated against [Levine] by stating that [his] business dealings should be investigated.”
After raising his concerns, the lawsuit states, Levine was placed on administrative leave. That led to Levine notifying “appropriate regulatory authorities” about his concerns on March 5, 2023, with Levine’s attorney notifying the company the next day that regulators had been contacted.
Levine was subsequently fired on April 28, the lawsuit states.
“The company claimed it terminated [Levine] ‘for cause,’ even though the employment agreement … does not make any reference to ‘cause’ for terminations,” the complaint states. It adds that the company also sought to “deprive [Levine] of bonus wages and equity compensation he was rightfully owed,” including retracting all of the equity he received as part of his employment compensation, “even though these shares were fully vested and constituted property” belonging to Levine.
The lawsuit seeks damages for wrongful termination, whistleblower retaliation, and breach of contract. It names The Change Co. CDFI LLC as defendant, along with up to 10 unknown defendants labeled at "Does 1 through 10. The complaint states that Levine is "currently unaware of the true names and capacities of the defendants sued herein as Does 1 through 10, and therefore sues the Doe Defendants by such fictitious names." It adds that the complaint will be amended to include the "true names and capacities" of the Doe defendants "when they are ascertained."
The Change Co. did not immediately respond to a request for comment.
