Skip to main content

LoanDepot Lawsuit Alleges Wide-Scale Fraud

Staff Writer
Sep 27, 2021

‘One of the most egregious wide-scale fraud for profit schemes since the years leading up to the Great Recession,' a recent lawsuit claims.

KEY TAKEAWAYS
  • Founder and CEO Anthony Hsieh allegedly encouraged his sales team to cut corners on underwriting loans in order to drum up money during the refinance boom and prepare for the company’s initial public offering. 
  • A lawsuit was filed by former chief operating officer, Tammy Richards, against loanDepot CEO Anthony Hsieh on ordering the sales team to “trust all borrowers” and close all loans without checking any documentation. 
  • Richards claims that the loanDepot executives hatched a strategy dubbed “Project Alpha” in which Hsieh allegedly personally identified over 8,000 loans that were closed without proper documentation.
  • Upper-level management, enabled by CEO Hsieh, fostered a “misogynistic frat house culture” within the company’s corporate office, at the expense of its female employees.

The second largest mortgage lender in the country, loanDepot, found itself dealing with accusations by the company’s former chief operating officer, Tammy Richards, that surfaced on Aug. 22, claiming that founder and CEO Anthony Hsieh encouraged his sales team to cut corners on underwriting loans in order to drum up money during the refinance boom and prepare for the company’s initial public offering. 

Richards filed a lawsuit against Hsieh on ordering the sales team to “trust all borrowers” and close all loans without checking any documentation. The lawsuit also reported allegations concerning sexual harassment and gender discrimination. 

LoanDepot responded to the allegations by stating, “The claims in the lawsuit, which we take very seriously, were previously thoroughly investigated by independent third parties and found to be without merit. We intend to defend ourselves vigorously against these outlandish allegations.”  

Richards claims that Hsieh’s conservative approach to approving loans dissipated overnight, after the government injected trillions of dollars through the passage of the C.A.R.E.S. Act. In the lawsuit, she states, “He had now entered a state of approval frenzy, pushing to relax underwriting guidelines to levels that began to border on the unethical.” 

Between 2016 and 2019, she claims, she discovered that loanDepot and Closing USA LLC (CUSA), a loanDepot subsidiary, were charging loan refinance borrowers double daily interest or per diem, as a result of CUSA’s failure to timely pay off the original loans. Both the new loan and old loan would both per diem until the old loan was paid off. The lawsuit document states, “Closing disclosure documents inaccurately reflected a closing date of the date that the loan documents were printed, not the date in which the original loan was actually paid, thereby causing the borrower to pay double per diem.” 

Hsieh was hovering close to the line of ethical boundaries to increase revenue, the lawsuit claims, but it wasn't until Aug. 26, 2020, when everything boiled over and he allegedly initiated his wide-scale fraud-for-profit scheme. 

During a production meeting in which Richards was present, she claims that Hsieh began to scream, “I am Mello Clear, and we must immediately close loans regardless of documentation!” Hsieh informed the sales team that they were not closing enough loans, and that sales “should not stand for this!”, the lawsuit claims. The lawsuit adds that top executives did not express their concern over Hsieh’s tactics. 

Richards stated she was shocked at the suggestion, knowing full well that this would be illegal and violate numerous federal laws, including the Dodd-Frank Title XIV – Mortgage Reform and Anti-Predatory Lending Act (“Dodd-Frank”). According to Richards, Hsieh had been walking the tightrope across ethical and legal boundaries until finally crossing the line on August 26. If Hsieh moved forward with this plan, Richards said she believed it would constitute one of the most egregious wide-scale fraud-for-profit schemes since the years leading up to the Great Recession. 

Two months later, on Oct. 28, 2020, Hsieh flew into another rage towards Richards, the lawsuit claims, stating that Hsieh began screaming, “close all loans … close without credit reports … close without documentation … close all loans!” He continued, “we are setting records every month and have grown staffing and capacity, but it’s not enough! Trust our borrowers and close loans without documents! I already paid taxes on these loans and the loans are already shown as revenue!” 

In response, Richards claims, she stated she cannot and will not close loans without credit reports. 

In November 2020, Hsieh demoted Richards in what she describes as a “blindside attack” during an off-site executive meeting. Afterwards, Richards claims that the loanDepot executives hatched a strategy, dubbed “Project Alpha,” in which Hsieh personally identified over 8,000 loans that were closed without proper documentation. He then identified over 200 processors with “super authority” to close these loans without documentation, and in exchange these processors would receive extra bonuses if those loans closed by the end of November, the lawsuit claims.

Richards also accuses Hsieh of directing the company’s chief company officer, Brian Rugg, to refrain from auditing the 8,000+ loans that she believes were illegally processed; Rugg then reported it to Richards in November 2020. 

Richards was eventually forced out of her job in March 2021 for refusing to break the rules, she claims. 

However, the lawsuit filed by Richards does not end with the fraud allegations. It also includes a laundry list of sexual harassment allegations, identifying the perpetrators as the company's top executives — a team that was all-male, except for Richards. 

The lawsuit claims  that upper-level management, enabled by Hsieh as CEO, fostered a “misogynistic frat house culture” within the company’s corporate office, at the expense of its female employees, and that previous female management employees, such as former operations manager Tiffany Entsminger, abruptly quit on grounds of harassment and gender discrimination.

Richards claims that one of the main provocateurs in fostering loanDepot’s “frat house” culture is Tomo Yebisu, a senior executive and a close friend of Hsieh. Following the Chairman’s Elite Awards, Yebisu held an after-party at Hsieh’s home, where the lawsuit claims he rewarded loanDepot’s male sales award recipients with a night filled with alcohol, drugs, and prostitutes. The stories that followed the party were so salacious, it led to the voluntary resignation of Brian Owens, a senior vice president, due to these activities sanctioned by Yebisu, the lawsuit claims.

After going public in February 2021, loanDepot sold 3.85 million shares at $14 and raised $54 million, allowing its revenue to increase from $1.3 billion to $4.3 billion in one year. 

The planned initial public offering was a cover-up for Hsieh’s increasingly reckless tactics, Richards claims. As the offering approached, loanDepot paid a “one-time discretionary bonus” to its leaders, with Hsieh receiving $42.5 million and other top executives receiving bonuses ranging from $9 million to $12 million. 

Richards claims she was left out of that bonus round, since she had been demoted in November. Her lawsuit seeks compensation for unpaid bonuses and forfeited stocks that she estimates would have been worth $35 million

About the author
Staff Writer
Katie Jensen is a staff writer at NMP.
Published
Sep 27, 2021
Looking For Change Under Every Couch?

Don’t overlook the obvious – employees have ideas for cost savings, too

Jun 10, 2024
New American Funding Announces New Cash-Offer Program

Similar to Opendoor and Homeward, NAF Cash Maps offers buyers a bidding war advantage

Jun 05, 2024
CFPB Issues Public Inquiry On Junk Fees Affecting Closing Costs

Agency seeks to understand why closing costs are up, who is benefiting, and how costs can be lowered.

May 30, 2024
STRATMOR, Teraverde Deal A 'Merger Of Equals'

The recent merger of mortgage advisory firms came without the need to lay people off or make any major staffing changes.

May 23, 2024
NEXA Pays Loan Officers 100% Of Commission Splits

LOs won't pay per-file fees or other hidden fees with NEXA100, says NEXA Founder and CEO Mike Kortas.

May 22, 2024
The Right Prescription

‘Doctor Loans’ making healthy strides in Florida

May 21, 2024