Reuters: Regulatory News: UPDATE 1-SEC charges H&R Block subsidiary in subprime case

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UPDATE 1-SEC charges H&R Block subsidiary in subprime case Apr 24th 2012, 20:45 Tue Apr 24, 2012 5:11pm EDT * SEC says Option One unit misled investors * Says failed to tell investors about financial woes * Option One does not admit or deny charges; to pay $28.2 mln WASHINGTON, April 24 (Reuters) - A subsidiary of H&R Block has agreed to pay $28.2 million to settle charges from the Securities and Exchange Commission that it misled investors in its offerings of subprime mortgage-backed securities. The SEC said Option One Mortgage Corp, now Sand Canyon Corp, failed to disclose in 2007 that its financial condition was significantly deteriorating and that it would not be able to meet obligations to repurchase or replace faulty mortgages in its offerings. Option One was one of the nation's largest subprime mortgage lenders, with originations of $40 billion in its 2006 fiscal year, the SEC said on Tu esday. But when the subprime mortgage market started to decline in 2006, Option One faced significant losses and hundreds of millions of dollars in margin calls from creditors, the agency said. In 2008, Option One changed its name to Sand Canyon and sold its servicing business. An attorney for Sand Canyon referred a call to H&R Block. An H&R Block spokesman said the company does not comment on litigation. The SEC said that in early 2007, Option One promised investors in more than $4 billion worth of residential mortgage-backed securities offerings that it would repurchase or replace mortgages in the portfolios that proved to be faulty. However, the firm concealed from investors that its own financial problems made it virtually impossible to fulfill those pledges, the agency said. "We will take action against those who fail to disclose or downplay important facts that make an investment riskier, even if those risks do not materialize," Kenneth Lench, chief of the SEC enforcement division's Structured and New Products Unit, said in a statement. Option One settled without admitting or denying the charges. The SEC used the settlement to promote its track record with financial crisis cases, saying it has how charged 102 individuals and entities, including 55 senior corporate officers. Link this Share this Digg this Email Reprints

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