The U.S. Securities and Exchange Commission (SEC) has charged H&R Block subsidiary Option One Mortgage Corp. with misleading investors in several offerings of subprime residential mortgage-backed securities (RMBS) by failing to disclose that its financial condition was significantly deteriorating. Option One, which is now known as Sand Canyon Corp., agreed to pay $28.2 million to settle the SEC's charges.
The SEC alleges that Option One promised investors in more than $4 billion worth of RMBS offerings it sponsored in early 2007 that it would repurchase or replace mortgages that breached representations and warranties. But Option One did not tell investors about its deteriorating financial condition and that it could not meet its repurchase obligations on its own, according to the SEC.
‘Option One's financial condition deteriorated significantly as its large subprime mortgage lending business suffered from the collapse of the U.S. housing market,’ says Robert Khuzami, director of the SEC's division of enforcement. ‘The company nonetheless concealed from investors that its perilous finances created risk that it would not be able to fulfill its duties to repurchase or replace faulty mortgages in its RMBS portfolios.’
The proposed settlement is subject to court approval. As part of the settlement, Option One has neither admitted nor denied the SEC's charges.