Allegations of Mischaracterized Loans and Retaliation
A former high-ranking employee at nonbank The Change Company CDFI (TCC) has filed a lawsuit in California, accusing the company of retaliation after he informed executives about employees mischaracterizing loans to evade federal reporting requirements.
The lawsuit, which was filed in Orange County, claims that Adam Levine, the chief of staff to CEO Steven Sugarman, began reporting illegal activities by the company’s employees to Sugarman and other executives and board members in February 2023. However, instead of investigating the complaints, Levine alleges that the company’s leadership terminated him.
Representatives for The Change Company and Levine’s attorneys have not responded to requests for comment.
Alleged Violations Related to Lending Practices
Before joining TCC in 2021, Levine had worked as an assistant White House Press Secretary under President George W. Bush and as a vice president at Goldman Sachs. In his lawsuit, Levine lists several alleged violations related to lending practices.
These violations include potential irregularities concerning the regulations of Community Development Financial Institutions (CDFI), specifically a rule that requires lenders to provide annual documentation confirming that 60% of their loans are directed towards the target markets certified by the U.S. Department of Treasury. Levine’s attorneys wrote in the lawsuit that he has evidence that TCC falsifies information on its annual certification by mischaracterizing its loans, including misrepresenting the race, ethnicity, and income level of borrowers.
Securities Fraud and Investor Misrepresentation
The lawsuit also cites potential securities fraud, claiming that investors are induced to purchase TCC’s loans in the secondary market based on false representations on the borrowers’ profiles. According to the lawsuit, if investors were aware that the loans were provided to wealthy individuals or celebrities instead of low-income families, they would not have purchased them.
TCC claims to have funded over $25 billion in loans to more than 75,000 families since becoming a CDFI in 2018.
The Change Company’s Latest Securitization
On June 14, in its seventh securitization, The Change Company attracted 16 investors to a $306 million offering. The investors included money managers, banks, insurance companies, and private funds. The loans in the pool had a weighted average FICO score of 740, LVT (loan-to-value) ratio of 71.1%, 43 months of reserves, and an 8.72% note rate, according to the lender.
Additional Allegations
In addition to the loan mischaracterization and retaliation claims, Levine also accuses TCC of after-hours parties at the lender’s premises and the recording of private conversations at the company’s Pacific Palisades office. The lawsuit further implicates Steven Sugarman, CEO of TCC, and his older brother, Jason Sugarman, who founded The Change Company.
Levine claims that Steven Sugarman attempted to block a lawsuit by instructing him to leak confidential documents to a journalist doing a profile on short-seller Carson Block, with whom Sugarman has a civil litigation history.
Furthermore, the lawsuit alleges that Jason Sugarman potentially violated Securities and Exchange Commission (SEC) orders by associating with the securities industry, despite being prohibited since February due to a consent judgment related to a scheme to defraud Native American pension funds.
Reporting Concerns and Termination
Levine states that on March 5, he brought his concerns to the appropriate regulatory authority, and his attorney informed the company the following day. However, according to the plaintiff, he was terminated weeks later without receiving the bonus wages and equity compensation that he believes he was entitled to.
As the legal battle unfolds, the allegations against The Change Company CDFI raise questions about compliance with lending regulations and claims of retaliation against whistleblowers.
