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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22947 / March 19, 2014

Securities and Exchange Commission v. Radius Capital Corp. and Robert A. DiGiorgio, Civil Action No. 2:11-Civ. 00116-JES-DNF

Jury Returns Verdict of Liability Against President/CEO of Issuer of Mortgage-Backed Securities

The Securities and Exchange Commission announced that on February 6, 2014, a jury in Ft. Myers, Florida, found Robert A. DiGiorgio, owner and President/CEO of Radius Capital Corporation ("Radius"), liable for securities fraud in connection with the issuance of mortgage-backed securities guaranteed by the Government National Mortgage Association ("Ginnie Mae").

The Complaint alleged that Radius made mortgage loans in Florida, California, and other states and then issued securities backed by pools of those loans. Between December 2005 and October 2006 Radius sold at least fifteen mortgage-backed securities with a total principal amount of over $23 million. To induce Ginnie Mae to guarantee these securities and to make the securities more attractive to investors, Radius, acting at DiGiorgio's direction and under his control, stated to Ginnie Mae and investors that all loans backing the securities were or would be insured by the Federal Housing Administration ("FHA").

The Complaint further alleged that Radius' assurances were untrue because approximately 70% of the loans backing its securities were not FHA insured, and most fell below FHA requirements and could never have been insured by FHA. The Complaint also alleged that DiGiorgio directed Radius employees to ignore underwriting guidelines and knowingly approved low-quality, improperly documented, and fraudulent loans. The loans backing the Radius securities quickly became delinquent and Radius defaulted on its pass-through payments to investors. As a result, Ginnie Mae was required to assume Radius' obligations, incurring losses of more than $5 million. The Complaint alleged that Radius and DiGiorgio violated the federal securities laws by engaging in a fraudulent scheme and making materially false statements to Ginnie Mae and to investors.

Following a ten-day trial, the jury returned a verdict finding DiGiorgio liable on each of the Commission's claims. DiGiorgio was found to have violated subsections (1), (2), and (3) of Section 17(a) of the Securities Act of 1933, as well as Section 10(b) of the Securities Exchange Act of 1934 and subsections (a), (b) and (c) of Rule 10b-5 thereunder. U.S. District Judge John Steele will determine the relief to be entered. The Commission has requested that DiGiorgio and Radius be enjoined from future violations relating to mortgage-backed securities, ordered to disgorge the gains obtained from the fraud, and required to pay civil penalties. The case was investigated by Commission attorney Scott Lowry and tried by attorneys H. Michael Semler and Cheryl Crumpton of the Commission's Washington, D.C. office.

 

http://www.sec.gov/litigation/litreleases/2014/lr22947.htm


Modified: 03/19/2014