Ex-Thornburg Executives Sued by SEC for Hiding Cash Crisis

The U.S. Securities and Exchange Commission sued three former executives at defunct Thornburg Mortgage Inc., claiming they schemed to overstate the company’s 2007 income and hide its inability to pay lenders.

Larry Goldstone, Thornburg’s chief executive officer, finance chief Clarence Simmons and Jane Starrett, who was in charge of accounting, overstated income by more than $400 million and failed to tell investors and auditors that the firm couldn’t make payments to its lenders, the SEC said in a lawsuit filed today at U.S. District Court in New Mexico. Goldstone and Simmons, in an e-mailed statement, said they will “vigorously defend themselves in court.”

The SEC said the executives’ plan to hide the delayed payments fell through when they were unable to raise cash to meet more margin calls after filing the firm’s annual report in February 2008. When Thornburg began to default on the new round of margin calls, it was forced to disclose the problems. The company’s stock fell by more than 90 percent, the agency said.

“The truest test of corporate executives’ commitment to full and accurate shareholder disclosure comes not during times of soaring profits and double-digit growth, but when companies are under financial stress and shareholders have the greatest need for accurate information,” SEC Enforcement Director Robert Khuzami said in a statement. “These Thornburg executives flunked that test.”

‘Unfounded Claims’

The SEC’s lawsuit “is based on unfounded claims, e-mails taken out of context and inaccurate interpretations of management’s actions surrounding the company’s financial filings at the height of the financial crisis,” Goldstone and Simmons said in their statement.

“In its zealousness to find people to blame for the financial crisis, the SEC has brought a case based on hindsight that is not supported by the facts,” the executives said.

A phone call to Jerry Marks, an attorney for Starrett wasn’t immediately returned.

Santa Fe, New Mexico-based Thornburg, which specialized in “jumbo” home loans, filed for bankruptcy May 1, 2009, amid delinquencies and defaults stemming from the collapse of U.S. mortgage markets.

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