Question

The SEC recently filed charges in a fraud case against real-estate developer Robert C. Morgan.

1. The SEC alleges that Morgan operated a Ponzi Scheme. Describe the scheme alleged by the SEC and how it is like a Ponzi Scheme.
2. What other allegations are leveled against Mr. Morgan?
3. What are Fannie Mae and Freddie Mac? What is the meaning of the term securitization?

Answer 1

1. The scheme that was offered by Robert C. Morgan, a new york residential as well as commercial state developer has misused the investor funds. The complaint of SEC alleges morgan financed his development projects in different kinds of ways, in by selling securities to more that 200 retail investors, and these people invested in these schemes through their retirement account. Morgan informed investors that money will be used for the purpose of improving multifamily properties, and based on this, he raised more than $80 million. 2.
2. Instead of using the funds for said purpose, morgan and his various entities diverted the funds of investors in ponzi schemes like paying back to earlier investors. Also, morgan used $11 million worth of funds to pay back a inflated and fraudulently obtained loan. The schemes has violated the provisions of anti fraud of federal securities law. Morgan is charged with charges of fraud misrepresentation.
3. Fannie Mae stands for Federal National Mortgage Association, while Freddie Mac stands for federal home loan mortgage corporation. These both are US government sponsored enterprise and is being traded as a public company in the US Stock exchange. They were created by the congress and they play a crucial role in the nation’s housing finance system. Securitization is the process in which a illiquid assetor group of assets are transformed into a security by application of some financial engineering. Under Securitization, long term illiquid debts are packaged, bought transformed into security and then sole to investors.