The U.S. Securities and Exchange Commission dropped its case against two former executives of now-shuttered Thornburg Mortgage on Friday, ending a lawsuit brought in the aftermath of the recession.
In papers filed in federal court in Albuquerque, New Mexico, the SEC said it would no longer pursue its civil case against former Thornburg CEO Larry Goldstone and former CFO Clarence Simmons, which had been set for a re-trial on February 21.
The SEC's lawsuit, filed in 2012, accused Goldstone, Simmons and former Thornburg Chief Accounting Officer Jane Starrett of hiding the company's fast-deteriorating financial condition at the onset of the financial crisis.
The SEC at that time claimed that Goldstone and Simmons defrauded investors by overstating Thornburg's income by more than $400 million and falsely reporting a profit rather than a loss for the fourth quarter in its 2007 annual report.
That claim, though, was dropped by the SEC in September following the initial trial.
A jury returned a mixed verdict last July in the initial trial, and the decision to drop the case represents a setback for the agency’s efforts to hold executives accountable in connection with the U.S. housing meltdown and financial crisis.
The jury found Goldstone and Simmons not liable on five of 10 counts while deadlocking on the other claims. The SEC later in September dropped three remaining claims and said it would no longer pursue what the defense called its central allegation.
Randall Lee, a lawyer for Goldstone and Simmons, said his clients were "thrilled” to have been cleared of the charges.
"We always believed that the evidence in this case demonstrated that our clients had acted in good faith in attempting to navigate through the early stages of the financial crisis," Lee said in a statement.
Thornburg, which specialized in making "jumbo" home loans larger than $417,000 to borrowers with good credit, filed for bankruptcy in May 2009 amid the U.S. financial crisis.
Goldstone continued to face a claim based on statements he made after Thornburg's annual report was filed. Both Goldstone and Simmons also faced a claim that they misrepresented or omitted facts to the company's auditors. They denied wrongdoing.
Starrett agreed in May to pay $25,000 to settle the lawsuit without admitting or denying the allegations.