FORMER TMST, INC. (f/k/a THORNBURG MORTGAGE) EXECUTIVES
RESPOND TO SEC LAWSUIT
Santa Fe, New Mexico, March 13, 2012 – Larry Goldstone and Clay
Simmons, the former CEO and CFO of TMST, Inc., (formerly known as
Thornburg Mortgage), respectively, responded today to the filing of a civil
lawsuit against them by the U.S. Securities and Exchange Commission.
Goldstone and Simmons believe the action is wholly without merit. They have
refused to settle the matter with the SEC, as they do not believe that their
actions or the factual record support the SEC’s allegations. Instead, they will
vigorously defend themselves in court, certain they will prevail. TMST was the
nation’s second largest independent mortgage originator and became a
casualty of the 2008 financial crisis when it was forced to file for bankruptcy in
May 2009 after its lenders refused to continue to extend credit because of
their own financial difficulties.
“We are profoundly disappointed by the SEC’s lawsuit, which is based on
unfounded claims, emails taken out of context and inaccurate interpretations
of management’s actions surrounding the company’s financial filings at the
height of the financial crisis in February and March 2008. The SEC’s case
singles out and punishes us for not having the clairvoyance to anticipate an
unprecedented financial system crisis. It is worth noting that this same crisis
was not foreseen by two Secretaries of the Treasury, two Chairmen of the
Federal Reserve, the Chairman of the SEC, and the heads of major public and
private financial institutions across the globe. Any fair and objective
assessment of our actions during that time shows that the SEC’s allegations
against us have no merit,” said Goldstone and Simmons. “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, unwinnable in court, and
The key facts include the following:
- The Company’s 2007 10-K filing fully disclosed all relevant
information in clear terms, providing robust and extraordinary
disclosure about the margin calls that TMST had received, and more
importantly, about the risks of future margin calls and the possible
need to sell assets. The “Recent Developments” section of the 10-K
was highly unusual because of its explicit disclosures about the
threats to the company’s business from unprecedented market
events. The market clearly understood the gravity of TMST’s
disclosure; there was a precipitous drop in stock price that day.
- KPMG, the company’s auditor, conducted a review of the
circumstances surrounding TMST’s financial statements at the time
and stated that it had no concerns about management’s integrity,
that it had found no material weaknesses in the company’s internal
controls, and that the restatement of TMST’s financials resulted from
“an error in judgment” about the impact of rapidly changing and
illiquid credit markets on the company’s financial condition and not
from fraud on the part of management.
- Goldstone and Simmons communicated candidly and forthrightly with
investors while they waged an 18-month battle to save the company
and hundreds of jobs in New Mexico during a period of
unprecedented market turmoil. In fact, under their leadership, TMST
explicitly warned investors about the volatility of the mortgage
securities market and the threats to its business from highly
uncertain market conditions at that time.
- Goldstone and Simmons share a long-standing reputation as industry
leaders who conducted themselves at all times with integrity,
transparency, and good corporate stewardship. Under their
leadership, TMST became an industry leader renowned for its high
quality lending, which created a portfolio of loans and mortgage
securities of outstanding credit quality whose delinquency rates
remain well below the industry average.
- Goldstone and Simmons were so well respected by the industry and
the investment community that they raised nearly $2 billion through
a series of stock and bond offerings even as other larger mortgage
companies and global financial institutions collapsed around them.
- The SEC’s charges focus solely on one filing and a two-week period in
late February and early March 2008, and rests on hindsight judgment
about what Goldstone and Simmons supposedly should have
disclosed in the midst of an historic market collapse. Within days
after the events at issue, the Vice Chair of the Federal Reserve
testified that the problems in the mortgage and housing markets
were “highly unusual” and that in general these market
circumstances “should not threaten their viability.” And the
Chairman of the SEC, in discussing investment banks, said “We have
a good deal of comfort about the capital cushions at these firms at
the moment.” Five days later, Bear Stearns collapsed.
- Neither Goldstone nor Simmons profited from the financial
statements that the SEC claims were false. Indeed, Goldstone has
never sold a single share of TMST stock, while Simmons sustained
losses on the small number of shares he sold. Both men lost
substantial sums as a result of their efforts to save the company.
Messrs. Goldstone and Simmons are represented by Wilmer Cutler Pickering
Hale and Dorr LLP.