The bankruptcy trustee in charge of MILA’s Chapter 11 case says there is evidence that MILA’s founder and CEO allegedly collected $32 million from MILA during the years before its demise, “improperly draining the Mountlake Terrace company’s assets as its fortune declined.”
From the Seattle Times:
“I think the executives at MILA knew by 2004 that this bubble was bursting and did their best to take out as much money as they could before it became obvious to everyone else,” says Brian Esler, who represents the bankruptcy trustee in the suit.
The suit claims Sapp, who owned about 90 percent of MILA, paid himself more than $10 million in dividends in 2004 and 2005 when the company was already “functionally insolvent,” meaning it had insufficient capital to continue normal operations and should have been preserving cash.
It also alleges he took $11.5 million in salary for each of those years, though “by March 2005, MILA was already delaying payments, even to important customers, to conserve cash.”
The trustee’s suit also claims that Sapp damaged MILA — and its creditors — in other ways:
He “surreptitiously seized” the mortgage software MILA developed and had another of his companies bill MILA for using it; charged MILA exorbitant amounts for his private yacht and business jets; and, in a “theft of corporate opportunity,” created separate companies to own a four-story office building and a parking lot that were leased to MILA, rather than having MILA buy the properties.
Sapp’s attorney, Jack Cullen, declined to discuss the allegations in detail but said: “We consider the claims nonsense. We don’t think they are founded in law or fact.”
Sapp did not return a call to his Hunts Point home.
Esler is asking the court to freeze $12 million in cash belonging to Sapp, to keep it available to creditors.
Bankruptcy Trustee Esler’s plan is to convince the court that MILA was technically insolvent for over two years before the company abrubtly closed it’s doors in April of 2007. Esler cites improper accounting and a twelve-fold increase in the number of loans MILA was required to repurchase from 2002 to 2004.
To protect creditors, the suit says, as early as 2005 “Sapp should have attempted to sell, liquidate or reorganize MILA at a time when it still had significant value, instead of continuing to manipulate and loot it for personal gain for another two years.”
The suit also takes a microscope to transactions among the various entities owned by Sapp. One example: The company that owned his 130-foot yacht billed MILA $395,374 over two years — although “MILA used that yacht only twice for asserted business reasons,” the suit says.
MILA’s creditor claims have ballooned up to 2 billion dollars. By asking the court to freeze Layne’s personal assets, is the Bankruptcy Trustee is gathering evidence to try and make a case that the corporate veil was pierced? This means Layne might have co-mingled corporate assets with personal assets. An example of that would be if personal expenses were paid for with corporate funds. This will be an interesting local case to follow.
Bankruptcy Trustee:
Miller Nash
Brian Esler
206-622-8484
Lisa Peterson or Bruce Rubin
360-699-4771
MILA Legal Counsel:
Jack Cullen
Foster Pepper
(206) 447-4689
This doesn’t shock me at all. I think that the income received by executives in all facets of this industry were over the top to say the least. Pay for performance would have been acceptable. It is clear to the layman what was done was to eliminate personal liability while retaining all the fruits. It is a shame
I am looking to see how accountability is set into place regarding the income received by executives as well as the disregard of responsibility to the welfare of the business. The effects that we are currently seeing of companies like this one and others nationwide that are not only affecting an already negative stigma that we battle in the mortgage industry, but are greatly affecting our economy.
It is interesting to imagine that had Sapp, along with many other executives of similar situations, not disregarded the issues that their businesses were facing for their own extreme financial gain could possibly have maintained a very healthy and more appropriate income long term by extending the life of the business.
What’s that saying “the rich gets richer and the poor gets poorer” I’m not surprized just one more that is trying to screw the company for all it’s worth. I’m with Sarah where is the accountability, isn’t there any check and balances any more? No wonder our nation is in such trouble, greed greed greed. I think it’s good that they freez the assests while they try to figure this out. What is the punishment for this? any thing?
If the charges are true, Layne Sapp will spend some time behind bars. There are corporate governance regulations in place that regulate such behavior, i.e. the CEO’s of Enron and Worldcom.
Even in such a era of deregulation, you cannot steal from your corporation.
My questions is… what is the Board of Directors involvement and responsibility in all of this?
Talk about trying to work (or beat) the sytem…just another example of the many, many businesses looking to grab some bailout $, still get bonus’, incentives, etc. There’s such a large “gray area” and a thin line between avoidance and evasion. What’s happened to old fashioned virtures of honesty, integrity, legal and ethical practices… even concern for your fellow man or the common good. I agree Sandy, greed, greed, greed.
I dont have an opinion of this – MILA was a pretty low bottom feeder for sub-prime loans as I recall. I would not expect leadership with the highest of ethics.
I doubt Sapp will see much time behind bars – certainly not to equal to the amount of harm he has done.
Wow. I too was wondering who else was involved…I’m sure people affiliated with Mr. Sapp werent clueless as to what was going on. They obviously planned this out. Will he and others be prosecuted? I say freeze the assets. I never really followed this case, but now I am so intrigued – I am going to go goole it to see if there is a updated status!
Anyone that believes anything they read without due diligence is a fool. This was a privately held company and thinking that there was a problem financially in 2004/2005 when the market was still good is ridiculous.
If he paid himself millions that is acceptable as he was the only one that basically invested in the company and created Accesspoint. Agreed he should have transferred it to the technology company for a fee instead of the inappropriate billing that apparently occurred.
So let’s pick on a mortgage CEO that is alive. How is it that we bailout Wall Street for Billions that took risks with other peoples money and crucify someone who could have never known what was going to happen in the industry?
Plus invested his own cash into the business for nearly 20 years?
Fraud? MILA had strict fraud policies in place sand denied loans that even smelled funny!
This case is ludicrous and time will show that he may have to pay some retribution for bad decsions but not at what the trustees seem to think. How quick the tide turns when things go sour. MILA Closed abruptly that is true. Your 401K’s and last checks were given to everyone. There was no thievary here as implied.
Many companies go out of business and take less care of their employees and MILA employees still got thier unemployment benefits.
BE REAL
Not sure exactly what the question is here. Businesses have a responsibility to the community to provide valuable goods and services, create jobs, build the social fabric and generate profits for shareholders. MILA clearly failed on many of these accounts, as did many others like Countrywide. While I do not think it is helpful for these individuals to spend time incarcerated, it would be good to seem them stripped of the ill-gotten gain, the financial reward for reckless practices. Thievery or not, our society must have common sens rules (and consequences) that deter activities that will damage to our economy and our neighborhoods.
Unbelievable how many people out there are so for themselves and not out to do what they are morally suppose to. We are raising kids in this environment and that is the scary part of this. I didn’t know this, I do hope that they seize all of his assets.
It will be interesting to see how this all plays out. I wonder where MILA would be today if a good portion of that 32 million would have been retained to keep the company afloat. With so many lenders closing their doors they could have emerged as one of the few players left thereby positioning themselves for the long haul and a profitable future. The comment by the former employee would seem to bear no ill will toward Mr. Sapp for what transpired. I wonder if the majority of the former employees feel the same way. A final paycheck, 401k money, a pat on the back and some unemployment benefits would not be an acceptable substitute for the opportunity of continued full time employment.
I don’t know if there is a question to answer or just give our opinion.
If it is true what the former employee said then I believe it would never have reached this point for Mr. Sapp.
I worked with MILA onetime and one time only, the rep was basically telling me how to commit fraud on a file to “get it past” underwriting. I told her to leave and never step foot in my office again. I believe she is still unemployed.
Just another example of greed getting the best of an otherwise successful businessman. I wonder if in todays environment if Mila wouldn’t have closed like so many others have, but I can’t believe that he was able to live the high life while his stockholders are left holding the bag. Not much different than all the other lenders asking for a bailout. How can we procecute some and send money to others?
My 1st loan I did as an LO was through MILA. I remember thinking how I coudln’t believe how fast they were appoving my clients loan that was 95% LTV at 580 FICO. Well this kind of end doesn’t surprise me with such a shaky foundation of a business.
IF WHAT IS BEING REPORTED IN THIS ARTICLE IS ACCURATE, THIS DOES
APPEAR TO BE THE ULTIMATE FORM OF FRAUD AND GREED. MILA GREW VERY
QUICKLY AND EMPLOYED MANY PEOPLE. THIS IS A VERY SAD ENDING.
Just one of the first banks to loose their butts due to closing unqualified borrowers loans. Greed Greed Greed on everyones part.
Unfortunatly, they were able to ask for the bail out and get it like some of the other banks were able to.
This just seems to be the bailout trend…what will be next I wonder?
This was an interesting article. If accurate, it does not surprise me in today’s state that greed became the driving factor of its demise. What I do question is the opening sentence from the article. In 2004, I think it would have been very difficult to know for certain that the bubble was bursting and thus was the reason for the actions of greed taken. If anything, it probably was just sheer greed instead of foresight that the bubble was going to burst.
The bankruptcy trustees remark is way off base , in 2004 everyone in the mortgage business was making good money ! No one knew the bubble was about to burst then ! Of course the actions of paying yourself 10 million dollars a year is such greed ! Another example of Reagons trickle down effect does not work ! Regulation is needed
to stop the executive greed ,Mila was basicaly a pyramid scheme
funding sub prime and exisitng by selling it to wall street
all those stated income 580 FICO 95% LTV
I did not follow on this MILA case. And, for the most part, it seems to me that lack of planning; control and vision were not in place at all!!!. Of course, no one will know better than the ones who were involved in the company’s financial and operation matters. If experience and control management were implemented, that left the wide question: Was there any interest to keep the company operating with healthy numbers bofore taken more money out than the avility of MILA to pay to Mr. Sapp and Officers: including employees?,
As a general assestment, I will say that if its true that Mr. Sapp had those many years of experience in the business and that the business had such operating controls such to detect cases that “smelled funny”, it is hard to belive that good mesure was taken in consideration before paying to other afiliate businesses such big dollars which makes the whole scenario unreasonable!
I think Mila already knows that this will happen sooner or later. Everyone is just waiting the balloon to burst. So they are all well prepared for it. But their preparation is for themselves to get benefited from it.
Everyone knew the bubble was going to burst at some point. While they may not have been able to predict when, you can’t tell me that those heading companies such as Mila did not see it coming. When someone at the top starts pulling their money from the company in gross amounts…it’s a sure sign the ship is sinking. This occurs in companies every day – why are we surprised it occured here? What on earth does someone do with an 11.5 million dollar salary?!?! Apparently float around on their yaught…
I commented on this issue on the mortgage fraud course!
What motivates your life? Make as much money as you can is acceptable as long as it harms no one. To build a strong solid business that can continue to produce revenue for years to come is a valid goal. To withdraw excessive money at the peril of the business is not acceptable. Regardless of the bubble bursting or not had the assets of MILA been left in place the storm may have been weathered.
WOW!! WHAT A WONDERFUL STORY OF SUCH A FINE AND CARING INDIVIDUAL! SAPP IS NO SAP. I CAN’T THINK OF ANYTHING MORE TO SAY…EXCEPT THAT GRANT WOULDN’T KNOW “TRICKLE DOWN” IF IT FILLED UP HIS WALLET. BY THE WAY, HE MIGHT WANT TO LEARN HOW TO SPELL RONALD REAGAN”S NAME. ONE OF OUR GREAT PRESIDENTS; IT MAY COME IN HANDY TO LEARN PHONICS IN CASE YOU HAVE TO FILL OUT A JOB APPLICATION SOME DAY SOON. IV’E NEVER OBTAINED A JOB FROM A POOR PERSON; “AIN’T NO SUCH THING AS TRICKLE UP”
After going through what this country has over the last 3 months in bailing out the mortgage executives I am not at all shocked at Mr. Sapp’s conduct. Capitalism at its best? Some would say yes. I have dealt with trustees and boy can they be dogs on a bone so I am really hoping to see what they find and am sure that if evidence is there they will find it. I would also like to see Mr. Sapp do some jail time over this.
There is a saying that I have liked since the first time I heard it. “Never underestimate the predictability of stupidty” I think that arrogance and greed are pretty much interchangable for the word “stupidity” in that saying.
Unfortunately arrogance and greed are sometimes followed by wealth power and when that power is abused and then concealed it can hurt a lot of people and/or companies in the process.
All in all, horrible but predictable
I had my own company for 12 years and one of the most important
advices our attornies taught me was to never mix company and personal assets and I did not. This is a classic case and we have seen just how many of these in the last year,? too many right, well there has to be a stop to all this abuse and that is when avarage people will trust the financial system again. Avarage client that I talk to has a hard time trusting people in this industry,which in a way is good for them but bad all of us as a whole. These exavutives should pay the price for their deeds.
I started to do loans with Lynn Sapp in 1992 and then back away. I have watched his operation ever since. I am not surprised!!
I used Mila in the past and found them to actually be a step up from the sub prime lending. I was disturbed and bewildered when they closed their doors. As for Mr. Sapp he owned 90% of the company. How do we know whats a reasonable income for him? The extravagant toys are another issue. It goes to show you, money needs to stay in the business for it to have continued success.
I am not sure what to say about this. I didn’t really follow MILA’s issues. I never used them because it seemed their rates were much higher then Long Beach or New Century. I never had a loan that
I could do through MILA that I couldn’t do somewhere else for a better rate. Over the years I have had several MILA reps and all of the were fantastic. I am sure there were some “bad seeds” but none that I dealt with.
I have used MILA many times, but I thought they were not as competative as others. Once again this is a case where greed was at the driver seat and the checks and balances were not in place to curtail such practices by Mr. Sapp, but really who is to judge the outcome.
I also used MILA a couple off times. So i was a little surprised. I think Sapp knew the bubble was about to burst. So he protected himself by depleting his companys assets. Its plain greed. The courts should freeze his assets until this is settled in a court of law.
Mr. Sapp’s is unethical at the very least. Capitalism at its worst? There seems to be different rules for the rich. If he comingled his funds he may get prosecuted. I would also like to see Mr. Sapp do some jail time over this. It seems like standard operating practice. This industry needs to define its ethics. The essence of his actions is deplorable, but it seems to always boil down to the attorney you can afford that determines the outcome.
The only thing that makes this story unusual is the local angle, and that Sapp made it as big as he did nationally. I suspect a similar pattern developed at nearly every sub-prime lender in the country, as they faced their demise in 2006 and 2007.
Seems to me that the top execs at WAMU did much the same thing, but perhaps with better legal advice, and on a larger scale ($100 million was the figure I recently read regarding Killinger’s compensation for running WAMU into the wall).
This is not to defend either Sapp or Killinger, or the thousands of their ilk. It was, and is, shameful
It’s high time to value something (almost anything, really) more than the worship of acccumulating and wielding disproportionate money and power.
Why can’t the lender’s of the future be more like George Bailey, from It’s a Wonderful Life?
…and we wonder why we have to battle vs. the title of Mortgage Professional or Loan Originator…how do you build a defense when even household lender names provide this type of horrific press? It will further be interesting to see how the mortgage industry will evolve throughout this ordeal (not just w/ MILA).
Another selfish person. I don’t think even for a second that no one of the executives knew what was happening. I wonder if ever there will be a honest person to reveal what is happening in their companies before it’s too late. It seems that the word HONESTY has been lost.
If Sapp misused his position, or did not take care of stakeholders properly, his assets should be frozen and other consequences exacted. I also believe it is easy to pass judgement without all of the facts. While I do not agree with greedy executives taking care of themselves in ways harmful to others, let’s allow the law to make that determination.
As I sat in the office as a loan originator and watched one after another of sales guys selling stuff just like what MILA offered I always thought, when does this house of cards tumble. I always thought that it was just competition that was pushing these companies to the brink. But as the dust clears to actually see guys like Sapp and others get rewarded so enormously is ver dis-heartening.
There should be some some place in the legal system that this type of theft deserves punishment. It is just another case of including those of us who try and help client in with the few who steal from them.
Thats not fair…
I think that executives need to think more about the care of their employees and growth in their company. Sapp’s assets should definitely be seized and he should be highly prosecuted for his wrongdoing.
Layne Sapp was one of the co-founders of MILA and at a younger age had a very gifted nack for financial investments. It’s sad that as he got older and money grew for him that it overwhelmed his choices in business. Of course his assets should be frozen until everything is cleared up. And of course the other executives should also at some point be held accountable. He couldn’t have made all these decisions all by himself!
I dealt with Mila some. It was a shock when they closed from one day to the next. Obviously they were cash short, one of the first to go. Many have followed since and I’m sure that some of their top exec’s followed some of the same practices as Mila. Maybe they didn’t live so close to great boating though!
I agree with Jeremy. If the company wasn’t all that great and contributed to mortgage crisis who cares that their gone. One less bad apple in the barrel. As for Sapp he will get what he deserves.
I think since the company was private, the case goes too far by asking the court the freeze his personal assets. 2004 and 2005 were far from being “crisis” years, the busienss was great and money was flowing. I think this case has no merits.
This sort of thing does not surpise me at all!Perhaps in 2004 when the bubble was bursting more action should have been taken then.Why do everyone now (homeowners)ect. have to pay for greed of these executives. Well I can ansrew that its because everyone was Bennfiting from it. I like what Obama has done with putting a cap on what executives make.
I think this article is typical for many CEO’s in the mortgage industry. If this man goes to jail, shouldn’t they all? He is doing what most people do when going into bankruptcy. What is the difference between someone who files for banruptcy and owes 60,000.00 in credit card debts vs. this man? Neither is going to pay back the creditor. Debtor’s prison is long gone from our society. I think we need to tighten bankruptcy laws and make it
hard for people to walk away from their debts without harsh repercussions.
2 billion in creditors claims for a Mountlake company!!! Some body certainly must have been looking the other way. I wonder now that the mortgage bubble has burst how many more Layne Sapp’s are out there. Everybody is going to pay for this sort of greed. I wonder how many banks and insurance companies would insolvent right now with out the bail out package from the taxpayers. We the people will never know for sure.
Over and over the past year we have seen example after example of mis used funds and what is considered to be massive compensation and bonuses. I dont then he is any different than the leadership at Morgan Stanley, WAMU, and others.
Now congress is involved int he investigations, so obviously Mr. Sapp isn’t the only one. As a privatively held company in which he was the major investor he had the right to do what ever he wanted with the money. As for AE’s telling LO’s how to commit fraud, that is very sad, and I’m sure not something MILA would have condoned. Almost every sub prim lender has closed their doors. This isn’t any different and the press does what they can to sell news, keep that in perspective.
Who are we to sit in judgment of Sapp? We are all in our own ways “owners” of our own business. To assume that the money was taken in greed is an unknown. Who knew the market would entirely crash, he was ridding the band wagon like the executives we see in the news everyday from the banking industry and wall street. He was merely the flavor of the day in the spot light of the media.
Hi Beth,
Piercing the corporate veil means he may have used corporate funds for personal expenses. This means he may have taken money away from people for whom it was intended such as creditors and former employees. The trustee for the bankruptcy court says they have proof. We’ll have to wait for the case to settle to find out.
MILA was a great success for so long but I believe crashed prematurely. It is true that a lot of Lenders were living a life of luxury. My question to all of you is as Lane was studding in college, working hard and saving his money then taking this risk of opening a wildly successful company what were you doing? Opening a business and sustaining a business is hard work. It may be true that some assets were co-mingled but the fact is he was the first of many, many, many lenders to close. I hope that there is a fair outcome for creditors as well as Lane.