Suit says lender blocked reforms
Providing a rare glimpse inside the executive suite at Ameriquest Capital Corp., a lawsuit filed Friday accused billionaire owner Roland E. Arnall of thwarting efforts to reform the Orange company’s predatory practices in the selling of mortgage loans.
The suit was filed by Wayne A. Lee, a longtime executive for Arnall who claimed that the company reneged on a deal to pay him $30 million after he left in 2005. Arnall is now U.S. ambassador to the Netherlands but retains his ownership stake in Ameriquest.
Lee, 46, claims that he quit in frustration a year after Arnall made him chief executive of the Ameriquest Capital unit that oversaw its Ameriquest and Argent mortgage loan subsidiaries. Lee said Arnall “repeatedly blocked” his efforts to implement reforms after allegations of deceptive and fraudulent lending practices at Ameriquest.
Arnall ultimately told Lee that he “should not involve himself in the affairs of Ameriquest Mortgage” and instead should focus on Argent, the Orange County Superior Court suit says.
Bernard LeSage, an attorney for the company, called the suit “a ridiculous work of fiction.”
“It is disappointing that Mr. Lee is attempting to use baseless and inflammatory allegations to extract money to which he is not entitled,” LeSage said in a statement. “The company will vigorously contest his claims.”
Lee’s lawsuit was filed against Ameriquest Capital and does not name Arnall.
Ameriquest is a specialist in the selling of “sub-prime” loans to people with checkered credit histories, employment gaps or other issues that bar them from getting lower-cost prime loans.
Without admitting wrongdoing, the company agreed in January 2006, to pay $325 million to settle predatory lending charges brought by the attorneys general of 49 states. The settlement came after the Los Angeles Times reported claims that employees at Ameriquest branches throughout the country had used deceptive tactics to put borrowers in loans with excessive interest rates and hidden fees.
At the 2005 Senate confirmation hearing for his ambassadorship, Arnall contended that the misdeeds were the work of rogue employees and that he had worked to stop abuses.
Lee’s suit presents a different scenario.
The former executive became president of Argent in 2001 and built it into “one of the most successful and respected mortgage companies in the country,” the suit says. Argent makes loans through independent brokers whereas Ameriquest, at the time, made loans directly to consumers through a national network of company-run branch offices.
The suit claims that Argent’s practices and reputation stood in “stark contrast” to those of Ameriquest. When Arnall offered Lee the position of CEO at ACC Capital Holdings in 2004, Lee “sought and received assurances from Arnall that [Lee] would have the authority to make crucial decisions and changes necessary to fix operations across the Affiliated Companies, including at Ameriquest Mortgage,” the lawsuit says.
But Arnall blocked Lee’s efforts to change Ameriquest’s lending procedures and to cut costs, the suit says. As an example, it said, Ameriquest branch managers were sales workers with authority to override the “supposedly objective operational decisions” of loan coordinators -- the employees who qualified borrowers for loans and determined the loan terms.
“Plaintiff sought to reduce the danger of, and opportunity for, such undue influence by implementing operational controls such that loan coordinators would not report directly to sales personnel,” the suit said. “Arnall blocked this and other reforms.”
To keep Lee from working for mortgage-business rivals after he quit, Arnall hired him as a consultant, agreeing to pay him $20 million as he departed and an additional $30 million over the course of five years, according to a non-compete agreement attached as an exhibit to the lawsuit.
The suit says Lee received the $20 million. But a year later, it says, when the first $6-million installment was due, Ameriquest attorney Rick Cohen of Buchalter, Nemer in Los Angeles told him the company wouldn’t pay him the agree-upon amount and threatened to “drag the case out for years” if Lee sued.
Cohen didn’t return a call seeking comment.
Two years ago, Ameriquest and its affiliates were No. 1 in the sub-prime market, but its market share eroded amid a general downturn in the industry. Last year, Ameriquest laid off nearly 4,000 employees and dismantled its branch offices to focus instead on making loans directly to borrowers over the Internet and through a handful of call centers.
Industry observers have speculated for months that the company was for sale. In the suit, Lee claims that he learned last month that this was the case.
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