Ameriquest Mortgage Co. founder Roland Arnall seemed to have shrugged off complaints of lending abuses early last year, when the sub-prime lender agreed to pay $325 million to settle allegations by 49 states of misrepresented loan terms, hidden fees, puffed-up appraisals and fabricated borrower income statements.
The Los Angeles billionaire blamed rogue employees for the problems. Consumer activists said a promised overhaul of operations at the Orange-based company would set high standards for the sub-prime industry, which caters to borrowers with poor credit, heavy debts or no money for down payments.
Arnall, whose confirmation as U.S. ambassador to the Netherlands had been held up because of the litigation, won the Senate’s endorsement for the diplomatic post soon after the settlement was reached.
But on Monday, Arnall’s accountability was again front and center as attorneys for Ameriquest customers asked a judge to add him as a defendant in a private lawsuit.
In a request filed in federal court in Chicago, lawyers for the borrowers, who are seeking to combine 20 suits into one class action, contend that Arnall made decisions that resulted in abuses, blocked attempts to reform Ameriquest and drained it of its profit before virtually shutting it down as the sub-prime industry imploded.
Ameriquest and its affiliates “were the alter ego” of Arnall, the suit says. “Assets of the Ameriquest entities were transferred to Arnall with the actual intent to hinder, delay or defraud the plaintiffs in this action.”
In an e-mailed statement, Lisa Cohen, a spokeswoman for Arnall, said he had “stepped down from the company’s board almost two years ago -- far in advance of the meltdown of the non-prime industry and at a time when the company was profitable and financially stable.”
She added that lawyers for the plaintiffs were “trying to generate interest in their case by tarnishing the ambassador.”
A spokesman for Ameriquest declined to comment.
The motion to add Arnall as a defendant is to be heard June 26 by U.S. District Judge Marvin E. Aspen in Chicago.
The current defendants are Ameriquest, parent company ACC Capital Holdings Corp. and various subsidiaries, affiliates and agents.
Ameriquest’s $325-million settlement with the states was the second-largest ever in a predatory lending case. The largest was by Household International, which settled for $484 million with 50 states in 2002.
But private attorneys say that many Ameriquest customers would recover more by declining to join in the settlement with the states and instead taking part in the private litigation.
In most cases, the settlement with the states would result in awards amounting to hundreds of dollars for each borrower, though their actual damages often ran into the tens of thousands of dollars each, said attorney Gary Klein of Boston, one of the lead lawyers in the private lawsuits.
Klein said the plaintiffs would seek billions of dollars in damages, including punitive damages and treble damages under many state laws for “bait and switch” tactics.
Ameriquest, which in its glory days sponsored Major League Baseball, the Super Bowl XXXIX halftime show and a Rolling Stones tour, was ranked the country’s top sub-prime lender in 2004 and 2005. But the Ameriquest companies fell from the top 10 among sub-prime lenders in the third quarter last year, according to National Mortgage News.
Ameriquest Mortgage last year shut down 270 offices around the country and this March shuttered six operational offices, leaving only a small staff working at the headquarters in Orange.
Arnall remains the majority owner of Ameriquest and its affiliates. When he became ambassador, he was required to give up a role in running the company.
The plaintiffs’ filing Monday cites allegations in an Orange County Superior Court lawsuit in which Wayne A. Lee, a longtime executive for Arnall, accuses the billionaire of thwarting Lee’s efforts to reform the company’s sales practices.
Lee’s lawsuit names the company as a defendant but not Arnall. It claims that Ameriquest reneged on a deal to pay him $30 million after he left in frustration in 2005.
An attorney for the company has called Lee’s suit “a ridiculous work of fiction” and has said Lee is “attempting to use baseless and inflammatory allegations to extract money to which he is not entitled.”