Stratmor beats lawsuit accusing it of bad M&A advice

Stratmor has squashed a lawsuit from a disgraced mortgage executive who accused the advisory firm of giving him bad advice in a botched acquisition. 

U.S. District Judge Charles Goodwin granted Stratmor's motion for summary judgment last month in a breach of contract suit from First Mortgage Co. The long-defunct Oklahoma City-based lender accused Stratmor of failing to perform its proper due diligence in the lender's failed negotiations with two separate companies. 

FMC was led by chairman and founder Ron McCord, who's currently serving an 8-year federal prison sentence for defrauding his former customers and business partners. The recently dismissed lawsuit did not specifically concern McCord's fraudulent activity, but rather a separate series of events which played a role in the lender's downfall. 

"We are pleased that the Oklahoma court agreed with Stratmor, that the case was without merit, and accordingly, dismissed the lawsuit," a spokesperson for Stratmor said in an email to National Mortgage News. 

An attorney for FMC did not return a request for comment. 

The FMC saga began in 2016, with the lender's strained relationship with warehouse lender American Southwest Funding Corp. After failing to repay out-of-trust loans to AS, the warehouse financier stopped fully funding some of FMC's construction loans. 

McCord liquidated at least $14 million in assets to pay some of that debt, according to case filings. The chairman started using funds from his borrowers' escrow accounts to cover operating expenses, part of the fraud he was later convicted for. 

In September 2016, FMC tapped Stratmor to advise the firm on a potential sale. 

Two buyers, no deal

After signing an advisory services agreement, Stratmor identified two buyers, investment firm Eli Global and Academy Mortgage. While Academy offered to buy FMC's assets and retain McCord as a mid-level executive, Eli Global offered a membership interest purchase agreement and to keep McCord as head of FMC.

During this time, Stratmor also informed FMC it was advising Eli Global, but that its dual representation wouldn't pose an issue. McCord chose the Eli Global deal. 

During the negotiations, Eli Global affiliate Caploc started funding FMC's loans, as its financing from AS expired. In May 2017 however Eli Global raised concerns over $34 million in bad loans transferred from AS, and a $17 million deficit in FMC's escrow funds, caused by McCord.  

Caploc stopped funding FMC's loans, and McCord terminated his negotiations with Eli Global in June 2017. Following that, FMC and Stratmor tried to resurrect a $20 million purchase offer from Academy, but that fell through as litigation against FMC arose.

FMC sued Stratmor in 2021, accusing the consulting firm of not sharing its concerns regarding Eli Global, including the prospective buyer's lack of mortgage expertise, and ongoing litigation. 

How the litigation unfolded

The complaint argued that had Stratmor warned FMC of its concerns, the lender would have accepted the Academy deal and paid its debts. Judge Goodwin however agreed with Stratmor that the consulting firm was not ultimately responsible for FMC's decisions. 

"The undisputed record reflects that FMC's own conduct during the negotiations with Eli Global caused that deal to fall through," he wrote. 

McCord was indicted in 2020 on bank fraud and money laundering charges for his dealings within his own business and with counterparties. He was sentenced to 104 months in prison and ordered to pay $51 million in restitution. He's due to be released in 2028 from an Oklahoma federal prison, according to a federal prison lookup.

Eli Global also endured troubles as its former lead executive was convicted of bribery and fraud in 2020, and ordered to pay over $562 million in restitution to corporate victims. The firm has since rebranded to Global Growth.