SEC v. James R. Collins; and Robert F. DiMeo, No. 1:21-cv-05040, Northern District of Illinois (Sept. 23, 2021) — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

vs.

JAMES R. COLLINS AND
ROBERT F. DIMEO
,

Defendants.
 Case No. 21-cv-5040

COMPLAINT

JURY TRIAL REQUESTED
 Plaintiff United States Securities and Exchange Commission (the “SEC”), for its
Complaint against Defendants James R. Collins (“Collins”) and Robert F. DiMeo (“DiMeo”)
(collectively, “Defendants”), alleges as follows:
SUMMARY OF ALLEGATIONS
1. This case involves a securities fraud committed by Defendants Collins and DiMeo
in connection with the offer and sale of notes backed by a package of subprime auto loans. The
Defendants were the founders and operators of a subprime auto loan funding and servicing
company named Honor Finance, LLC (“Honor”). In December of 2016, through a process
known as “securitization,” Honor packaged together several thousand of its auto loans to serve as
collateral for $100 million in interest-bearing notes sold to investors through a specially created
trust. As long as the auto loan borrowers made sufficient payments on the underlying loans,
investors who purchased the notes would receive monthly payments until the trust fully repaid
the principal and interest on the notes. The Honor-sponsored securitization was named the Honor
Automobile Trust Securitization 2016-1 (“HATS”). In connection with the offer and sale of
HATS notes, Honor, at Defendants’ direction, engaged in deceptive conduct when servicing
loans in the HATS portfolio, made false and misleading statements related to its loan servicing

practices, and otherwise engaged in a scheme to defraud HATS investors. Defendants also
enriched Honor, and through Honor themselves, by misrepresenting the quality of the loans
underlying the HATS notes sold to investors.
2. Defendants’ fraudulent actions set up HATS as a house of cards which was
doomed to fail, and it predictably collapsed when their scheme unraveled. HATS collapsed
because, prior to the sale of HATS notes, and unbeknownst to investors, Defendants filled HATS
with poorly-performing and delinquent loans they disguised to look like better-performing (i.e.
more likely to continue to pay rather than default) loans than they really were.
3. Honor perpetrated this fraud chiefly by engaging in two types of undisclosed and
impermissible loan modification practices. First, Honor, at Defendants’ direction, recklessly and
surreptitiously applied essentially fake borrower payments called “Honor Payments” to
delinquent loans to make it appear as though borrowers had made payments when they in fact
had not. Second, again at Defendants’ direction, Honor recklessly,  and contrary to its disclosures
to investors, unilaterally extended the payment due dates of thousands of otherwise delinquent
loans to disguise how far behind the borrowers were on payments. Together, the failure to
disclose these impermissible loan modification practices in the offering documents used to
market and sell the HATS notes hid credit weaknesses in the HATS loan portfolio and allowed
Defendants to pawn off poorly performing loans to HATS investors. Approximately 18 months
after the HATS deal was completed, the underlying portfolio of auto loans suddenly— and as far
as investors knew, unexpectedly—reported significant losses.
4. Investors purchasing HATS notes did not know about the improper modifications
because the materials Honor prepared to market HATS misrepresented Honor’s actual loan
servicing practices in several respects.

5. First,  Honor falsely represented that, consistent with standard industry practices,
Honor granted payment modifications to borrowers only after properly investigating and
determining the modification was in the HATS trust’s best interest, and no more often than once
every three months. In reality, at Defendants’ direction and without borrower interaction or the
required diligence, Honor recklessly extended loans or used Honor Payments to advance
borrowers’ payment due dates and make it appear as though their loans were current. Through
these improper modification practices, Defendants manipulated Honor’s delinquency reporting and
avoided making an accounting entry known as a “charge-off” in which loans are written off as a
loss because the borrowers are severely delinquent, owe more than the collateral (i.e. the
underlying vehicle) is worth, and are unlikely to make any future payments.
6. Second, Honor, through Collins and DiMeo,    secretly stuffed more than a thousand
poorly-performing loans into HATS by using the improper loan modification practices to make it
appear as though the loans satisfied the deal’s collateral requirement that no loan be more than 30
days delinquent. If not for these improper loan modification practices, Honor would have been
required to  replace many of these loans with better performing loans. Moreover, by fraudulently
including the bad loans, which had a higher likelihood of default and charge-off, Honor, through
Defendants, effectively erased a collateral cushion included in the HATS structure designed to
protect investors from losses.
7. Honor, at the Defendants’ direction, continued these same reckless and
impermissible loan modification practices after HATS closed. These modifications caused Honor
to inaccurately record and report loan delinquencies which, in turn, delayed Honor from timely
repossessing vehicles and charging off defaulted accounts in the HATS pool of auto loans.
Defendants engaged in these practices to hide further deterioration in the HATS loan pool and

manipulate HATS’s cash flow structure to improperly take money from HATS that should have
gone to investors.
8. In addition, Honor’s extensive use of improper modifications caused monthly
reports Honor published to update investors and others on the performance of the HATS notes to
be false or misleading. The monthly reports were misleading as to, among other things, the deal’s
performance, the underlying loans’ delinquency status, and the percentage of the loan pool with
extensions during the month. As a result, investors had materially inaccurate information when
considering whether to buy or sell HATS notes on the secondary market.
9. Honor perpetrated this scheme at the direction of, and while under the control of,
the Defendants. As co-founder and Chief Executive Officer (“CEO”), Defendant Collins
imposed a strict top-down management regime that involved him in virtually every substantive
aspect of Honor’s operations, including the HATS offering. Despite his knowledge of Honor’s
actual reckless loan servicing and modification practices, he approved marketing materials for
the HATS notes provided to investors that were false or misleading as to those practices.
Defendant DiMeo, also a  co-founder, the Chief Operating Officer (“COO”), and the Compliance
Management Officer of Honor, knowingly provided false and misleading information to be used
in the HATS marketing materials and personally directed most or all of the improper loan
modifications. At various times, both Collins and DiMeo lied to or misled the HATS underwriter
and others who were either preparing materials for the HATS offering or conducting risk
assessments of the HATS notes that were important to investors making HATS-related
investment decisions.
10. After the HATS offering, Defendants maintained the scheme through their
continued use of reckless loan modification and servicing practices. They concealed their

activities from investors by continuing to deceive the HATS underwriter and others about
Honor’s loan modification practices. In addition, DiMeo, with Collins’s knowledge, continued to
deceive investors by providing false and misleading information that was included in the
monthly reports on the performance of HATS provided to investors, potential investors, and
others.
11. Defendants could not use improper loan modifications to disguise the loan pool’s
weaknesses and postpone charge-offs forever, and beginning in about December 2017,
Defendants’ improper practices began to catch up with them. About that time, HATS first
reported a noticeable deterioration in its loan pool. Several months later, HATS became the first
subprime automobile deal downgraded by the ratings agencies since the 2008 financial crisis.
Anticipating potential losses, in June 2019, the deal’s underwriter caused the repurchase of the
remaining HATS notes from investors. Without this intervention, investors would have lost
millions of dollars as the loan pool recognized losses, leaving the deal with insufficient cash
flows to meet its obligations.
12. As a result of the conduct described herein, Defendants violated and, unless
restrained and enjoined, will continue to violate Section 17(a) of the Securities Act of 1933
(“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act of 1934 (“Exchange
Act”) [15 U.S.C. § 78j(b)], and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) &
(c)]. Defendant Collins violated, and unless restrained and enjoined, will continue to violate Rule
10b-5(b) under Section 10(b) of the Exchange Act [17 C.F.R. § 240.1b-5(b).)]. Defendant
DiMeo is liable under Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)] for aiding and
abetting Honor’s violation of Rule 10b-5(b) under the Exchange Act [17 C.F.R. § 240.1b-5(b). In
the alternative, Defendants are liable under Section 15(b) of the Securities Act [15 U.S.C. §§

77o(b)] and Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)] for aiding and abetting
violations of the aforementioned antifraud provisions of the Securities Act and the Exchange Act
committed by Honor. Defendants are, with respect to violations of the Exchange Act, also liable
in the alternative as control persons under Section 20(a) of the Exchange Act [15 U.S.C. §
78t(a)] for violations of Sections 10(b) and Rule 10b-5 thereunder, committed by Honor.
13. To deter additional fraud, recover fraudulently obtained funds, and otherwise
enforce the federal securities laws that the Defendants and Honor violated, the SEC seeks
permanent injunctions against each of the Defendants, enjoining them from engaging in the
transactions, acts, practices, and courses of business alleged in this Complaint and from
violating, directly or indirectly, the laws and rules alleged in this Complaint; disgorgement of all
ill-gotten gains from the unlawful activity set forth in this Complaint from each of the
Defendants together with prejudgment interest; civil penalties pursuant to Section 20(d) of the
Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C.
§ 78u(d)(3)] against both Defendants; and officer and director bars against both Defendants
pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) [15
U.S.C. § 78u(d)(2)]] of the Exchange Act.
JURISDICTION AND VENUE
14. The SEC brings this action pursuant to Sections 20(b), 20(d)(1) and 22(a) of the
Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a)] and Sections 21(d)(1), 21(d)(3)(A),
21(e) and 27(a) of the Exchange Act [15 U.S.C. §§ 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa(a)].
Defendants, directly or indirectly, have made use of the means or instrumentalities of interstate
commerce, of the mails, or of the facilities of a national securities exchange in connection with
the transactions, acts, practices and courses of business alleged in this Complaint, including by

making use of the internet to offer securities and sending or receiving interstate email and
participating in interstate voice or video calls. This Court has subject matter jurisdiction under
Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d) and 77v(a)], and Sections
21(d) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa].
15. Venue is proper in this district under Section 22(a) of the Securities Act [15
U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)] because certain of
the transactions, acts, practices and courses of conduct constituting violations of the federal
securities laws occurred within this district. During the relevant period, Honor had its principal
place of business in this District in Evanston, Illinois. Defendants also reside in this District.
DEFENDANTS
16. Defendant James Robert Collins, age 51, is a resident of Evanston, Illinois, and
was the co-founder and CEO of Honor until terminated in December 2017. Prior to the HATS
issuance, Collins worked with DiMeo for 24 years in the automobile finance and servicing
industry. On May 15, 2020, Collins was indicted in the Northern District of Illinois based on
allegations that he, along with DiMeo and a third individual, misappropriated approximately $5.3
million from Honor in a different scheme. Collins asserted his 5
th
 Amendment right not to testify
substantively when asked questions in the SEC investigation that preceded this action.
17. Defendant Robert Frank DiMeo, age 51, is a resident of Park Ridge, Illinois,
and was the co-founder, COO, and Compliance Management Officer of Honor until terminated
in May 2018. Prior to the HATS issuance, DiMeo worked for over 24 years with Collins in the
automobile finance and servicing industry. DiMeo is also a subject of the indictment described

above. DiMeo also asserted his 5
th
 Amendment right not to testify substantively when asked
questions in the SEC investigation.
RELEVANT PARTY
18. Honor Finance, LLC is a related party that was a privately-held Delaware
limited liability company located in Evanston, Illinois, that acquired and serviced subprime auto
loans on used vehicles. It funded and serviced the loans that served as the collateral for HATS.
At the time of the HATS offering, private equity funds held a majority ownership interest in
Honor. Honor opened in 2000 and shut down operations in about August 2018. In August 2018,
another servicing company took over responsibility for servicing the HATS loan portfolio.
FACTS
I. BACKGROUND
19. HATS was a Delaware trust that issued $100 million in notes backed by a pool of
subprime motor vehicle retail installment sales contracts (i.e. subprime auto loans). Under
Honor’s credit policies, used car dealers arranged the origination of each loan in the HATS pool
before October 31, 2016, the last day loans could be included in the HATS loan pool (the “Cut-
Off Date”). As HATS’s “ sponsor,” Honor purchased the loans from car dealers, arranged to set
up HATS, sold the loans to HATS, caused the sale of the notes to investors (or noteholders)
through the HATS offering, and for a fee serviced the loans on HATS’s behalf after the offering
closed.
20. In marketing the notes that HATS would issue, Honor, with the assistance of
others, prepared a number of materials that explained the structure of the deal, the nature of the
collateral for the notes, its loan servicing practices, as well as the potential risks to investors.
These materials included an investor presentation, Offering Memorandum,  and the Sale and

Servicing Agreement (collectively the “Offering Materials”). The Offering Materials described,
among other things, Honor’s responsibilities, procedures, and policies as servicer to the loans
collateralizing the HATS notes. Generally, Honor’s servicing responsibilities included collecting
and processing loan payments, investigating delinquencies, making servicing collection calls,
repossessing vehicles, charging off loans, and reporting the loan pool’s performance to investors
on a monthly basis.
21. Honor also had written policies and procedures (“P&Ps”) in place that governed
its servicing practices, including when to give payment extensions, initiate repossessions, and
recognize charge-offs of the loans that made up its portfolio. The Offering Materials required
Honor to apply these policies faithfully and in the trust’s (HATS) best interests.
22. As CEO of Honor, Collins had ultimate authority over, and was directly
responsible for, the content of the Offering Materials. He personally approved the investor
presentation, was intimately involved in providing and reviewing information used in the
Offering Memorandum, and effectively was the final authority from Honor over the HATS
transactions documents, including the Offering Materials. Collins also made the ultimate
decision to proceed with the HATS offering.
23. As is customary in securitizations, as HATS’s sponsor, Honor retained an
underwriter, referred to here as “Underwriter A,” to help set up the HATS offering and market
the HATS notes. Generally, an underwriter, for a fee, works with an issuer (e.g., HATS) to
structure, price, and sell securities (e.g., the HATS notes). In doing so, underwriters rely on the
accuracy and completeness of the information provided to them by the issuer, or, where
applicable, sponsors like Honor.  Investors, in turn, rely, at least in part, on the underwriter’s

work and the accuracy of the offering materials based on the information provided by the issuer
or sponsor, when deciding to purchase the issuer’s securities.
24. Prior to the HATS offering, HATS notes were also evaluated by two ratings
agencies, referred to here as “Rating Agency A” and “Rating Agency B” (collectively the
“Ratings Agencies”). Ratings agencies are third-party entities that conduct diligence on and
assign grades or “ratings” to debt securities like the HATS notes. The ratings reflected the HATS
notes’ risk of default as judged by the Ratings Agencies based on, among other things, their
review and analysis of Honor as servicer and the underlying loans as collateral. Many investors
use these ratings in making investment decisions. Like Underwriter A , when evaluating HATS
the Ratings Agencies relied on information provided by Honor. In connection with rating HATS,
Collins and DiMeo both provided information to the Ratings Agencies on behalf of Honor.
25. The Ratings Agencies rated HATS’s $100 million in notes as follows:
Class Rating

Note Amount Interest Rate Final Distribution
Date
A
A $76.48 million 2.94% November 15, 2019
B
BBB $14.66 million 5.76% April 15, 2021
C
BB- $8.86 million 8.05% November 15, 2022
26. The Class A and B notes with “A” and “BBB” ratings, respectively, were
considered investment grade, meaning they had a low risk of default. The Class C “BB-” notes
were the lowest rated, meaning they had the highest risk of default of all the classes or “tranches”
of HATS notes.
27. HATS notes were issued for sale to investors or “closed” on December 15, 2016
(the “Closing Date”). As noted above, thereafter, each month from January 2017 to about June
2018, Honor published and certified a report called a Servicer’s Certificate (a “Monthly Servicer
Report” or “MSR”), detailing the performance of the underlying loan pool using several data

points. Investors used the MSRs to monitor the deal’s performance and to decide whether to buy
or sell HATS notes. Ratings Agencies also used these reports to conduct regular surveillance
activities designed to ensure the deal performed as expected and to determine whether they
should maintain or adjust HATS’s credit ratings.
II. HATS’S OFFERING MATERIALS WERE FALSE AND MISLEADING
28. The HATS Offering Materials were false and misleading because they contained
material misrepresentations and omissions concerning Honor’s loan servicing practices,  which
negatively impacted the reported quality of the loans used as collateral for the HATS notes.
Specifically, the Offering Materials were false and misleading as to: (A) the conditions under
which Honor provided borrowers with loan modifications and the impact of these modifications
on the HATS loan pool; and (B) the use of modifications to make loans eligible for inclusion as
collateral in the HATS loan pool.
A. The Offering Materials Failed to Accurately Describe Honor’s Use of Loan
Modifications
29. Subprime automobile loan servicers like Honor use loan modifications, including
payment extensions, in their collections strategy. Extensions allow borrowers to miss one or
more payments—sometimes called a payment holiday—while extending the loan term. The
traditional justification for extensions is that working with the borrower to overcome confirmed
temporary financial problems will ultimately maximize the return on the loan by helping the
borrower continue to make payments. Unlike extensions, which when given under appropriate
circumstances are a recognized industry practice, Honor Payments—where Honor recorded an
entry in its servicing system reflecting the receipt of a payment from the borrower when, in fact,

Honor had received no such payment from the borrower —was unique to Honor and is not a
recognized industry practice at all.
30. The Offering Materials purported to describe Honor’s controls over loan
modifications. The Offering Materials, however, inaccurately described Honor’s actual loan
modification practices in several material ways.  First, the Offering Materials falsely represented
that Honor limited extensions to once every three months. Second, the Offering Materials
misleadingly stated that Honor investigated loan delinquencies and granted an extension only
after engaging the borrower and determining that an extension was in the trust’s best interest.
Third, the Offering Materials failed to make any mention of Honor Payments and falsely claimed
that no loans in the HATS portfolio had been subject to practices akin to Honor Payments.
Fourth, the Offering Materials’ disclosures regarding repossession and charge-off timing were
false and misleading. Finally, the Offering Materials’ statements that Honor applied industry
standard controls over its use of extensions or similar modifications was untrue as a result of its
reckless, improper, and undisclosed loan modification practices.
1) The Offering Documents Falsely Represented that Honor Did Not
Give Extensions More Frequently than Once Every Three Months

31. The HATS Offering Memorandum expressly provided that, “  [p]ayment
extensions may be granted from time to time, but no more frequently than every three months.”
(Emphasis added). The deal’s investor presentation, personally approved by Collins, also
explained, “  [e]xtensions are allowed for temporary relief to borrowers. They must be at least
three months apart and approved by the COO.” (Emphasis added). Moreover, Honor’s P&Ps
also expressly required that, “ [a]ll extensions must be a  minimum of three months apart.”
32. At DiMeo’s express direction, Honor, however, regularly granted loan
modifications (either extensions or Honor Payments which fundamentally acted like extensions

by advancing the next payment due date on a loan) more frequently than every three months
prior to the HATS Closing Date. Servicing data shows that, before the Closing Date, 5% of the
loans in the HATS portfolio (735 unique loans) were granted more than one form of
modification within three months of each other. Some loans in the portfolio were even granted
loan modifications in three consecutive months.
33. After the HATS closed on December 15, 2016, Honor, at DiMeo’s personal
direction and with Collins’s knowledge, continued to violate this limitation. Honor provided
modifications of one kind or another more than once every three months nearly 24,000 times to
more than 5,600 unique loans, representing 38% of the loan pool.  These repeated modifications
hid the fact that Honor was having trouble consistently collecting payments on a very sizeable
portion of the HATS loan portfolio.
2) Contrary to its Representations, Honor Did Not Investigate
Delinquencies or Engage Borrowers Prior to Applying Thousands of
Payment Extensions
34. HATS Offering Materials misrepresented that Honor investigated delinquencies
and engaged borrowers prior to granting extensions to ensure the extension was in the best
interest of HATS. DiMeo provided the information used to draft the Offering Materials’
language on loan deferments and extensions and Collins ultimately approved it. In reality,
DiMeo, with Collins’s knowledge, extended thousands of loans in the HATS pool without
reasonably investigating why the borrower failed to make a payment or determining whether the
extension was in the trust’s best interest.
35. The Sale and Servicing Agreement, which was incorporated by reference into the
Offering Memorandum and available to investors, was Honor’s servicing contract with HATS.
The Sale and Servicing Agreement specifically required Honor to “substantially comply with
[its] Servicing Policies and Procedures” and to investigate delinquencies. It also limited Honor to

using extensions when “the Servicer believes in good faith that such extension, modification or
amendment (x) is necessary to avoid a default on such Receivable, (y) will maximize the amount
to be recovered by the Trust with respect to such receivable and (z) is otherwise in the best
interests of the Trust.”
36. Thus, in order t o satisfy the standard set out in the Sale and Servicing Agreement,
Honor had to engage the borrower, determine why the borrower failed to make a payment, and
determine that the extension would help the borrower avoid a default and continue to make
payments. If Honor did not undertake this type of investigation, it risked giving extensions to
borrowers who planned to “skip,” meaning that the borrower had no intention or means to pay
the loan going forward. Giving extensions to borrowers that plan to skip would not be in the
trust’s best interest because such extensions delay the recognition of loan losses and can decrease
the recovery on the underlying vehicle, which is a depreciating asset.
37. In addition to the Sale and Servicing Agreement, Honor’s P&Ps allowed for an
extension only at the request of a customer or at least after Honor had contacted the customer to
determine the reason for an extension. As COO and Compliance Management Officer, DiMeo
had direct oversight and responsibility over the P&Ps. Honor’s P&Ps were provided to
Underwriter A and the R ating Agencies with DiMeo and Collins’ knowledge and approval. The
Offering Memorandum provided to investors also incorporated the Sale and Servicing
Agreement and the P&Ps by reference, noting that Honor would grant extensions only in
accordance with the Sale and Servicing Agreement and its P&Ps.
38. Honor’s P&Ps allowed for only two types of extensions or payment holidays: (1)
“Extensions” (called “Allowable Delinquencies” or “ADs” internally at Honor) and (2)

“Payment Deferrals.”
1
 The P&P section on “Payment Extensions and Deferrals” provided as
follows:
 “A Customer may request Honor to Defer or extend the due date of a specific payment
(‘Payment Deferral’ or ‘Extension’).  A Payment Deferral or Extension moves the due
date of a particular payment to a later date.  The payment may be past due or due now or
in the future.  Honor may offer Payment Deferrals and Extensions to help Customers
with a record of making timely periodic payments.  A Payment Deferral or Extension
provides a Customer who has experienced a financial difficulty extra time to make the
payment” (emphasis added).

39. In summary, Honor’s own servicing policies clearly contemplated that an
extension would be granted only after a customer request (“A Customer may request Honor to
defer or extend the due date of a specific payment”), or at least after Honor made contact with a
customer and determined that the customer had a short term financial need (“Honor may offer
Payment Deferrals and Extensions to help Customers with a record of making timely periodic
payments. A Payment Deferral or Extension provides a Customer who has experienced a
financial difficulty extra time to make the payment.”).
40. Despite the Offering Materials’ disclosures and Honor’s obligations under the
Sale and Servicing Agreement and its own P&Ps, DiMeo unilaterally a pplied payment
extensions thousands of times to loans in the HATS pool without asking why the borrowers were
not making payments, if they had the ability to make payments, or whether they intended to
repay the loan. In these instances, Honor failed to reasonably investigate the underlying reason
for the delinquencies or determine if the extensions were in the best interest of the trust.
41. With Collins’s knowledge and approval, DiMeo led this unilateral modification
process. DiMeo periodically isolated himself in his office, ran and then reviewed loan
delinquency reports. During the review, DiMeo made hand-written notations on the reports next

1
The SEC is not alleging misconduct in connection with the application of Payment Deferrals.

to loans indicating whether the accounting department should apply an extension to the loan. The
accounting department then used these notes to process the payment extensions in Honor’s loan
servicing system.
42. Prior to the Closing Date, DiMeo applied nearly 2,400 ADs to more than 1,250
loans in the HATS portfolio. After the Closing Date, DiMeo applied more than 25,000 ADs to
more than 6,700 loans in the HATS portfolio. DiMeo commonly used these ADs to push longer
delinquencies back into less severe delinquency categories (i.e. from the 60-90 days delinquency
category to the 30-60 day delinquency category). A standard AD entered into the loan servicing
system excused a single payment. But, DiMeo also applied ADs that excused from two to nine
months of non-payment (internally called A2s, A3s, etc.). In other cases, DiMeo directed
employees to give ADs to loans on vehicles which Honor had already repossessed and/or even
sold at auction.
3) Honor Omitted Any Disclosure of Its Use of “Honor Payments,”
Which Rendered Its Offering Materials False and Misleading
43. The Offering Materials, over which Collins had ultimate authority, make no
mention of Honor Payments. As noted above, the Offering Materials and the P&Ps permit only
two types of extensions, ADs and Payment Deferrals. Neither the Offering Materials nor the
P&Ps contemplated, at all, the use of Honor Payments, whereby Honor essentially entered fake
borrower payments into its servicing system to make it appear as though the borrower had made
a full payment, when in fact the borrower had not made any payment or made only a partial
payment.
44. Moreover, the Offering Materials expressly represented that none of the loans
included in HATS had been subject to the very kinds of modifications practices like Honor
Payments. Specifically, the Offering Memorandum contained a list of requirements that each

loan supporting the HATS deal needed to satisfy to be included in the pool. These requirements
included the following representation:
“None of Honor Finance, any affiliate, any dealer or anyone acting on its behalf advanced
funds to prevent the Receivable from becoming more than 30 days past due.”

Honor payments (and ADs) violate this representation because they effectively “advanced” funds
for the sole purpose of moving a loan’s next payment due date and, in many cases, moved the
loans to a less severe delinquency category (e.g from 60 days past due to 30 days past due).
45. Despite these omissions and misrepresentations, DiMeo, with Collins’s
knowledge and approval, unilaterally applied Honor Payments to thousands of loans. Honor
Payments were a secretive process within Honor, and like ADs were applied by DiMeo when he
would hole up in his office and conduct his regular reviews of loan delinquency reports. But,
unlike ADs, which allowed the borrower to skip a payment while interest continued to accrue,
Honor Payments decreased the borrower’s loan balance by the amount of principal and interest
the borrower failed to repay. Thus, Honor Payments made it appear as though the borrower had
made a payment when, in fact, no money was received from the borrower. Honor Payments were
effectively Honor excusing the loan payment on behalf of the borrower—almost always without
borrowers’ knowledge—to give the appearance that the borrower was making loan payments in
full and on time. Payment, if any, applied to the loan balance came from Honor. Honor did not
require the borrower to make up this payment or add the amount Honor paid to the loan balance.
Like ADs these fictitious payments masked problems Honor was having with collecting on
HATS loans.
46. In some cases, Honor Payments added to partial payments borrowers made in
order to reach the full payment due amount and avoid a delinquency. DiMeo ran reports showing
loans where borrowers made some, but not all, of the scheduled payments. These reports

identified the accounts with the smallest shortfalls needing funding to “roll” the next payment
due date to the next month. DiMeo used these reports to identify loans for which he could use
Honor Payments to supplement partial payments. By supplementing borrower payments, Honor
avoided having to include or advance those loans in the delinquency categories, thereby masking
collection problems that would continue to impact the loan pool. Honor also avoided trying to
get the borrower to make up the shortfall the following month, which was a requirement to avoid
being delinquent. Collins was aware of this practice and defended it to others at Honor prior to
HATS issuance.
47. In other instances, DiMeo used Honor Payments to record complete payments on
behalf of borrowers or pay off the balance remaining after the sale of a repossessed vehicle (to
avoid charging off the difference).
48. In addition, in some of these cases, DiMeo used the Honor Payments to
circumvent the limitation on giving extensions more than once every three months by applying
an Honor Payment before or after an AD.
49. Prior to the Closing Date, DiMeo applied more than 1,700 Honor Payments to
nearly 1,000 loans in the HATS portfolio. After the Closing Date,  DiMeo applied around 7,750
Honor Payments to more than 4,500 loans in the HATS portfolio. On more than one occasion,
DiMeo admitted to Honor employees that he used Honor payments to improve Honor’s reported
delinquency statistics.
50. All told, prior to the Closing Date, Honor granted nearly 4,100 improper loan
modifications (ADs and Honor Payments combined) to more than 1,650 loans (11% of the pool
on a loan basis), including more than 825 loans that had more than one and as many as 14
improper modifications prior to the Closing Date.

4)    Honor’s Repossession and Charge-Off Timing Disclosures Were False and
Misleading
51. The offering documents indicate that Honor had a practice of timely repossessing,
selling and charging off vehicles when borrowers failed to keep up with their payments.
Repossessions and charge-offs are commonly accepted and expected industry practices when the
borrower does not make the required payments.
52. Timely repossession is important because the vehicles serving as collateral are
depreciating assets.   The investor presentation noted the following: “Generally, repossession
efforts are initiated when an account becomes 60-70 days past due, at which point Honor
provides the appropriate notices and right to cure periods are allowed to lapse prior to action
being taken.” The investor presentation also stated that, “[o]n average, Honor auctions vehicles
at 100 [days past due] and charges loans off at 184 [days past due].”
53. The Offering Memorandum noted, “[a]t roughly 60 days after the scheduled
monthly payment date, responsibility is shifted back to [Honor’s collection agents at its main
office] for likely repossession and remarketing.”
54. Timely charge-offs are important also because a failure to properly recognize
when a loan should be written-off, among other things, can hide loan losses and skews the flow
of payments through a securitization to investors. Honor’s Offering Memorandum and investor
presentation described when Honor would charge-off (i.e.,   write off as a default and loss) loans
in the pool and included the following:
i. [When] More than 5 percent of any scheduled principal payment remained
unpaid for more than 120 days from the date of such payment and the
related financed vehicle has not been repossessed;
ii. At 119 days from the date on which the related financed vehicle was
repossessed (or earlier if all expected amounts have been collected); or
iii. Otherwise if the loan is deemed uncollectable under Honor’s servicing
policies.

Just prior to the deal’s closing, Collins confirmed the accuracy of these charge-off practices—
which did not differ materially from earlier iterations of Honor’s charge-off policy—to
Underwriter A. Collins also reviewed and approved the statements in the investor presentation.
55. The HATS deal terms also required Honor to charge-off any loans from the pool
balance immediately after the vehicle’s sale if the vehicle had been repossessed.
56. Honor’s failure to disclose the unilateral extensions and Honor Payments rendered
Honor’s repossession and charge-off disclosures false and misleading. Specifically, the extensive
use of these modifications delayed triggering repossessions and charge-offs. In reality, because
of the modifications, Honor took these steps only after actual loan delinquencies were well
beyond the time limits stated in its disclosures and its internal policies. This delayed
repossessions and depressed recoveries. This also delayed charge-offs, which caused
unrecognized losses in HATS prior to and after closing and skewed the flow of payments
through the HATS structure.
57. DiMeo also delayed repossessions and charge-offs triggered by repossessions
through the use of an off-the-books process called “repo control.” Under this practice, which
Honor also did not disclose, DiMeo delayed classifying a vehicle as repossessed until well after
Honor took physical possession of the vehicle. In some cases, Honor did not recognize a car as
repossessed until the car had actually been sold. In other cases, DiMeo applied ADs and Honor
Payments to loans for which the vehicles had already been repossessed to make it appear as if the
loans were still performing (i.e., still being timely paid by the borrower).
58. Because of these repossession and charge-off delays, over the course of HATS’s
life, Honor did not repossess vehicles or charge off loans until well after the time tables set forth
in the Offering Materials. For example, Honor did not repossess thousands of vehicles until those

vehicles were, on average, seven months delinquent.  It then took an additional three to four
months to charge those loans off. In these instances, DiMeo used ADs and Honor Payments to
mask the loans’ true delinquency status and avoid recognizing repossessions and charge offs in
accordance with Honor’s stated policies and practices.
5) Honor Falsely Claimed that its Servicing Policies Met or Exceeded Industry
Standard Practices
59. The Sale and Servicing Agreement required Honor to use “customary and usual
procedures of institutions which service motor vehicle retail installment sales contracts” (i.e.,
industry standard collection practices) and to “substantially comply” with its written servicing
policies and procedures.
60. The general policy statement governing Honor’s relevant P&Ps similarly
provided that, “Honor uses professional and proper practices that meet or exceed industry
servicing and collection standards for all Accounts” (emphasis added).
61. While specific policies vary, industry standard loan extension policies do not
support Honor’s practice of extending loans without contacting the borrower and without taking
steps to ascertain the borrower’s circumstances and intent. Moreover, industry standard policies
do not support Honor’s practice of simply entering fake borrower payments using Honor
Payments to avoid delinquencies and other negative credit events.
62. Honor’s written P&Ps and the Offering Materials’ disclosures require that Honor
adopt industry standard practices. But, Honor’s actual payment modification practices did not
comply with these documents or industry standards. Instead, DiMeo’s unilateral loan
modifications violated all established industry norms and practices. Likewise, Honor’s actual
repossession and charge-off practices did not conform to industry standards.

B. Honor Used Improper Extensions To Put Ineligible Loans Into The
Collateral Pool
63. Honor’s Offering Materials prohibited Honor from putting loans that were more
than 30 days past due into the HATS. This is because the probability of future default rapidly
increases after that point. As one former Honor employee put it, once a loan became 60 days past
due, it was considered “almost dead.”
64. As alleged above, the Offering Memorandum contained a list of requirements that
each loan supporting the HATS deal needed to satisfy to be included include in the pool. These
requirements, which were designed to ensure a minimum standard for the underlying collateral,
included the following representations relating to delinquencies in the collateral pool:
None of Honor Finance, any affiliate, any dealer or anyone acting
on its behalf advanced funds to prevent the Receivable from
becoming more than 30 days past due....
No receivable was more than 30 days past due.
Honor’s use, at the Defendants’ direction, of Honor Payments directly and blatantly violated the
provision stating that no loans in the HATS pool had been advanced funds to prevent it from
becoming due. In addition, DiMeo’s unilateral loan extensions—which he commonly used to
move loans from the 60-day bucket to the 30-day bucket—caused loans that were actually more
than 30-days delinquent to falsely appear to satisfy these collateral eligibility requirements.
65. Honor’s servicing system would have shown that e ach of almost 1,500 loans in
the HATS pool (about 10% of the loans in the pool) had received ADs or Honor Payments prior
to the Cut-Off Date
2
 and thus were at least 30 days past due but for the improper loan

2
 Again, this was October 31, 2016, the last day loans could be included in the HATS loan pool as
distinguished from the Closing Date, December 15, 2016, which was the date HATS closed and the notes
were sold to investors.

modifications.  If Honor had accurately recorded these delinquencies, these loans would have
been ineligible for the pool.
66. DiMeo’s blatant and intentional use of improper loan modification practices to
qualify loans for the pool is further demonstrated by the hundreds of last-minute modifications
DiMeo applied to loans shortly before the Cut-Off-Date. In the four months preceding the Cut-
Off Date (July to October 2016) DiMeo applied impermissible loan modifications (ADs or
Honor Payments) to approximately 941 loans valued at over $7.2 million. In October 2016 alone,
the last month before the Cut-Off Date, he applied impermissible loan modifications to
approximately 377 loans valued at nearly $3 million.
67. If not for the improper modifications, of which Collins and DiMeo knew, or were
reckless in not knowing,  these loans would have been more than 30 days past due on the Cut-
Off-Date and ineligible for the HATS loan pool. And, many of these loans needed multiple
improper modifications, in violation of the limit of one extension every three months, to qualify
for inclusion in the HATS pool.
68. The inclusion of these ineligible loans was material to investors. As stated by a
member of the Underwriter A deal team when asked why loans could not be simply be modified
to make them current for securitization, he answered:
I think if you were doing that you’d have a disclosure issue.  [. . . .]  You’d
probably be better off just trying to securitize the [loans that are ] 30-plus [days
delinquent] than you would doing that and disclosing it, hey, a month before the
deal we extended all these loans and brought them back current. Nobody would
buy the deal.
69. Instead of unilaterally modifying the loans to create the false appearance that they
qualified for the HATS loan pool, Honor should not have included them in the pool to begin
with. To support the ratings applied to the deal, Honor should have replaced these poorly
performing loans with loans that actually met the eligibility requirements. The Ratings Agencies

would not have rated the HATS notes as they did if they were aware of the inclusion of loans
that did not meet HATS’s stated eligibility requirements. HATS would not have had enough
eligible loans to support the structure and justify its ratings.
70. The inclusion of these ineligible loans also eroded the cushion known as
“overcollateralization” (“OC”) built into the HATS structure to protect investors from loss.
HATS was structured to provide investors with certain loss protections, known as “credit
enhancements.” The OC cushion is a type of credit enhancement that is standard for asset-backed
securities, like HATS, and is intended to protect investors from limited losses. HATS had an
initial OC cushion of $12.36 million that was created by including $112.36 million in
outstanding subprime vehicle loans to back $100 million in debt. The Ratings Agencies
considered this initial OC for HATS when assigning ratings to HATS’s notes.
71. As noted above, during the four months preceding the Cut-Off Date, Honor, at
DiMeo and Collins’ direction, made impermissible loan modifications on 941 loans representing
$7.257 million of the pool balance. This equates to 58.7% of the deal’s total initial OC. To make
matters worse, 362 of these loans received multiple extensions during this period.
C. Defendants Engaged in Additional Deceptive Acts to Conceal Honor’s
Improper Loan Modification Practices
72. In the lead up to the HATS offering, during Underwriter A’s due diligence,
Underwriter A asked Honor about its extensions practices. Collins participated in these meetings
and was the senior officer representing Honor. During these meetings, Honor falsely represented
to Underwriter A that borrowers were given extensions only after Honor verified that the
borrower was experiencing “major issues,” and that the number of extensions was limited to
three over the life of the loans.

73. In February 2016 meetings with Underwriter A, led by Collins, Honor made the
following misrepresentation to Underwriter A:
Honor uses extensions to assist borrowers who have encountered a temporary
hardship. Borrowers must show that the hardship is temporary and they must
demonstrate the ability to resume normal payment.[ Emphasis added].
74. During this process, Underwriter A also asked Honor specific questions about its
extension policies. In each instance, Honor, primarily at  Collins’ direction, made statements
consistent with the premise that extensions involved borrower interaction and followed standard
industry practices. Collins knew these statements were false. For example, in January 2016,
Honor’s controller had emailed Collins to ask about loans for which there had been no payments
in over 365 days, yet were still classified as current as a result of Honor unilaterally applying
ADs and Honor Payments. Collins then forwarded this email to DiMeo.  Nevertheless, Collins,
in an email written in November 2016 and forwarded to Underwriter A by DiMeo, falsely
represented:
An allowable is an advancement without charge typically due to a
car repair and customer problem solution. A deferment is a charge
when a dramatic event has not resulted in a delinquency. Both are
managed by Rob [DiMeo] and serve the same general purpose and
added in statistics.

75. During all of Underwriter A’s diligence, in which detailed and thorough questions
were asked specifically about Honor’s loan servicing and extension practices and policies,
Collins and DiMeo never disclosed Honor Payments at all nor did they disclose their reckless
unilateral extension practices.
76. In addition, during the Ratings Agencies’ analyses of HATS, both agencies
received copies of Honor’s policies, met with Honor, and asked about Honor’s servicing
practices. From these operational reviews, in which Collins and DiMeo participated, both
Ratings Agencies understood that Honor followed its extensions P&Ps and used such extensions

to help borrowers get past verified short term problems in accordance with industry standards. At
no point during these meetings or any at other time prior to the HATS offering, did Collins or
DiMeo disclose the use of Honor Payments or unilateral extensions.  The Ratings Agencies also
received an informational PowerPoint presentation describing Honor’s operations, policies, and
procedures, which Collins reviewed and approved. These presentations contained misleading
statements about Honor’s servicing and modification practices including, among other things,
Honor’s extensions, charge-off, and repossession practices.
D. The Misrepresentations Regarding Honor’s Loan Extension Practices and
the Loans Included in HATS were Material to Investors
77. All of the misrepresentations and omissions discussed above, regarding Honor’s
actual loan modification, repossession, and charge-off practices, and the quality of the loans
included in the pool, were material to reasonable investors because they concealed the true
quality, value, creditworthiness, and performance of the auto loans underlying the HATS notes.
78. None of HATS’s investors, Underwriter A, nor the Ratings Agencies, knew about
Honor’s practice of granting loan modifications far more frequently than its stated procedures
authorized. Nor were they aware of Honor’s unilateral extensions without any borrower
interaction or the use of Honor Payments. Moreover, as a result of Honor’s misrepresentations,
neither Underwriter A, the Ratings Agencies, nor investors could have known that Honor had
fraudulently included ineligible loans in the pool of loans used to collateralize HATS or that
Honor’s repossession and charge-off disclosures were false or misleading.
79. Had Honor been forthright and not concealed its actual loan servicing practices or
the quality of the loans it included in the securitization, the HATS securitization may not have
happened at all. At a minimum, HATS would have been structured differently (i.e., with
different tranche sizes and ratings), included only eligible collateral, and HATS’s Offering

Materials would have disclosed Honor’s actual servicing practices as well as the risks these
practices posed to HATS’s performance.
80. The number and type of extensions Honor applied rendered the servicing
agreement between Honor and HATS ineffective. The loans given extensions without borrower
involvement and engagement involved a much higher level of risk than contemplated by the
offering’s underlying structure as described in the Offering Materials (e.g., because many of the
loans included were ineligible). As a result, the undisclosed practices materially increased the
risk to investors because, for example, the loans were of a lower quality than loans that were
current in payments or extended after proper diligence.
81. Similarly, knowledge of Honor’s loan modification practices directed by the
Defendants would have materially impacted the Ratings Agencies’ ratings of HATS’s notes.
Both agencies confirmed that it is important and standard industry practice for extensions to be
borrower driven; the borrower should show a desire to stay in the loan and a commitment to
repay. Witnesses from the Ratings Agencies had never heard of any servicer engaging in conduct
resembling Honor Payments. If the Ratings Agencies knew that Honor was not following its
stated policies and granting unilateral ADs and Honor Payments, they may not have rated HATS
at all. Many investors depend on ratings in making their investment decisions.
82. Likewise, investors would have wanted to know about Honor’s improper loan
servicing and modification practices and their impact on the quality of the loans in HATS
portfolio. Instead, Honor intentionally and recklessly misled investors about Honor’s loan
servicing practices and the strength of the underlying HATS loan collateral by the
misrepresentations and omissions in the Offering Materials. Investors may not have invested in
HATS notes if they had been aware of Honor’s actual practices.

III. AFTER THE HATS OFFERING, DEFENDANTS’ CONTINUED RECKLESS
LOAN MODIFICATION PRACTICES CAUSED HATS’S REPORTING TO BE
FALSE AND MISLEADING
A.  The Role of Monthly Servicer Reports in the Secondary Market
83. After the HATS securitization closed, the HATS notes could be bought and sold
by other investors on what is known as the secondary market. HATS notes traded in the
secondary market after the securitization closed in December 2016 until at least November 2018.
84. As described above,  each month Honor published a Monthly Servicer Report or
MSR detailing the performance of the deal using certain data points, including (a) collections
and remittance activities under the deal’s cash flow structure, (b) pool balance, (c) note balance,
(d) extensions, (e) delinquencies, (f) repossessions, (g) OC levels, and (h) charge-offs.
85. Investors used MSRs to monitor the deal’s performance and to decide whether to
buy, sell or hold HATS notes on the secondary market. The Ratings Agencies also used the
MSRs to monitor whether the HATS notes performed as expected or whether they needed to take
ratings actions (e.g., update the ratings they assigned to HATS’s notes).
B.  Defendants’ Use of Improper Loan Modifications Caused the MSRs to be False and
Misleading

86. Honor reported the number of extensions it made in the MSRs. At the peak,
Honor disclosed in an MSR that it had extended payments on approximately 22% of the entire
loan pool in a single month. This reporting, however, materially underreported actual
modification rates because Honor excluded Honor Payments from the MSR extension statistics
and, at Defendants’ direction, dramatically accelerated its use of impermissible modifications
(both ADs and Honor Payments). As shown in the chart below, in late 2017, Honor unilaterally
extended between 2,000 and 2,500 loans each month.  Overall, after the the Closing Date, Honor,
at DiMeo’s direction, modified (using both ADs and Honor Payments) more than 7,000

individual loans more than 33,000 times. This included more than 5,600 loans that received at
least two extensions within three months.

87. Honor Payments were not disclosed anywhere in the MSRs. If Honor had
included Honor Payments in the MSR extension statistics, the reported extension rates would
have been approximately 3.1% -  8.1% higher, depending on the month.
88. In addition, the reckless use of both ADs and Honor Payments caused Honor to
understate the length of delinquencies (e.g., by preventing loans from going from 30 days past
due to 60 days past due) for loans. This metric was important to investors because the likelihood
of a loan being repaid decreases significantly as the length of the delinquency increases. O nce a
loan is 60 days past due, a borrower has more difficulty curing the growing delinquency and the
loan often will progress to 90 and then 120 days past due. Honor’s failure to let loans flow
naturally from one delinquency category to another caused a disproportionate number of loans to
show up in the 30-day delinquent category relative to further delinquency categories (e.g. 60, 90,
(Closing Date)

or 120-day delinquencies), which emerged when Honor could no longer mask these loans’ poor
performance with reckless extensions.  Indeed, because of the significance of the 30-day
delinquencies observed, at least one investor asked Collins about the delinquency metric when
reviewing the MSRs, but Collins avoided providing a substantive response.
89. Lastly, Honor also misstated its performance data in the MSRs because it failed to
charge-off loans as required by the HATS offering documents. As noted in Paragraphs 51 and 58
above, the Offering Materials set forth conditions requiring charge-offs. Honor’s improper
extensions and repossession delays prevented loans from meeting these conditions. These delays
in the charge-offs artificially inflated the HATS pool balance and affected the OC calculations
set forth in the MSRs.
D.  Defendants Continued to Engage in Deceptive Acts to Conceal Its Loan
Modification Practices

90. As noted above, neither investors, the Rating Agencies, nor Underwriter A knew
that Honor unilaterally gave borrowers loan modifications. The first indication of an issue did
not come until July 2017, when an Underwriter A diligence team visiting Honor made the
discovery. When confronted by Underwriter A about the Honor Payments, both DiMeo and
Collins lied about the source and purpose of these payments. DiMeo initially told Underwriter A
that Honor Payments were actual payments from automobile dealers to Honor, which was false.
DiMeo later refused to answer additional questions, and said Underwriter A needed to direct any
further questions about Honor Payments to Collins. Collins later doubled down on DiMeo’s
initial, false explanation that dealers funded Honor Payments, for example, when a borrower had
missed a loan payment. Ultimately, a member of the Underwriter A deal team told Collins and
DiMeo: “You essentially have no collection policy because of the exceptions.” The Underwriter
A representative memorialized this conversation in writing, stating, “[a]t that point, I told the

company that their use of ADs and DPs [Honor Payments] even if approved by a senior officer,
rendered their collection policy meaningless. I told them that they needed to come back with a
collection policy which was more closely aligned with industry standards and greatly curtailed
their use of extensions.”
91. After Underwriter A discovered Honor Payments, Underwriter A’s relationship
manager to Honor had a conversation with Collins in which Collins said Honor would
discontinue the use of Honor Payments. However, some six months later, in January 2018, an
Underwriter A consultant found Honor had continued to use Honor Payments despite Collins’s
promises to the contrary. As the data in the chart included in Paragraph 88 above shows, Honor
continued to apply Honor Payments to the HATS pool until approximately April 30, 2018 (the
last full month DiMeo worked at Honor before he was terminated). When confronted by a
member of the Underwriter A team about the continuing practice, DiMeo lied and said that
Underwriter A’s relationship manager said Honor Payments could continue. Underwriter A’s
relationship manager later confirmed that he never agreed to allow Honor Payments to continue.
92. Collins also directly misled at least one investor about Honor’s loan modification
practices. In August 2017, DiMeo shared reports showing proposed Honor Payment activity with
Collins and asked him to “review and advise.” Despite having this information, Collins failed to
disclose information about Honor’s servicing practices, even when an investor asked him why
delinquencies were not advancing from the 30-day delinquency category to the 60-day
delinquency category. Collins gave a vague non-response, but assured the investor that Honor
remained “very encouraged” by the performance of the pool.

D.  The Post-Offering Misrepresentations Were Material to Investors
93. The false and misleading statements and omissions in the MSRs resulting from
Honor’s improper and fraudulent loan servicing practices were material to investors because the
MSRs were the primary means by which investors and potential investors evaluated the
performance of the HATS notes. The performance metrics reported in the MSRs were thus
critically important to HATS investors or potential investors.
94. Investors would have wanted to know that the extension rates reported in the
MSRs did not include Honor Payments and, as a result, misleadingly underreported loan
modifications and the number of loans experiencing collections problems, when deciding
whether to purchase or sell HATS notes.
95. Investors would have wanted to know that the MSRs’ reported loan delinquency
durations were false, as a result of Honor’s loan servicing practices, when deciding whether to
purchase or sell HATS notes.
96. Investors would have wanted to know that the MSRs’ charge-off and repossession
rates were not accurate, as a  result of Honor’s loan servicing practices, when deciding whether to
purchase or sell HATS notes.
97. Investors would have wanted to know that Honor’s loan servicing practices
skewed the reported HATS pool balance and OC calculations in the MSRs, when deciding
whether to purchase or sell HATS notes.
98. Investors would have wanted to know that, by skewing the metrics in the MSRs,
Honor diverted cash flows from HATS that should have paid down principal on investors’ notes
but instead went to Honor as the holder of a residual interest in the deal, when deciding whether
to purchase or sell HATS notes.

99. Investors would have wanted to know that the Ratings Agencies could not
properly monitor HATS’s performance and, if necessary, take timely ratings actions because the
MSRs incorrectly reported performance information used in these activities, when deciding
whether to purchase or sell HATS notes.
IV. THE SCHEME FALLS APART
A. The Consequences of Honor’s Improper Loan Servicing Practice

100. Up until late 2017, HATS’s reported loss performance roughly matched the
expected loss performance. But, beneath the surface, and as a result of improper and reckless
loan modification and servicing practices, the HATS loan pool had millions in unrecognized loan
losses. Around the same time, in December 2017, Underwriter A’s findings reached Honor’s
majority owners and the unsustainability of the improper loan servicing practices began to catch
up with Defendants, Honor, and HATS. The MSRs began reporting that the loans collateralizing
HATS began underperforming expectations as set out in the Offering Materials, and the potential
for investor losses significantly increased.
101. That same month, December 2017, following Underwriter A’s discovery of
Honor’s impermissible loan modification and servicing practices and their relaying of that
information to Honors’ majority owners, Collins was terminated as CEO.
102. By April 2018 the reported losses exceeded expected losses by nearly six percent
(11.65% projected versus 17.63% actual) or 151% of expectation. The graph below shows one of
the Ratings Agencies’ view of the sudden divergence beginning in about December 2017
between the performance reported in the MSRs and the expected performance.

103. The Ratings Agencies noticed the deterioration in the HATS portfolio. On April
18, 2018, Rating Agency A wrote, “  [a]t this point, it appears that losses are trending significantly
worse than originally expected.” It therefore placed HATS Class C notes on “Watch Negative”
meaning it had a negative outlook for the HATS notes’ then current credit rating and may have
to lower the notes’ rating in the future.
104. By July 17, 2018, Rating Agency A downgraded the Class C rating from its
original BB- rating to CCC+. When downgrading the rating, Rating Agency A wrote:
The 60+ day delinquencies have been increasing since March 31,
in response to the company adopting a less liberal approach to
extensions. Extensions had been growing and reached a peak of
20%-22% from October 2017 through January 2018.  [. . . .] The
historically high level of extensions, which we believe is outside
industry norms, coupled with elevated delinquencies, led support,
in our view, to losses being more back-loaded that normally
observed in most subprime auto loan ABS transactions.

105. On May 23, 2018, Rating Agency B also placed the Class C HATS bonds on
Watch Downgrade. On July 24, 2018, Rating Agency B downgraded the Class C notes from BB-
to CCC+. In doing so, Rating Agency B noted “HATS 2016-1 has been granting higher
extensions rates than we have seen in other subprime deals; however; the Company has recently
revised its extension policy to make it more industry standard.”

106. Notably, Rating Agency A’s and Rating Agency B’s reports relied on the
extensions reported in the MSRs which did not include Honor Payments. This implies that the
impact of Honor’s impermissible loan modifications on the HATS notes would be larger than
either agency anticipated.
B. These Events Triggered More Internal Changes at Honor
107. In April 2018, the majority owner of Honor brought in a consultant with
significant experience in the subprime lending industry to run Honor. This consultant
immediately spotted inconsistencies in Honor’s loan portfolio. He observed that delinquencies
had spiked upward but that realized losses decreased over the same period. His observations
raised concerns that Honor may have concealed significant losses in its serviced loan portfolio
that posed a risk of loss for investors in HATS.
108. Further investigation revealed that Honor had deliberately underreported loan
losses. In the consultant’s opinion, these losses resulted, from among other things, the fact that
Honor did not seem to have any rules controlling the granting of payment extensions to
customers. Taken together, he concluded that Honor had used ADs and Honor Payments to keep
its loan delinquencies and loan losses below certain thresholds. When the consultant confronted
DiMeo about these practices, DiMeo turned defensive and said, “this is how we’ve always done
it” and that “Jim [Collins] wanted it this way.”
109. In May 2018, the majority owner of Honor terminated DiMeo. In August 2018,
Honor resigned as servicer for the HATS portfolio and a new servicer took over its
responsibilities.
110. As loan losses accumulated and the lowest tranche of HATS neared losses in
principal, in June 2019 at Underwriter A’s request, the new servicer exercised a “cleanup” option

to purchase the remaining HATS bonds from investors. Without the intervention, investors
would have lost millions of dollars on the notes they held.
V. COLLINS AND DIMEO ACTED WITH SCIENTER
111. Despite repeated opportunities to come clean, neither DiMeo nor Collins
disclosed Honor’s true loan modification and servicing practices prior to HATS’s closing. These
opportunities included meetings over several months and other interactions with Underwriter A
and in person, face-to-face meetings with representatives of the Ratings Agencies.
112. Collins and DiMeo admitted to Honor’s use of unilateral extensions only after
they got caught by the Underwriter A diligence team in 2017. But, even after getting caught,
both Defendants lied about the true nature of Honor payments. In addition, Honor continued to
apply Honor Payments after Collins told Underwriter A they would stop.
113. Collins knew that Honor classified loans as current even when borrowers had not
paid for long periods of time. As noted above, in January 2016, Honor’s controller emailed
Collins to ask about loans that had ADs, but had not made payments in over 365 days, and were
still classified as current. Yet, when structuring the HATS deal, Collins told Underwriter A that
ADs were a result of customer-driven issues.
114. Collins also knew that loans given multiple and frequent extensions were risky.
For example, in May 2017, Collins wrote “we build 2 months of mods into our loan [. . . .]  After
two extensions we are rolling the dice trying to manage the carnage.”
115. Post-securitization, in August of 2017, DiMeo shared reports showing potential
Honor Payment activity with Collins, asking him to “Please review and advise[,]” and to confirm
that “this is what you want and how much you want done to it.” Despite having this information,
Collins failed to disclose it, even when an investor specifically asked him about unexpected

delinquency figures that were directly attributable to Honor’s impermissible loan modification
and servicing practices.
116. Collins was also aware of the use of Honor Payments throughout the entire period
in lead up to HATS until his termination. For example, Collins and Honor’s then CFO discussed
Honor Payments.  In this conversation, Collins told the CFO that Honor could make at least
partial payments for borrowers.   In addition, when confronted by Underwriter A in 2017, he
defended the use of Honor Payments.
117. DiMeo determined which loans received ADs and Honor Payments. DiMeo told
Honor employees that the reason he used Honor Payments was to keep loans from going
delinquent and to improve Honor's delinquency statistics.
118. As head of Honor’s servicing function, DiMeo was also responsible for the
servicing system, the source of the servicing data contained in the MSRs. He therefore knew or
was reckless in not knowing that the MSRs would contain the misrepresentations described
above in light of Honor's servicing practices.
119. Moreover, in conversations DiMeo had with Underwriter A, DiMeo showed that
he knew about the misrepresentations regarding servicing practices in the HATS Offering
Materials. He also directly misstated information about Honor’s servicing practices, or was
present and did not correct others who misstated or omitted material information, in meetings
with Underwriter A and the Rating Agencies.
120. Furthermore, given their long careers in the subprime auto industry, both Collins
and DiMeo knew, or were reckless in not knowing, about the increased credit risk inherent in
loans with multiple extensions, and therefore that their misconduct harmed investors. Both of
them also understood that Honor profited from selling loans to HATS at the time of the

securitization, and that the impermissible modifications would enhance Honor's profit from its
residual interest.
121. Collins and DiMeo anticipated that Honor would continue raising funds through
future securitizations, the success of which largely depended on positive performance in HATS.
Indeed, before Honor failed, Collins and DiMeo were planning another securitization for 2017
that never closed.
VI. HONOR AND DEFENDANTS PROFITED FROM THEIR MISCONDUCT
122. Honor profited from its misconduct in at least two ways: (A) selling ineligible
loans to HATS; and (B) receiving excess cash flows from the HATS deal that should have been
used to pay down notes and enhance the OC. Because they received bonuses based on Honor’s
profits, Defendants also profited from this misconduct.
A. Honor Profited by Including Ineligible Loans in the Portfolio
123. At the time of the securitization, Honor contributed the underlying loans, which it
had obtained at a discount, to HATS at par. For example, if a borrower had an outstanding
principal balance on the loan at inception of $10,000, Honor may have acquired it for $9,250.
Upon sale to HATS, Honor would have made an immediate profit. Since Honor should not have
included ineligible loans in the portfolio (i.e., those improperly extended prior to the Cut-Off
Date), its profit from selling these loans to HATS was improper.
124. Moreover, Honor also profited by including loans in the pool that were of lower
quality than represented. Specifically, loans modified under Honor’s undisclosed servicing
policies were riskier and worth less than loans extended under industry-standard policies.
Because Honor’s reckless extensions were not disclosed, these loans were sold to HATS at an
amount that exceeded their true value, thereby also increasing Honor’s profits.

125. If outside parties had identified the ineligibility of included loans before
securitization, Honor would have needed to replace those bad loans with ones actually meeting
the collateral eligibility requirements. By extending the loans prior to the securitization, and
failing to disclose their ineligibility, Honor had the chance to pass bad loans off to HATS and its
investors, and retain better loans for itself.
B. Honor Used Improper Loan Modifications to Delay Charge-Offs and
Improperly Extract Money from HATS
126. Honor’s use of improper loan modifications delayed the recognition of loan losses
in the HATS portfolio, which affected the flow of monies through the structure of the deal,
inflated the reported OC on HATS notes, and enabled Honor to profit at the expense of investors.
127. As noted in Paragraph 70 above, when HATS closed, it started with an initial
overcollateralization of 12.36% (or $12.36 million more in auto loan receivables than the $100
million in notes issued). The OC served as a cushion to protect investors from potential loan
losses – i.e., there were $112.36 million in loans securing $100 million in notes. HATS was
designed to grow the OC protection for investors over time by using the “excess spread” between
the very high interest rates on the subprime vehicle loans and the much lower interest due on the
HATS notes. Because of this difference in interest rates, Honor anticipated collecting more
money from the subprime loan borrowers each month than was necessary to pay HATS investors
and monthly expenses. HATS was required to apply this “excess spread” to increase the OC over
time by paying down principal on the investors’ notes. This approach to applying the excess
spread was required to continue until HATS reached its target OC of 20.5% of the outstanding
note balance. If HATS met and maintained its 20.5% OC target, any excess monies were
released to Honor, which held the residual interest in HATS.

128. HATS purportedly hit its 20.5% OC target in May 2017 and maintained it
between May and November 2017. During this period, as described above, Honor accelerated its
use of improper modifications. Honor received $5.6 million in excess monies that flowed to it
through the HATS cash flow structure. However, because HATS calculated the OC target by
comparing the outstanding balance of the loan pool to the outstanding note balance, Honor’s
delays in recognizing loan losses (as a result of the improper modifications) inflated the reported
pool balance and allowed HATS to purportedly meet the OC target for some or all of this period.
C. Collins and DiMeo Also Profited from this Misconduct
129. Both Collins and DiMeo received bonuses that were calculated based on Honor’s
profits. Since their misconduct increased Honor’s profits, it also increased their own bonus
amounts.
VII. DEFENDANTS CONTROLLED HONOR DURING THE RELEVANT PERIOD

130. Collins and DiMeo founded Honor in 2000. Although they sold Honor to private
equity funds in 2011, Collins and DiMeo continued to control virtually all aspects of Honor’s
operations until they were terminated in December 2017 and May 2018, respectively.
131. Collins, as CEO, oversaw all of Honor’s business activities and operations.
Former employees said nothing at Honor occurred without his knowledge and approval. They
said Collins maintained a tight “chain of command” where people were told to stay in their lanes
and only report upward to their managers. He admonished employees who communicated
outside their chain of command or across the department siloes at Honor. Since Collins was
CEO, everyone at Honor reported up the management chain to Collins.

132. Collins was integral to all aspects of the offering and approved the Offering
Materials. Collins also managed discussions with the underwriters, rating agencies, and investors
in HATS.
133. Collins directly supervised DiMeo, who personally applied the Honor Payments
and improper loan extensions with Collins’ knowledge and approval.
134. DiMeo held the title Chief Operating Officer and also acted as Honor’s
Compliance Management Officer. He controlled all aspects of Honor’s loan servicing and
collections activities. The servicing and collections teams—including accounting personnel
entering loan transactions into the servicing database and call center employees responsible for
telephoning borrowers to collect payments—all reported to DiMeo.
135. DiMeo had direct oversight and control over the loan servicing information and
data included in the Offering Materials and MSRs.
FIRST CLAIM FOR RELIEF

Fraud in the Offer or Sale of Securities—Violations of Securities Act Section 17(a)
[15 U.S.C. § 77q(a)]
136. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though
fully set forth herein.
137. By virtue of the foregoing, from no later than December 2016 through at least
their terminations from Honor in December 2017 and May 2018, respectively, Collins and
DiMeo have, directly or indirectly, in the offer or sale of securities, by use of the means or
instruments of transportation or communication in interstate commerce or by use of the mails,
(1) employed a device, scheme, or artifice to defraud with scienter; (2) obtained money or
property by means of an untrue statement of material fact or omission to state a material fact
necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading, and (3) engaged in transactions, practices or courses of business that
operated or would operate as a fraud or deceit upon the purchasers of such securities.
138. Accordingly, Defendants violated and, unless restrained and enjoined, will again
violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].
SECOND CLAIM FOR RELIEF
(In the Alternative)

Fraud in the Offer or Sale of Securities—Aiding and Abetting Honor’s Violations of
Securities Act Section 17(a)
[15 U.S.C. § 77q(a)]
139. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though
fully set forth herein.
140.  By virtue of the foregoing, Honor, directly or indirectly, in the offer or sale of
securities, by use of the means or instruments of transportation or communication in interstate
commerce or by use of the mails, (1) employed a device, scheme, or artifice to defraud with
scienter; (2) obtained money or property by means of an untrue statement of material fact or
omission to state a material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading, and (3) engaged in transactions,
practices or courses of business that operated or would operate as a fraud or deceit upon the
purchasers of such securities. Accordingly, Honor violated of Section 17(a) of the Securities Act
[15 U.S.C. § 77q(a)].
141. By virtue of the foregoing, Defendants were aware that their actions were part of
an overall course of conduct that was improper or illegal and provided substantial assistance to
Honor in the violation of securities laws.
142. Accordingly, Defendants aided and abetted and, unless restrained and enjoined,
will again aid and abet, violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

THIRD CLAIM FOR RELIEF

Fraud—Violation of Exchange Act Section 10(b) and Rules 10b-5(a) & (c) Thereunder
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(a) & (c)]
143. The SEC realleges and incorporates by reference Paragraphs 1 to 135 as though
fully set forth herein.
144. By virtue of the foregoing, from no later than December 2016 through at least
their terminations from Honor in December 2017 and May 2018, respectively, Collins and
DiMeo directly or indirectly, acting with scienter, by use of the means or instrumentalities of
interstate commerce, or of the mails, or of a facility of a national securities exchange, in
connection with the purchase or sale of a security: (i) employed devices, schemes or artifices to
defraud; and (ii) engaged in acts, practices or courses of business which operated or would
operate as a fraud or deceit upon another person.
145. By reason of the conduct described above, Defendants, directly or indirectly,
violated, and unless restrained and enjoined, will again violate, Section 10(b) of the Exchange
Act [15 U.S.C. § 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) & (c)].
FOURTH CLAIM FOR RELIEF
(Against Defendant Collins)

Fraud—Violation of Exchange Act Section 10(b) and Rule 10b-5(b) Thereunder
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b)]
146. The SEC realleges and incorporates by reference Paragraphs 1 to 135 as though
fully set forth herein.
147. By virtue of the foregoing, from no later than December 2016 through at least his
termination from Honor in December 2017, Collins, directly or indirectly, acting with scienter,

by use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of
a national securities exchange, in connection with the purchase or sale of a security, made untrue
statements or omitted to state material facts necessary in order to make the statements made, in
the light of the circumstances under which they were made, not misleading.  By reason of the
conduct described above, Collins, directly or indirectly, violated, and unless restrained and
enjoined, will again violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule
10b-5(b) thereunder [17 C.F.R. § 240.10b-5(b)].
FIFTH CLAIM FOR RELIEF
(Against Defendant DiMeo)

Fraud — Aiding and Abetting Honor’s Violations of Exchange Act Section 10(b)
and Rule 10b-5(b) Thereunder
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b)]

148.   The SEC realleges and incorporates by reference Paragraphs 1 to 135 as though
fully set forth herein.
149.   By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by
use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a
national securities exchange, in connection with the purchase or sale of a security, made untrue
statements or omitted to state material facts necessary in order to make the statements made, in
the light of the circumstances under which they were made, not misleading.  Accordingly, Honor
violated Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder [17 C.F.R. § 240.10b-
5(b)].
150. By virtue of the foregoing, DiMeo was aware his actions were part of an overall
course of conduct that was improper or illegal and provided substantial assistance to Honor in
the violation of securities laws.

151. Accordingly, DiMeo aided and abetted and, unless restrained and enjoined, will
again aid and abet, violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder
[17 C.F.R. § 240.10b-5(b)].
SIXTH CLAIM FOR RELIEF
(In the Alternative as to Defendant Collins)
Fraud—Aiding and Abetting Honor’s Violation of Exchange Act Section 10(b) and Rules
10b-5 (a), (b) & (c) Thereunder
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]
152. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though
fully set forth herein.
153. By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by
use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a
national securities exchange, in connection with the purchase or sale of a security: (a) employed
devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or omitted
to state material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and (c) engaged in acts, practices,
or courses of business which operated or would operate as a fraud or deceit upon another person.
As a result, Honor violated Section 10(b) of the Exchange Act and Rules 10b-5 (a) –(c)
thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (a) – (c)].
154. By virtue of the foregoing, Collins was aware that his actions were part of an
overall course of conduct that was improper or illegal and provided substantial assistance to
Honor in the violation of securities laws.  Accordingly, Collins aided and abetted and, unless
restrained and enjoined, will again aid and abet, the violations of Section 10(b) of the Exchange
Act and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5].

SEVENTH CLAIM FOR RELIEF
(In the Alternative as to Defendant DiMeo)
Fraud—Aiding and Abetting Honor’s Violation of Exchange Act Section 10(b) and Rules
10b-5 (a) & (c) Thereunder
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (a) & (c)]
155. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though
fully set forth herein.
156. By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by
use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a
national securities exchange, in connection with the purchase or sale of a security: (a) employed
devices, schemes, or artifices to defraud; and (b) engaged in acts, practices, or courses of
business which operated or would operate as a fraud or deceit upon another person. As a result,
Honor violated Section 10(b) of the Exchange Act and Rules 10b-5 (a) and (c) thereunder [15
U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (a) & (c)].
157. By virtue of the foregoing, DiMeo was aware that his actions were part of an
overall course of conduct that was improper or illegal and provided substantial assistance to
Honor in the violation of securities laws.
158. Accordingly, DiMeo aided and abetted and, unless restrained and enjoined, will
again aid and abet, the violations of Section 10(b) of the Exchange Act and Rules 10b-5 (a) and
(c) thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5].
 EIGHTH CLAIM FOR RELIEF
(In the Alternative)
Fraud—Control Person Liability under Section 20(a) of the Exchange Act [15 U.S.C.
§ 78t(a)] for Honor’s Violation of Exchange Act Section 10(b) and Rule 10b-5 Thereunder
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]
159. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though
fully set forth herein.

160. By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by
use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a
national securities exchange, in connection with the purchase or sale of a security: (a) employed
devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or omitted
to state material facts necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and (c) engaged in acts, practices,
or courses of business which operated or would operate as a fraud or deceit upon another person.
Therefore, Honor violated of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder [15
U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5].
161.  As alleged herein, Defendants, exercised general control over Honor as well the
power and ability to control Honor’s specific actions, statements, and/or omissions that
constituted violations of the securities laws.
162. Accordingly, Defendants are liable as control persons under Section 20(a) of the
Exchange Act [15 U.S.C. § 78t(a)] for Honor’s violations of Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5].

RELIEF SOUGHT
WHEREFORE, the SEC respectfully requests that this Court:
I.
Find that each of the Defendants committed the violations alleged in this Complaint;

II.
Enter an injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil
Procedure, permanently restraining and enjoining each of the Defendants from violating, directly
or indirectly, the laws and rules they are alleged to have violated in this Complaint;
III.
Order that Defendants be permanently prohibited from acting as an officer or director of
any public company pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and
Section 21(d)(2) [15 U.S.C. § 78u(d)(2)] of the Exchange Act;
IV.
Order that each of the Defendants disgorge any and all ill-gotten gains, together with pre-
judgment interest, derived from the improper conduct set forth in this Complaint;
V.
Order that each of the Defendants pay civil money penalties pursuant to Section 20(d) of
the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C.
§ 78u(d)]; and
VII.
Grant such other relief as this Court may deem just or appropriate.
JURY DEMAND
The SEC demands a trial by jury on all claims so triable.

Respectfully submitted this 23rd day of September 2021.

     By: /s Jonathan S. Polish
Jonathan S. Polish
U.S. SECURITIES & EXCHANGE COMMISSION
175 W. Jackson Blvd., Suite 1450
Chicago, Illinois 60604
(312) 353-6884
 [email protected]

Attorney for the Plaintiff

Of counsel
David A. Nasse (pro hac vice motion to be filed)
U.S. SECURITIES & EXCHANGE COMMISSION
100 F Street N.E.
Washington, DC 20549
(202) 551-4426
[email protected]

Christopher E. Martin (pro hac vice motion to be filed)
U.S.
 SECURITIES & EXCHANGE COMMISSION
Byron Rogers Federal Office Building
1961 Stout Street, Suite 1700
Denver, CO 80294-1961
(303) 844-1106
[email protected]

IN THE UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF ILLINOIS 

 

SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff, 
 

vs. 
 
JAMES R. COLLINS AND  
ROBERT F. DIMEO, 
   

Defendants. 

 Case No. 21-cv-5040 
 
COMPLAINT  
 
JURY TRIAL REQUESTED 

 Plaintiff United States Securities and Exchange Commission (the “SEC”), for its 

Complaint against Defendants James R. Collins (“Collins”) and Robert F. DiMeo (“DiMeo”) 

(collectively, “Defendants”), alleges as follows: 

SUMMARY OF ALLEGATIONS 

1. This case involves a securities fraud committed by Defendants Collins and DiMeo 

in connection with the offer and sale of notes backed by a package of subprime auto loans. The 

Defendants were the founders and operators of a subprime auto loan funding and servicing 

company named Honor Finance, LLC (“Honor”). In December of 2016, through a process 

known as “securitization,” Honor packaged together several thousand of its auto loans to serve as 

collateral for $100 million in interest-bearing notes sold to investors through a specially created 

trust. As long as the auto loan borrowers made sufficient payments on the underlying loans, 

investors who purchased the notes would receive monthly payments until the trust fully repaid 

the principal and interest on the notes. The Honor-sponsored securitization was named the Honor 

Automobile Trust Securitization 2016-1 (“HATS”). In connection with the offer and sale of 

HATS notes, Honor, at Defendants’ direction, engaged in deceptive conduct when servicing 

loans in the HATS portfolio, made false and misleading statements related to its loan servicing 

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practices, and otherwise engaged in a scheme to defraud HATS investors. Defendants also 

enriched Honor, and through Honor themselves, by misrepresenting the quality of the loans 

underlying the HATS notes sold to investors. 

2. Defendants’ fraudulent actions set up HATS as a house of cards which was 

doomed to fail, and it predictably collapsed when their scheme unraveled. HATS collapsed 

because, prior to the sale of HATS notes, and unbeknownst to investors, Defendants filled HATS 

with poorly-performing and delinquent loans they disguised to look like better-performing (i.e. 

more likely to continue to pay rather than default) loans than they really were.  

3. Honor perpetrated this fraud chiefly by engaging in two types of undisclosed and 

impermissible loan modification practices. First, Honor, at Defendants’ direction, recklessly and 

surreptitiously applied essentially fake borrower payments called “Honor Payments” to 

delinquent loans to make it appear as though borrowers had made payments when they in fact 

had not. Second, again at Defendants’ direction, Honor recklessly, and contrary to its disclosures 

to investors, unilaterally extended the payment due dates of thousands of otherwise delinquent 

loans to disguise how far behind the borrowers were on payments. Together, the failure to 

disclose these impermissible loan modification practices in the offering documents used to 

market and sell the HATS notes hid credit weaknesses in the HATS loan portfolio and allowed 

Defendants to pawn off poorly performing loans to HATS investors. Approximately 18 months 

after the HATS deal was completed, the underlying portfolio of auto loans suddenly— and as far 

as investors knew, unexpectedly—reported significant losses.   

4. Investors purchasing HATS notes did not know about the improper modifications 

because the materials Honor prepared to market HATS misrepresented Honor’s actual loan 

servicing practices in several respects.  

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5. First, Honor falsely represented that, consistent with standard industry practices, 

Honor granted payment modifications to borrowers only after properly investigating and 

determining the modification was in the HATS trust’s best interest, and no more often than once 

every three months. In reality, at Defendants’ direction and without borrower interaction or the 

required diligence, Honor recklessly extended loans or used Honor Payments to advance 

borrowers’ payment due dates and make it appear as though their loans were current. Through 

these improper modification practices, Defendants manipulated Honor’s delinquency reporting and 

avoided making an accounting entry known as a “charge-off” in which loans are written off as a 

loss because the borrowers are severely delinquent, owe more than the collateral (i.e. the 

underlying vehicle) is worth, and are unlikely to make any future payments.  

6. Second, Honor, through Collins and DiMeo, secretly stuffed more than a thousand 

poorly-performing loans into HATS by using the improper loan modification practices to make it 

appear as though the loans satisfied the deal’s collateral requirement that no loan be more than 30 

days delinquent. If not for these improper loan modification practices, Honor would have been 

required to replace many of these loans with better performing loans. Moreover, by fraudulently 

including the bad loans, which had a higher likelihood of default and charge-off, Honor, through 

Defendants, effectively erased a collateral cushion included in the HATS structure designed to 

protect investors from losses.  

7. Honor, at the Defendants’ direction, continued these same reckless and 

impermissible loan modification practices after HATS closed. These modifications caused Honor 

to inaccurately record and report loan delinquencies which, in turn, delayed Honor from timely 

repossessing vehicles and charging off defaulted accounts in the HATS pool of auto loans. 

Defendants engaged in these practices to hide further deterioration in the HATS loan pool and 

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manipulate HATS’s cash flow structure to improperly take money from HATS that should have 

gone to investors. 

8. In addition, Honor’s extensive use of improper modifications caused monthly 

reports Honor published to update investors and others on the performance of the HATS notes to 

be false or misleading. The monthly reports were misleading as to, among other things, the deal’s 

performance, the underlying loans’ delinquency status, and the percentage of the loan pool with 

extensions during the month. As a result, investors had materially inaccurate information when 

considering whether to buy or sell HATS notes on the secondary market. 

9. Honor perpetrated this scheme at the direction of, and while under the control of, 

the Defendants. As co-founder and Chief Executive Officer (“CEO”), Defendant Collins 

imposed a strict top-down management regime that involved him in virtually every substantive 

aspect of Honor’s operations, including the HATS offering. Despite his knowledge of Honor’s 

actual reckless loan servicing and modification practices, he approved marketing materials for 

the HATS notes provided to investors that were false or misleading as to those practices. 

Defendant DiMeo, also a co-founder, the Chief Operating Officer (“COO”), and the Compliance 

Management Officer of Honor, knowingly provided false and misleading information to be used 

in the HATS marketing materials and personally directed most or all of the improper loan 

modifications. At various times, both Collins and DiMeo lied to or misled the HATS underwriter 

and others who were either preparing materials for the HATS offering or conducting risk 

assessments of the HATS notes that were important to investors making HATS-related 

investment decisions.   

10. After the HATS offering, Defendants maintained the scheme through their 

continued use of reckless loan modification and servicing practices. They concealed their 

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activities from investors by continuing to deceive the HATS underwriter and others about 

Honor’s loan modification practices. In addition, DiMeo, with Collins’s knowledge, continued to 

deceive investors by providing false and misleading information that was included in the 

monthly reports on the performance of HATS provided to investors, potential investors, and 

others.  

11. Defendants could not use improper loan modifications to disguise the loan pool’s 

weaknesses and postpone charge-offs forever, and beginning in about December 2017, 

Defendants’ improper practices began to catch up with them. About that time, HATS first 

reported a noticeable deterioration in its loan pool. Several months later, HATS became the first 

subprime automobile deal downgraded by the ratings agencies since the 2008 financial crisis. 

Anticipating potential losses, in June 2019, the deal’s underwriter caused the repurchase of the 

remaining HATS notes from investors. Without this intervention, investors would have lost 

millions of dollars as the loan pool recognized losses, leaving the deal with insufficient cash 

flows to meet its obligations.   

12. As a result of the conduct described herein, Defendants violated and, unless 

restrained and enjoined, will continue to violate Section 17(a) of the Securities Act of 1933 

(“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act of 1934 (“Exchange 

Act”) [15 U.S.C. § 78j(b)], and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) & 

(c)]. Defendant Collins violated, and unless restrained and enjoined, will continue to violate Rule 

10b-5(b) under Section 10(b) of the Exchange Act [17 C.F.R. § 240.1b-5(b).)]. Defendant 

DiMeo is liable under Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)] for aiding and 

abetting Honor’s violation of Rule 10b-5(b) under the Exchange Act [17 C.F.R. § 240.1b-5(b). In 

the alternative, Defendants are liable under Section 15(b) of the Securities Act [15 U.S.C. §§ 

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77o(b)] and Section 20(e) of the Exchange Act [15 U.S.C. § 78t(e)] for aiding and abetting 

violations of the aforementioned antifraud provisions of the Securities Act and the Exchange Act 

committed by Honor. Defendants are, with respect to violations of the Exchange Act, also liable 

in the alternative as control persons under Section 20(a) of the Exchange Act [15 U.S.C. § 

78t(a)] for violations of Sections 10(b) and Rule 10b-5 thereunder, committed by Honor.   

13. To deter additional fraud, recover fraudulently obtained funds, and otherwise 

enforce the federal securities laws that the Defendants and Honor violated, the SEC seeks 

permanent injunctions against each of the Defendants, enjoining them from engaging in the 

transactions, acts, practices, and courses of business alleged in this Complaint and from 

violating, directly or indirectly, the laws and rules alleged in this Complaint; disgorgement of all 

ill-gotten gains from the unlawful activity set forth in this Complaint from each of the 

Defendants together with prejudgment interest; civil penalties pursuant to Section 20(d) of the 

Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. 

§ 78u(d)(3)] against both Defendants; and officer and director bars against both Defendants 

pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and Section 21(d)(2) [15 

U.S.C. § 78u(d)(2)]] of the Exchange Act. 

JURISDICTION AND VENUE 

14. The SEC brings this action pursuant to Sections 20(b), 20(d)(1) and 22(a) of the 

Securities Act [15 U.S.C. §§ 77t(b), 77t(d)(1) & 77v(a)] and Sections 21(d)(1), 21(d)(3)(A), 

21(e) and 27(a) of the Exchange Act [15 U.S.C. §§ 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa(a)]. 

Defendants, directly or indirectly, have made use of the means or instrumentalities of interstate 

commerce, of the mails, or of the facilities of a national securities exchange in connection with 

the transactions, acts, practices and courses of business alleged in this Complaint, including by 

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making use of the internet to offer securities and sending or receiving interstate email and 

participating in interstate voice or video calls. This Court has subject matter jurisdiction under 

Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§ 77t(d) and 77v(a)], and Sections 

21(d) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d) and 78aa]. 

15. Venue is proper in this district under Section 22(a) of the Securities Act [15 

U.S.C. § 77v(a)] and Section 27(a) of the Exchange Act [15 U.S.C. § 78aa(a)] because certain of 

the transactions, acts, practices and courses of conduct constituting violations of the federal 

securities laws occurred within this district. During the relevant period, Honor had its principal 

place of business in this District in Evanston, Illinois. Defendants also reside in this District.   

DEFENDANTS 

16. Defendant James Robert Collins, age 51, is a resident of Evanston, Illinois, and 

was the co-founder and CEO of Honor until terminated in December 2017. Prior to the HATS 

issuance, Collins worked with DiMeo for 24 years in the automobile finance and servicing 

industry. On May 15, 2020, Collins was indicted in the Northern District of Illinois based on 

allegations that he, along with DiMeo and a third individual, misappropriated approximately $5.3 

million from Honor in a different scheme. Collins asserted his 5th Amendment right not to testify 

substantively when asked questions in the SEC investigation that preceded this action.   

17. Defendant Robert Frank DiMeo, age 51, is a resident of Park Ridge, Illinois, 

and was the co-founder, COO, and Compliance Management Officer of Honor until terminated 

in May 2018. Prior to the HATS issuance, DiMeo worked for over 24 years with Collins in the 

automobile finance and servicing industry. DiMeo is also a subject of the indictment described 

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above. DiMeo also asserted his 5th Amendment right not to testify substantively when asked 

questions in the SEC investigation. 

RELEVANT PARTY 

18. Honor Finance, LLC is a related party that was a privately-held Delaware 

limited liability company located in Evanston, Illinois, that acquired and serviced subprime auto 

loans on used vehicles. It funded and serviced the loans that served as the collateral for HATS. 

At the time of the HATS offering, private equity funds held a majority ownership interest in 

Honor. Honor opened in 2000 and shut down operations in about August 2018. In August 2018, 

another servicing company took over responsibility for servicing the HATS loan portfolio.  

FACTS 

I. BACKGROUND  

19. HATS was a Delaware trust that issued $100 million in notes backed by a pool of 

subprime motor vehicle retail installment sales contracts (i.e. subprime auto loans). Under 

Honor’s credit policies, used car dealers arranged the origination of each loan in the HATS pool 

before October 31, 2016, the last day loans could be included in the HATS loan pool (the “Cut-

Off Date”). As HATS’s “sponsor,” Honor purchased the loans from car dealers, arranged to set 

up HATS, sold the loans to HATS, caused the sale of the notes to investors (or noteholders) 

through the HATS offering, and for a fee serviced the loans on HATS’s behalf after the offering 

closed. 

20. In marketing the notes that HATS would issue, Honor, with the assistance of 

others, prepared a number of materials that explained the structure of the deal, the nature of the 

collateral for the notes, its loan servicing practices, as well as the potential risks to investors. 

These materials included an investor presentation, Offering Memorandum, and the Sale and 

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Servicing Agreement (collectively the “Offering Materials”). The Offering Materials described, 

among other things, Honor’s responsibilities, procedures, and policies as servicer to the loans 

collateralizing the HATS notes. Generally, Honor’s servicing responsibilities included collecting 

and processing loan payments, investigating delinquencies, making servicing collection calls, 

repossessing vehicles, charging off loans, and reporting the loan pool’s performance to investors 

on a monthly basis.   

21. Honor also had written policies and procedures (“P&Ps”) in place that governed 

its servicing practices, including when to give payment extensions, initiate repossessions, and 

recognize charge-offs of the loans that made up its portfolio. The Offering Materials required 

Honor to apply these policies faithfully and in the trust’s (HATS) best interests. 

22. As CEO of Honor, Collins had ultimate authority over, and was directly 

responsible for, the content of the Offering Materials. He personally approved the investor 

presentation, was intimately involved in providing and reviewing information used in the 

Offering Memorandum, and effectively was the final authority from Honor over the HATS 

transactions documents, including the Offering Materials. Collins also made the ultimate 

decision to proceed with the HATS offering.   

23. As is customary in securitizations, as HATS’s sponsor, Honor retained an 

underwriter, referred to here as “Underwriter A,” to help set up the HATS offering and market 

the HATS notes. Generally, an underwriter, for a fee, works with an issuer (e.g., HATS) to 

structure, price, and sell securities (e.g., the HATS notes). In doing so, underwriters rely on the 

accuracy and completeness of the information provided to them by the issuer, or, where 

applicable, sponsors like Honor. Investors, in turn, rely, at least in part, on the underwriter’s 

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work and the accuracy of the offering materials based on the information provided by the issuer 

or sponsor, when deciding to purchase the issuer’s securities.  

24. Prior to the HATS offering, HATS notes were also evaluated by two ratings 

agencies, referred to here as “Rating Agency A” and “Rating Agency B” (collectively the 

“Ratings Agencies”). Ratings agencies are third-party entities that conduct diligence on and 

assign grades or “ratings” to debt securities like the HATS notes. The ratings reflected the HATS 

notes’ risk of default as judged by the Ratings Agencies based on, among other things, their 

review and analysis of Honor as servicer and the underlying loans as collateral. Many investors 

use these ratings in making investment decisions. Like Underwriter A, when evaluating HATS 

the Ratings Agencies relied on information provided by Honor. In connection with rating HATS, 

Collins and DiMeo both provided information to the Ratings Agencies on behalf of Honor.     

25. The Ratings Agencies rated HATS’s $100 million in notes as follows: 

Class Rating 
  

Note Amount Interest Rate Final Distribution 
Date 

A A $76.48 million 2.94% November 15, 2019 
B BBB $14.66 million 5.76% April 15, 2021 
C BB- $8.86 million 8.05% November 15, 2022 

26. The Class A and B notes with “A” and “BBB” ratings, respectively, were 

considered investment grade, meaning they had a low risk of default. The Class C “BB-” notes 

were the lowest rated, meaning they had the highest risk of default of all the classes or “tranches” 

of HATS notes.  

27. HATS notes were issued for sale to investors or “closed” on December 15, 2016 

(the “Closing Date”). As noted above, thereafter, each month from January 2017 to about June 

2018, Honor published and certified a report called a Servicer’s Certificate (a “Monthly Servicer 

Report” or “MSR”), detailing the performance of the underlying loan pool using several data 

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points. Investors used the MSRs to monitor the deal’s performance and to decide whether to buy 

or sell HATS notes. Ratings Agencies also used these reports to conduct regular surveillance 

activities designed to ensure the deal performed as expected and to determine whether they 

should maintain or adjust HATS’s credit ratings. 

II. HATS’S OFFERING MATERIALS WERE FALSE AND MISLEADING  

28. The HATS Offering Materials were false and misleading because they contained 

material misrepresentations and omissions concerning Honor’s loan servicing practices, which 

negatively impacted the reported quality of the loans used as collateral for the HATS notes. 

Specifically, the Offering Materials were false and misleading as to: (A) the conditions under 

which Honor provided borrowers with loan modifications and the impact of these modifications 

on the HATS loan pool; and (B) the use of modifications to make loans eligible for inclusion as 

collateral in the HATS loan pool.    

A. The Offering Materials Failed to Accurately Describe Honor’s Use of Loan 
Modifications  

29. Subprime automobile loan servicers like Honor use loan modifications, including 

payment extensions, in their collections strategy. Extensions allow borrowers to miss one or 

more payments—sometimes called a payment holiday—while extending the loan term. The 

traditional justification for extensions is that working with the borrower to overcome confirmed 

temporary financial problems will ultimately maximize the return on the loan by helping the 

borrower continue to make payments. Unlike extensions, which when given under appropriate 

circumstances are a recognized industry practice, Honor Payments—where Honor recorded an 

entry in its servicing system reflecting the receipt of a payment from the borrower when, in fact, 

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Honor had received no such payment from the borrower —was unique to Honor and is not a 

recognized industry practice at all.   

30. The Offering Materials purported to describe Honor’s controls over loan 

modifications. The Offering Materials, however, inaccurately described Honor’s actual loan 

modification practices in several material ways. First, the Offering Materials falsely represented 

that Honor limited extensions to once every three months. Second, the Offering Materials 

misleadingly stated that Honor investigated loan delinquencies and granted an extension only 

after engaging the borrower and determining that an extension was in the trust’s best interest. 

Third, the Offering Materials failed to make any mention of Honor Payments and falsely claimed 

that no loans in the HATS portfolio had been subject to practices akin to Honor Payments. 

Fourth, the Offering Materials’ disclosures regarding repossession and charge-off timing were 

false and misleading. Finally, the Offering Materials’ statements that Honor applied industry 

standard controls over its use of extensions or similar modifications was untrue as a result of its 

reckless, improper, and undisclosed loan modification practices.  

1) The Offering Documents Falsely Represented that Honor Did Not 
Give Extensions More Frequently than Once Every Three Months 
 

31. The HATS Offering Memorandum expressly provided that, “[p]ayment 

extensions may be granted from time to time, but no more frequently than every three months.” 

(Emphasis added). The deal’s investor presentation, personally approved by Collins, also 

explained, “[e]xtensions are allowed for temporary relief to borrowers. They must be at least 

three months apart and approved by the COO.” (Emphasis added). Moreover, Honor’s P&Ps 

also expressly required that, “[a]ll extensions must be a minimum of three months apart.”   

32. At DiMeo’s express direction, Honor, however, regularly granted loan 

modifications (either extensions or Honor Payments which fundamentally acted like extensions 

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by advancing the next payment due date on a loan) more frequently than every three months 

prior to the HATS Closing Date. Servicing data shows that, before the Closing Date, 5% of the 

loans in the HATS portfolio (735 unique loans) were granted more than one form of 

modification within three months of each other. Some loans in the portfolio were even granted 

loan modifications in three consecutive months.   

33. After the HATS closed on December 15, 2016, Honor, at DiMeo’s personal 

direction and with Collins’s knowledge, continued to violate this limitation. Honor provided 

modifications of one kind or another more than once every three months nearly 24,000 times to 

more than 5,600 unique loans, representing 38% of the loan pool.  These repeated modifications 

hid the fact that Honor was having trouble consistently collecting payments on a very sizeable 

portion of the HATS loan portfolio.   

2) Contrary to its Representations, Honor Did Not Investigate 
Delinquencies or Engage Borrowers Prior to Applying Thousands of 
Payment Extensions   

34. HATS Offering Materials misrepresented that Honor investigated delinquencies 

and engaged borrowers prior to granting extensions to ensure the extension was in the best 

interest of HATS. DiMeo provided the information used to draft the Offering Materials’ 

language on loan deferments and extensions and Collins ultimately approved it. In reality, 

DiMeo, with Collins’s knowledge, extended thousands of loans in the HATS pool without 

reasonably investigating why the borrower failed to make a payment or determining whether the 

extension was in the trust’s best interest. 

35. The Sale and Servicing Agreement, which was incorporated by reference into the 

Offering Memorandum and available to investors, was Honor’s servicing contract with HATS. 

The Sale and Servicing Agreement specifically required Honor to “substantially comply with 

[its] Servicing Policies and Procedures” and to investigate delinquencies. It also limited Honor to 

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using extensions when “the Servicer believes in good faith that such extension, modification or 

amendment (x) is necessary to avoid a default on such Receivable, (y) will maximize the amount 

to be recovered by the Trust with respect to such receivable and (z) is otherwise in the best 

interests of the Trust.”   

36. Thus, in order to satisfy the standard set out in the Sale and Servicing Agreement, 

Honor had to engage the borrower, determine why the borrower failed to make a payment, and 

determine that the extension would help the borrower avoid a default and continue to make 

payments. If Honor did not undertake this type of investigation, it risked giving extensions to 

borrowers who planned to “skip,” meaning that the borrower had no intention or means to pay 

the loan going forward. Giving extensions to borrowers that plan to skip would not be in the 

trust’s best interest because such extensions delay the recognition of loan losses and can decrease 

the recovery on the underlying vehicle, which is a depreciating asset.    

37. In addition to the Sale and Servicing Agreement, Honor’s P&Ps allowed for an 

extension only at the request of a customer or at least after Honor had contacted the customer to 

determine the reason for an extension. As COO and Compliance Management Officer, DiMeo 

had direct oversight and responsibility over the P&Ps. Honor’s P&Ps were provided to 

Underwriter A and the Rating Agencies with DiMeo and Collins’ knowledge and approval. The 

Offering Memorandum provided to investors also incorporated the Sale and Servicing 

Agreement and the P&Ps by reference, noting that Honor would grant extensions only in 

accordance with the Sale and Servicing Agreement and its P&Ps.  

38. Honor’s P&Ps allowed for only two types of extensions or payment holidays: (1) 

“Extensions” (called “Allowable Delinquencies” or “ADs” internally at Honor) and (2) 

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“Payment Deferrals.”1 The P&P section on “Payment Extensions and Deferrals” provided as 

follows:  

 “A Customer may request Honor to Defer or extend the due date of a specific payment 
(‘Payment Deferral’ or ‘Extension’).  A Payment Deferral or Extension moves the due 
date of a particular payment to a later date.  The payment may be past due or due now or 
in the future.  Honor may offer Payment Deferrals and Extensions to help Customers 
with a record of making timely periodic payments.  A Payment Deferral or Extension 
provides a Customer who has experienced a financial difficulty extra time to make the 
payment” (emphasis added).   
 
39. In summary, Honor’s own servicing policies clearly contemplated that an 

extension would be granted only after a customer request (“A Customer may request Honor to 

defer or extend the due date of a specific payment”), or at least after Honor made contact with a 

customer and determined that the customer had a short term financial need (“Honor may offer 

Payment Deferrals and Extensions to help Customers with a record of making timely periodic 

payments. A Payment Deferral or Extension provides a Customer who has experienced a 

financial difficulty extra time to make the payment.”).  

40. Despite the Offering Materials’ disclosures and Honor’s obligations under the 

Sale and Servicing Agreement and its own P&Ps, DiMeo unilaterally applied payment 

extensions thousands of times to loans in the HATS pool without asking why the borrowers were 

not making payments, if they had the ability to make payments, or whether they intended to 

repay the loan. In these instances, Honor failed to reasonably investigate the underlying reason 

for the delinquencies or determine if the extensions were in the best interest of the trust.   

41. With Collins’s knowledge and approval, DiMeo led this unilateral modification 

process. DiMeo periodically isolated himself in his office, ran and then reviewed loan 

delinquency reports. During the review, DiMeo made hand-written notations on the reports next 

                                                 
1The SEC is not alleging misconduct in connection with the application of Payment Deferrals.   

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to loans indicating whether the accounting department should apply an extension to the loan. The 

accounting department then used these notes to process the payment extensions in Honor’s loan 

servicing system.   

42. Prior to the Closing Date, DiMeo applied nearly 2,400 ADs to more than 1,250 

loans in the HATS portfolio. After the Closing Date, DiMeo applied more than 25,000 ADs to 

more than 6,700 loans in the HATS portfolio. DiMeo commonly used these ADs to push longer 

delinquencies back into less severe delinquency categories (i.e. from the 60-90 days delinquency 

category to the 30-60 day delinquency category). A standard AD entered into the loan servicing 

system excused a single payment. But, DiMeo also applied ADs that excused from two to nine 

months of non-payment (internally called A2s, A3s, etc.). In other cases, DiMeo directed 

employees to give ADs to loans on vehicles which Honor had already repossessed and/or even 

sold at auction. 

3) Honor Omitted Any Disclosure of Its Use of “Honor Payments,” 
Which Rendered Its Offering Materials False and Misleading  

43. The Offering Materials, over which Collins had ultimate authority, make no 

mention of Honor Payments. As noted above, the Offering Materials and the P&Ps permit only 

two types of extensions, ADs and Payment Deferrals. Neither the Offering Materials nor the 

P&Ps contemplated, at all, the use of Honor Payments, whereby Honor essentially entered fake 

borrower payments into its servicing system to make it appear as though the borrower had made 

a full payment, when in fact the borrower had not made any payment or made only a partial 

payment.  

44. Moreover, the Offering Materials expressly represented that none of the loans 

included in HATS had been subject to the very kinds of modifications practices like Honor 

Payments. Specifically, the Offering Memorandum contained a list of requirements that each 

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loan supporting the HATS deal needed to satisfy to be included in the pool. These requirements 

included the following representation: 

“None of Honor Finance, any affiliate, any dealer or anyone acting on its behalf advanced 
funds to prevent the Receivable from becoming more than 30 days past due.” 

 
Honor payments (and ADs) violate this representation because they effectively “advanced” funds 

for the sole purpose of moving a loan’s next payment due date and, in many cases, moved the 

loans to a less severe delinquency category (e.g from 60 days past due to 30 days past due).   

45. Despite these omissions and misrepresentations, DiMeo, with Collins’s 

knowledge and approval, unilaterally applied Honor Payments to thousands of loans. Honor 

Payments were a secretive process within Honor, and like ADs were applied by DiMeo when he 

would hole up in his office and conduct his regular reviews of loan delinquency reports. But, 

unlike ADs, which allowed the borrower to skip a payment while interest continued to accrue, 

Honor Payments decreased the borrower’s loan balance by the amount of principal and interest 

the borrower failed to repay. Thus, Honor Payments made it appear as though the borrower had 

made a payment when, in fact, no money was received from the borrower. Honor Payments were 

effectively Honor excusing the loan payment on behalf of the borrower—almost always without 

borrowers’ knowledge—to give the appearance that the borrower was making loan payments in 

full and on time. Payment, if any, applied to the loan balance came from Honor. Honor did not 

require the borrower to make up this payment or add the amount Honor paid to the loan balance. 

Like ADs these fictitious payments masked problems Honor was having with collecting on 

HATS loans.     

46. In some cases, Honor Payments added to partial payments borrowers made in 

order to reach the full payment due amount and avoid a delinquency. DiMeo ran reports showing 

loans where borrowers made some, but not all, of the scheduled payments. These reports 

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identified the accounts with the smallest shortfalls needing funding to “roll” the next payment 

due date to the next month. DiMeo used these reports to identify loans for which he could use 

Honor Payments to supplement partial payments. By supplementing borrower payments, Honor 

avoided having to include or advance those loans in the delinquency categories, thereby masking 

collection problems that would continue to impact the loan pool. Honor also avoided trying to 

get the borrower to make up the shortfall the following month, which was a requirement to avoid 

being delinquent. Collins was aware of this practice and defended it to others at Honor prior to 

HATS issuance.   

47. In other instances, DiMeo used Honor Payments to record complete payments on 

behalf of borrowers or pay off the balance remaining after the sale of a repossessed vehicle (to 

avoid charging off the difference).  

48. In addition, in some of these cases, DiMeo used the Honor Payments to 

circumvent the limitation on giving extensions more than once every three months by applying 

an Honor Payment before or after an AD. 

49. Prior to the Closing Date, DiMeo applied more than 1,700 Honor Payments to 

nearly 1,000 loans in the HATS portfolio. After the Closing Date, DiMeo applied around 7,750 

Honor Payments to more than 4,500 loans in the HATS portfolio. On more than one occasion, 

DiMeo admitted to Honor employees that he used Honor payments to improve Honor’s reported 

delinquency statistics.   

50. All told, prior to the Closing Date, Honor granted nearly 4,100 improper loan 

modifications (ADs and Honor Payments combined) to more than 1,650 loans (11% of the pool 

on a loan basis), including more than 825 loans that had more than one and as many as 14 

improper modifications prior to the Closing Date.   

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4)  Honor’s Repossession and Charge-Off Timing Disclosures Were False and 
Misleading  

51. The offering documents indicate that Honor had a practice of timely repossessing, 

selling and charging off vehicles when borrowers failed to keep up with their payments. 

Repossessions and charge-offs are commonly accepted and expected industry practices when the 

borrower does not make the required payments.   

52. Timely repossession is important because the vehicles serving as collateral are 

depreciating assets.   The investor presentation noted the following: “Generally, repossession 

efforts are initiated when an account becomes 60-70 days past due, at which point Honor 

provides the appropriate notices and right to cure periods are allowed to lapse prior to action 

being taken.” The investor presentation also stated that, “[o]n average, Honor auctions vehicles 

at 100 [days past due] and charges loans off at 184 [days past due].”   

53. The Offering Memorandum noted, “[a]t roughly 60 days after the scheduled 

monthly payment date, responsibility is shifted back to [Honor’s collection agents at its main 

office] for likely repossession and remarketing.”   

54. Timely charge-offs are important also because a failure to properly recognize 

when a loan should be written-off, among other things, can hide loan losses and skews the flow 

of payments through a securitization to investors. Honor’s Offering Memorandum and investor 

presentation described when Honor would charge-off (i.e., write off as a default and loss) loans 

in the pool and included the following:  

i. [When] More than 5 percent of any scheduled principal payment remained 
unpaid for more than 120 days from the date of such payment and the 
related financed vehicle has not been repossessed; 

ii. At 119 days from the date on which the related financed vehicle was 
repossessed (or earlier if all expected amounts have been collected); or  

iii. Otherwise if the loan is deemed uncollectable under Honor’s servicing 
policies.  

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Just prior to the deal’s closing, Collins confirmed the accuracy of these charge-off practices—

which did not differ materially from earlier iterations of Honor’s charge-off policy—to 

Underwriter A. Collins also reviewed and approved the statements in the investor presentation.   

55. The HATS deal terms also required Honor to charge-off any loans from the pool 

balance immediately after the vehicle’s sale if the vehicle had been repossessed. 

56. Honor’s failure to disclose the unilateral extensions and Honor Payments rendered 

Honor’s repossession and charge-off disclosures false and misleading. Specifically, the extensive 

use of these modifications delayed triggering repossessions and charge-offs. In reality, because 

of the modifications, Honor took these steps only after actual loan delinquencies were well 

beyond the time limits stated in its disclosures and its internal policies. This delayed 

repossessions and depressed recoveries. This also delayed charge-offs, which caused 

unrecognized losses in HATS prior to and after closing and skewed the flow of payments 

through the HATS structure. 

57. DiMeo also delayed repossessions and charge-offs triggered by repossessions 

through the use of an off-the-books process called “repo control.” Under this practice, which 

Honor also did not disclose, DiMeo delayed classifying a vehicle as repossessed until well after 

Honor took physical possession of the vehicle. In some cases, Honor did not recognize a car as 

repossessed until the car had actually been sold. In other cases, DiMeo applied ADs and Honor 

Payments to loans for which the vehicles had already been repossessed to make it appear as if the 

loans were still performing (i.e., still being timely paid by the borrower). 

58. Because of these repossession and charge-off delays, over the course of HATS’s 

life, Honor did not repossess vehicles or charge off loans until well after the time tables set forth 

in the Offering Materials. For example, Honor did not repossess thousands of vehicles until those 

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vehicles were, on average, seven months delinquent.  It then took an additional three to four 

months to charge those loans off. In these instances, DiMeo used ADs and Honor Payments to 

mask the loans’ true delinquency status and avoid recognizing repossessions and charge offs in 

accordance with Honor’s stated policies and practices.   

5) Honor Falsely Claimed that its Servicing Policies Met or Exceeded Industry 
Standard Practices  

59. The Sale and Servicing Agreement required Honor to use “customary and usual 

procedures of institutions which service motor vehicle retail installment sales contracts” (i.e., 

industry standard collection practices) and to “substantially comply” with its written servicing 

policies and procedures.  

60. The general policy statement governing Honor’s relevant P&Ps similarly 

provided that, “Honor uses professional and proper practices that meet or exceed industry 

servicing and collection standards for all Accounts” (emphasis added).   

61. While specific policies vary, industry standard loan extension policies do not 

support Honor’s practice of extending loans without contacting the borrower and without taking 

steps to ascertain the borrower’s circumstances and intent. Moreover, industry standard policies 

do not support Honor’s practice of simply entering fake borrower payments using Honor 

Payments to avoid delinquencies and other negative credit events.  

62. Honor’s written P&Ps and the Offering Materials’ disclosures require that Honor 

adopt industry standard practices. But, Honor’s actual payment modification practices did not 

comply with these documents or industry standards. Instead, DiMeo’s unilateral loan 

modifications violated all established industry norms and practices. Likewise, Honor’s actual 

repossession and charge-off practices did not conform to industry standards. 

 

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B. Honor Used Improper Extensions To Put Ineligible Loans Into The 
Collateral Pool   

63. Honor’s Offering Materials prohibited Honor from putting loans that were more 

than 30 days past due into the HATS. This is because the probability of future default rapidly 

increases after that point. As one former Honor employee put it, once a loan became 60 days past 

due, it was considered “almost dead.”   

64. As alleged above, the Offering Memorandum contained a list of requirements that 

each loan supporting the HATS deal needed to satisfy to be included include in the pool. These 

requirements, which were designed to ensure a minimum standard for the underlying collateral, 

included the following representations relating to delinquencies in the collateral pool: 

None of Honor Finance, any affiliate, any dealer or anyone acting 
on its behalf advanced funds to prevent the Receivable from 
becoming more than 30 days past due…. 

No receivable was more than 30 days past due. 

Honor’s use, at the Defendants’ direction, of Honor Payments directly and blatantly violated the 

provision stating that no loans in the HATS pool had been advanced funds to prevent it from 

becoming due. In addition, DiMeo’s unilateral loan extensions—which he commonly used to 

move loans from the 60-day bucket to the 30-day bucket—caused loans that were actually more 

than 30-days delinquent to falsely appear to satisfy these collateral eligibility requirements.   

65. Honor’s servicing system would have shown that each of almost 1,500 loans in 

the HATS pool (about 10% of the loans in the pool) had received ADs or Honor Payments prior 

to the Cut-Off Date2 and thus were at least 30 days past due but for the improper loan 

                                                 
2 Again, this was October 31, 2016, the last day loans could be included in the HATS loan pool as 
distinguished from the Closing Date, December 15, 2016, which was the date HATS closed and the notes 
were sold to investors. 

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modifications. If Honor had accurately recorded these delinquencies, these loans would have 

been ineligible for the pool. 

66. DiMeo’s blatant and intentional use of improper loan modification practices to 

qualify loans for the pool is further demonstrated by the hundreds of last-minute modifications 

DiMeo applied to loans shortly before the Cut-Off-Date. In the four months preceding the Cut-

Off Date (July to October 2016) DiMeo applied impermissible loan modifications (ADs or 

Honor Payments) to approximately 941 loans valued at over $7.2 million. In October 2016 alone, 

the last month before the Cut-Off Date, he applied impermissible loan modifications to 

approximately 377 loans valued at nearly $3 million.   

67. If not for the improper modifications, of which Collins and DiMeo knew, or were 

reckless in not knowing, these loans would have been more than 30 days past due on the Cut-

Off-Date and ineligible for the HATS loan pool. And, many of these loans needed multiple 

improper modifications, in violation of the limit of one extension every three months, to qualify 

for inclusion in the HATS pool.    

68. The inclusion of these ineligible loans was material to investors. As stated by a 

member of the Underwriter A deal team when asked why loans could not be simply be modified 

to make them current for securitization, he answered: 

I think if you were doing that you’d have a disclosure issue.  [. . . .]  You’d 
probably be better off just trying to securitize the [loans that are ] 30-plus [days 
delinquent] than you would doing that and disclosing it, hey, a month before the 
deal we extended all these loans and brought them back current. Nobody would 
buy the deal.  

69. Instead of unilaterally modifying the loans to create the false appearance that they 

qualified for the HATS loan pool, Honor should not have included them in the pool to begin 

with. To support the ratings applied to the deal, Honor should have replaced these poorly 

performing loans with loans that actually met the eligibility requirements. The Ratings Agencies 

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would not have rated the HATS notes as they did if they were aware of the inclusion of loans 

that did not meet HATS’s stated eligibility requirements. HATS would not have had enough 

eligible loans to support the structure and justify its ratings.   

70. The inclusion of these ineligible loans also eroded the cushion known as 

“overcollateralization” (“OC”) built into the HATS structure to protect investors from loss. 

HATS was structured to provide investors with certain loss protections, known as “credit 

enhancements.” The OC cushion is a type of credit enhancement that is standard for asset-backed 

securities, like HATS, and is intended to protect investors from limited losses. HATS had an 

initial OC cushion of $12.36 million that was created by including $112.36 million in 

outstanding subprime vehicle loans to back $100 million in debt. The Ratings Agencies 

considered this initial OC for HATS when assigning ratings to HATS’s notes.   

71. As noted above, during the four months preceding the Cut-Off Date, Honor, at 

DiMeo and Collins’ direction, made impermissible loan modifications on 941 loans representing 

$7.257 million of the pool balance. This equates to 58.7% of the deal’s total initial OC. To make 

matters worse, 362 of these loans received multiple extensions during this period.     

C. Defendants Engaged in Additional Deceptive Acts to Conceal Honor’s 
Improper Loan Modification Practices 

72. In the lead up to the HATS offering, during Underwriter A’s due diligence, 

Underwriter A asked Honor about its extensions practices. Collins participated in these meetings 

and was the senior officer representing Honor. During these meetings, Honor falsely represented 

to Underwriter A that borrowers were given extensions only after Honor verified that the 

borrower was experiencing “major issues,” and that the number of extensions was limited to 

three over the life of the loans.  

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73. In February 2016 meetings with Underwriter A, led by Collins, Honor made the 

following misrepresentation to Underwriter A: 

Honor uses extensions to assist borrowers who have encountered a temporary 
hardship. Borrowers must show that the hardship is temporary and they must 
demonstrate the ability to resume normal payment.[Emphasis added].  

74. During this process, Underwriter A also asked Honor specific questions about its 

extension policies. In each instance, Honor, primarily at Collins’ direction, made statements 

consistent with the premise that extensions involved borrower interaction and followed standard 

industry practices. Collins knew these statements were false. For example, in January 2016, 

Honor’s controller had emailed Collins to ask about loans for which there had been no payments 

in over 365 days, yet were still classified as current as a result of Honor unilaterally applying 

ADs and Honor Payments. Collins then forwarded this email to DiMeo.  Nevertheless, Collins, 

in an email written in November 2016 and forwarded to Underwriter A by DiMeo, falsely 

represented: 

An allowable is an advancement without charge typically due to a 
car repair and customer problem solution. A deferment is a charge 
when a dramatic event has not resulted in a delinquency. Both are 
managed by Rob [DiMeo] and serve the same general purpose and 
added in statistics. 

 
75. During all of Underwriter A’s diligence, in which detailed and thorough questions 

were asked specifically about Honor’s loan servicing and extension practices and policies, 

Collins and DiMeo never disclosed Honor Payments at all nor did they disclose their reckless 

unilateral extension practices. 

76. In addition, during the Ratings Agencies’ analyses of HATS, both agencies 

received copies of Honor’s policies, met with Honor, and asked about Honor’s servicing 

practices. From these operational reviews, in which Collins and DiMeo participated, both 

Ratings Agencies understood that Honor followed its extensions P&Ps and used such extensions 

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to help borrowers get past verified short term problems in accordance with industry standards. At 

no point during these meetings or any at other time prior to the HATS offering, did Collins or 

DiMeo disclose the use of Honor Payments or unilateral extensions.  The Ratings Agencies also 

received an informational PowerPoint presentation describing Honor’s operations, policies, and 

procedures, which Collins reviewed and approved. These presentations contained misleading 

statements about Honor’s servicing and modification practices including, among other things, 

Honor’s extensions, charge-off, and repossession practices.   

D. The Misrepresentations Regarding Honor’s Loan Extension Practices and 
the Loans Included in HATS were Material to Investors    

77. All of the misrepresentations and omissions discussed above, regarding Honor’s 

actual loan modification, repossession, and charge-off practices, and the quality of the loans 

included in the pool, were material to reasonable investors because they concealed the true 

quality, value, creditworthiness, and performance of the auto loans underlying the HATS notes.   

78. None of HATS’s investors, Underwriter A, nor the Ratings Agencies, knew about 

Honor’s practice of granting loan modifications far more frequently than its stated procedures 

authorized. Nor were they aware of Honor’s unilateral extensions without any borrower 

interaction or the use of Honor Payments. Moreover, as a result of Honor’s misrepresentations, 

neither Underwriter A, the Ratings Agencies, nor investors could have known that Honor had 

fraudulently included ineligible loans in the pool of loans used to collateralize HATS or that 

Honor’s repossession and charge-off disclosures were false or misleading.   

79. Had Honor been forthright and not concealed its actual loan servicing practices or 

the quality of the loans it included in the securitization, the HATS securitization may not have 

happened at all. At a minimum, HATS would have been structured differently (i.e., with 

different tranche sizes and ratings), included only eligible collateral, and HATS’s Offering 

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Materials would have disclosed Honor’s actual servicing practices as well as the risks these 

practices posed to HATS’s performance.    

80. The number and type of extensions Honor applied rendered the servicing 

agreement between Honor and HATS ineffective. The loans given extensions without borrower 

involvement and engagement involved a much higher level of risk than contemplated by the 

offering’s underlying structure as described in the Offering Materials (e.g., because many of the 

loans included were ineligible). As a result, the undisclosed practices materially increased the 

risk to investors because, for example, the loans were of a lower quality than loans that were 

current in payments or extended after proper diligence.   

81. Similarly, knowledge of Honor’s loan modification practices directed by the 

Defendants would have materially impacted the Ratings Agencies’ ratings of HATS’s notes. 

Both agencies confirmed that it is important and standard industry practice for extensions to be 

borrower driven; the borrower should show a desire to stay in the loan and a commitment to 

repay. Witnesses from the Ratings Agencies had never heard of any servicer engaging in conduct 

resembling Honor Payments. If the Ratings Agencies knew that Honor was not following its 

stated policies and granting unilateral ADs and Honor Payments, they may not have rated HATS 

at all. Many investors depend on ratings in making their investment decisions.  

82. Likewise, investors would have wanted to know about Honor’s improper loan 

servicing and modification practices and their impact on the quality of the loans in HATS 

portfolio. Instead, Honor intentionally and recklessly misled investors about Honor’s loan 

servicing practices and the strength of the underlying HATS loan collateral by the 

misrepresentations and omissions in the Offering Materials. Investors may not have invested in 

HATS notes if they had been aware of Honor’s actual practices. 

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III. AFTER THE HATS OFFERING, DEFENDANTS’ CONTINUED RECKLESS 
LOAN MODIFICATION PRACTICES CAUSED HATS’S REPORTING TO BE 
FALSE AND MISLEADING   

A.  The Role of Monthly Servicer Reports in the Secondary Market 

83. After the HATS securitization closed, the HATS notes could be bought and sold 

by other investors on what is known as the secondary market. HATS notes traded in the 

secondary market after the securitization closed in December 2016 until at least November 2018.   

84. As described above, each month Honor published a Monthly Servicer Report or 

MSR detailing the performance of the deal using certain data points, including (a) collections 

and remittance activities under the deal’s cash flow structure, (b) pool balance, (c) note balance, 

(d) extensions, (e) delinquencies, (f) repossessions, (g) OC levels, and (h) charge-offs.   

85. Investors used MSRs to monitor the deal’s performance and to decide whether to 

buy, sell or hold HATS notes on the secondary market. The Ratings Agencies also used the 

MSRs to monitor whether the HATS notes performed as expected or whether they needed to take 

ratings actions (e.g., update the ratings they assigned to HATS’s notes). 

B.  Defendants’ Use of Improper Loan Modifications Caused the MSRs to be False and 
Misleading 

 
86. Honor reported the number of extensions it made in the MSRs. At the peak, 

Honor disclosed in an MSR that it had extended payments on approximately 22% of the entire 

loan pool in a single month. This reporting, however, materially underreported actual 

modification rates because Honor excluded Honor Payments from the MSR extension statistics 

and, at Defendants’ direction, dramatically accelerated its use of impermissible modifications 

(both ADs and Honor Payments). As shown in the chart below, in late 2017, Honor unilaterally 

extended between 2,000 and 2,500 loans each month.  Overall, after the the Closing Date, Honor, 

at DiMeo’s direction, modified (using both ADs and Honor Payments) more than 7,000 

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individual loans more than 33,000 times. This included more than 5,600 loans that received at 

least two extensions within three months. 

 

87. Honor Payments were not disclosed anywhere in the MSRs. If Honor had 

included Honor Payments in the MSR extension statistics, the reported extension rates would 

have been approximately 3.1% - 8.1% higher, depending on the month.    

88. In addition, the reckless use of both ADs and Honor Payments caused Honor to 

understate the length of delinquencies (e.g., by preventing loans from going from 30 days past 

due to 60 days past due) for loans. This metric was important to investors because the likelihood 

of a loan being repaid decreases significantly as the length of the delinquency increases. Once a 

loan is 60 days past due, a borrower has more difficulty curing the growing delinquency and the 

loan often will progress to 90 and then 120 days past due. Honor’s failure to let loans flow 

naturally from one delinquency category to another caused a disproportionate number of loans to 

show up in the 30-day delinquent category relative to further delinquency categories (e.g. 60, 90, 

(Closing Date) 

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or 120-day delinquencies), which emerged when Honor could no longer mask these loans’ poor 

performance with reckless extensions.  Indeed, because of the significance of the 30-day 

delinquencies observed, at least one investor asked Collins about the delinquency metric when 

reviewing the MSRs, but Collins avoided providing a substantive response.  

89. Lastly, Honor also misstated its performance data in the MSRs because it failed to 

charge-off loans as required by the HATS offering documents. As noted in Paragraphs 51 and 58 

above, the Offering Materials set forth conditions requiring charge-offs. Honor’s improper 

extensions and repossession delays prevented loans from meeting these conditions. These delays 

in the charge-offs artificially inflated the HATS pool balance and affected the OC calculations 

set forth in the MSRs.    

D.  Defendants Continued to Engage in Deceptive Acts to Conceal Its Loan 
Modification Practices 

 
90. As noted above, neither investors, the Rating Agencies, nor Underwriter A knew 

that Honor unilaterally gave borrowers loan modifications. The first indication of an issue did 

not come until July 2017, when an Underwriter A diligence team visiting Honor made the 

discovery. When confronted by Underwriter A about the Honor Payments, both DiMeo and 

Collins lied about the source and purpose of these payments. DiMeo initially told Underwriter A 

that Honor Payments were actual payments from automobile dealers to Honor, which was false. 

DiMeo later refused to answer additional questions, and said Underwriter A needed to direct any 

further questions about Honor Payments to Collins. Collins later doubled down on DiMeo’s 

initial, false explanation that dealers funded Honor Payments, for example, when a borrower had 

missed a loan payment. Ultimately, a member of the Underwriter A deal team told Collins and 

DiMeo: “You essentially have no collection policy because of the exceptions.” The Underwriter 

A representative memorialized this conversation in writing, stating, “[a]t that point, I told the 

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company that their use of ADs and DPs [Honor Payments] even if approved by a senior officer, 

rendered their collection policy meaningless. I told them that they needed to come back with a 

collection policy which was more closely aligned with industry standards and greatly curtailed 

their use of extensions.”   

91. After Underwriter A discovered Honor Payments, Underwriter A’s relationship 

manager to Honor had a conversation with Collins in which Collins said Honor would 

discontinue the use of Honor Payments. However, some six months later, in January 2018, an 

Underwriter A consultant found Honor had continued to use Honor Payments despite Collins’s 

promises to the contrary. As the data in the chart included in Paragraph 88 above shows, Honor 

continued to apply Honor Payments to the HATS pool until approximately April 30, 2018 (the 

last full month DiMeo worked at Honor before he was terminated). When confronted by a 

member of the Underwriter A team about the continuing practice, DiMeo lied and said that 

Underwriter A’s relationship manager said Honor Payments could continue. Underwriter A’s 

relationship manager later confirmed that he never agreed to allow Honor Payments to continue. 

92. Collins also directly misled at least one investor about Honor’s loan modification 

practices. In August 2017, DiMeo shared reports showing proposed Honor Payment activity with 

Collins and asked him to “review and advise.” Despite having this information, Collins failed to 

disclose information about Honor’s servicing practices, even when an investor asked him why 

delinquencies were not advancing from the 30-day delinquency category to the 60-day 

delinquency category. Collins gave a vague non-response, but assured the investor that Honor 

remained “very encouraged” by the performance of the pool.  

 

 

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D.  The Post-Offering Misrepresentations Were Material to Investors 

93. The false and misleading statements and omissions in the MSRs resulting from 

Honor’s improper and fraudulent loan servicing practices were material to investors because the 

MSRs were the primary means by which investors and potential investors evaluated the 

performance of the HATS notes. The performance metrics reported in the MSRs were thus 

critically important to HATS investors or potential investors. 

94. Investors would have wanted to know that the extension rates reported in the 

MSRs did not include Honor Payments and, as a result, misleadingly underreported loan 

modifications and the number of loans experiencing collections problems, when deciding 

whether to purchase or sell HATS notes. 

95. Investors would have wanted to know that the MSRs’ reported loan delinquency 

durations were false, as a result of Honor’s loan servicing practices, when deciding whether to 

purchase or sell HATS notes. 

96. Investors would have wanted to know that the MSRs’ charge-off and repossession 

rates were not accurate, as a result of Honor’s loan servicing practices, when deciding whether to 

purchase or sell HATS notes. 

97. Investors would have wanted to know that Honor’s loan servicing practices 

skewed the reported HATS pool balance and OC calculations in the MSRs, when deciding 

whether to purchase or sell HATS notes. 

98. Investors would have wanted to know that, by skewing the metrics in the MSRs, 

Honor diverted cash flows from HATS that should have paid down principal on investors’ notes 

but instead went to Honor as the holder of a residual interest in the deal, when deciding whether 

to purchase or sell HATS notes. 

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99. Investors would have wanted to know that the Ratings Agencies could not 

properly monitor HATS’s performance and, if necessary, take timely ratings actions because the 

MSRs incorrectly reported performance information used in these activities, when deciding 

whether to purchase or sell HATS notes.  

IV. THE SCHEME FALLS APART 

A. The Consequences of Honor’s Improper Loan Servicing Practice  
 
100. Up until late 2017, HATS’s reported loss performance roughly matched the 

expected loss performance. But, beneath the surface, and as a result of improper and reckless 

loan modification and servicing practices, the HATS loan pool had millions in unrecognized loan 

losses. Around the same time, in December 2017, Underwriter A’s findings reached Honor’s 

majority owners and the unsustainability of the improper loan servicing practices began to catch 

up with Defendants, Honor, and HATS. The MSRs began reporting that the loans collateralizing 

HATS began underperforming expectations as set out in the Offering Materials, and the potential 

for investor losses significantly increased.  

101. That same month, December 2017, following Underwriter A’s discovery of 

Honor’s impermissible loan modification and servicing practices and their relaying of that 

information to Honors’ majority owners, Collins was terminated as CEO. 

102. By April 2018 the reported losses exceeded expected losses by nearly six percent 

(11.65% projected versus 17.63% actual) or 151% of expectation. The graph below shows one of 

the Ratings Agencies’ view of the sudden divergence beginning in about December 2017 

between the performance reported in the MSRs and the expected performance.  

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103. The Ratings Agencies noticed the deterioration in the HATS portfolio. On April 

18, 2018, Rating Agency A wrote, “[a]t this point, it appears that losses are trending significantly 

worse than originally expected.” It therefore placed HATS Class C notes on “Watch Negative” 

meaning it had a negative outlook for the HATS notes’ then current credit rating and may have 

to lower the notes’ rating in the future.    

104. By July 17, 2018, Rating Agency A downgraded the Class C rating from its 

original BB- rating to CCC+. When downgrading the rating, Rating Agency A wrote: 

The 60+ day delinquencies have been increasing since March 31, 
in response to the company adopting a less liberal approach to 
extensions. Extensions had been growing and reached a peak of 
20%-22% from October 2017 through January 2018.  [. . . .] The 
historically high level of extensions, which we believe is outside 
industry norms, coupled with elevated delinquencies, led support, 
in our view, to losses being more back-loaded that normally 
observed in most subprime auto loan ABS transactions.   

 
105. On May 23, 2018, Rating Agency B also placed the Class C HATS bonds on 

Watch Downgrade. On July 24, 2018, Rating Agency B downgraded the Class C notes from BB- 

to CCC+. In doing so, Rating Agency B noted “HATS 2016-1 has been granting higher 

extensions rates than we have seen in other subprime deals; however; the Company has recently 

revised its extension policy to make it more industry standard.”   

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106. Notably, Rating Agency A’s and Rating Agency B’s reports relied on the 

extensions reported in the MSRs which did not include Honor Payments. This implies that the 

impact of Honor’s impermissible loan modifications on the HATS notes would be larger than 

either agency anticipated.   

B. These Events Triggered More Internal Changes at Honor  

107. In April 2018, the majority owner of Honor brought in a consultant with 

significant experience in the subprime lending industry to run Honor. This consultant 

immediately spotted inconsistencies in Honor’s loan portfolio. He observed that delinquencies 

had spiked upward but that realized losses decreased over the same period. His observations 

raised concerns that Honor may have concealed significant losses in its serviced loan portfolio 

that posed a risk of loss for investors in HATS.  

108. Further investigation revealed that Honor had deliberately underreported loan 

losses. In the consultant’s opinion, these losses resulted, from among other things, the fact that 

Honor did not seem to have any rules controlling the granting of payment extensions to 

customers. Taken together, he concluded that Honor had used ADs and Honor Payments to keep 

its loan delinquencies and loan losses below certain thresholds. When the consultant confronted 

DiMeo about these practices, DiMeo turned defensive and said, “this is how we’ve always done 

it” and that “Jim [Collins] wanted it this way.”  

109. In May 2018, the majority owner of Honor terminated DiMeo. In August 2018, 

Honor resigned as servicer for the HATS portfolio and a new servicer took over its 

responsibilities.  

110. As loan losses accumulated and the lowest tranche of HATS neared losses in 

principal, in June 2019 at Underwriter A’s request, the new servicer exercised a “cleanup” option 

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to purchase the remaining HATS bonds from investors. Without the intervention, investors 

would have lost millions of dollars on the notes they held.  

V. COLLINS AND DIMEO ACTED WITH SCIENTER  

111. Despite repeated opportunities to come clean, neither DiMeo nor Collins 

disclosed Honor’s true loan modification and servicing practices prior to HATS’s closing. These 

opportunities included meetings over several months and other interactions with Underwriter A 

and in person, face-to-face meetings with representatives of the Ratings Agencies.   

112. Collins and DiMeo admitted to Honor’s use of unilateral extensions only after 

they got caught by the Underwriter A diligence team in 2017. But, even after getting caught, 

both Defendants lied about the true nature of Honor payments. In addition, Honor continued to 

apply Honor Payments after Collins told Underwriter A they would stop. 

113. Collins knew that Honor classified loans as current even when borrowers had not 

paid for long periods of time. As noted above, in January 2016, Honor’s controller emailed 

Collins to ask about loans that had ADs, but had not made payments in over 365 days, and were 

still classified as current. Yet, when structuring the HATS deal, Collins told Underwriter A that 

ADs were a result of customer-driven issues.   

114. Collins also knew that loans given multiple and frequent extensions were risky. 

For example, in May 2017, Collins wrote “we build 2 months of mods into our loan [. . . .]  After 

two extensions we are rolling the dice trying to manage the carnage.”   

115. Post-securitization, in August of 2017, DiMeo shared reports showing potential 

Honor Payment activity with Collins, asking him to “Please review and advise[,]” and to confirm 

that “this is what you want and how much you want done to it.” Despite having this information, 

Collins failed to disclose it, even when an investor specifically asked him about unexpected 

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delinquency figures that were directly attributable to Honor’s impermissible loan modification 

and servicing practices. 

116. Collins was also aware of the use of Honor Payments throughout the entire period 

in lead up to HATS until his termination. For example, Collins and Honor’s then CFO discussed 

Honor Payments.  In this conversation, Collins told the CFO that Honor could make at least 

partial payments for borrowers. In addition, when confronted by Underwriter A in 2017, he 

defended the use of Honor Payments. 

117. DiMeo determined which loans received ADs and Honor Payments. DiMeo told 

Honor employees that the reason he used Honor Payments was to keep loans from going 

delinquent and to improve Honor's delinquency statistics. 

118. As head of Honor’s servicing function, DiMeo was also responsible for the 

servicing system, the source of the servicing data contained in the MSRs. He therefore knew or 

was reckless in not knowing that the MSRs would contain the misrepresentations described 

above in light of Honor's servicing practices.   

119. Moreover, in conversations DiMeo had with Underwriter A, DiMeo showed that 

he knew about the misrepresentations regarding servicing practices in the HATS Offering 

Materials. He also directly misstated information about Honor’s servicing practices, or was 

present and did not correct others who misstated or omitted material information, in meetings 

with Underwriter A and the Rating Agencies. 

120. Furthermore, given their long careers in the subprime auto industry, both Collins 

and DiMeo knew, or were reckless in not knowing, about the increased credit risk inherent in 

loans with multiple extensions, and therefore that their misconduct harmed investors. Both of 

them also understood that Honor profited from selling loans to HATS at the time of the 

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securitization, and that the impermissible modifications would enhance Honor's profit from its 

residual interest. 

121. Collins and DiMeo anticipated that Honor would continue raising funds through 

future securitizations, the success of which largely depended on positive performance in HATS. 

Indeed, before Honor failed, Collins and DiMeo were planning another securitization for 2017 

that never closed.   

VI. HONOR AND DEFENDANTS PROFITED FROM THEIR MISCONDUCT  

122. Honor profited from its misconduct in at least two ways: (A) selling ineligible 

loans to HATS; and (B) receiving excess cash flows from the HATS deal that should have been 

used to pay down notes and enhance the OC. Because they received bonuses based on Honor’s 

profits, Defendants also profited from this misconduct.    

A. Honor Profited by Including Ineligible Loans in the Portfolio  

123. At the time of the securitization, Honor contributed the underlying loans, which it 

had obtained at a discount, to HATS at par. For example, if a borrower had an outstanding 

principal balance on the loan at inception of $10,000, Honor may have acquired it for $9,250. 

Upon sale to HATS, Honor would have made an immediate profit. Since Honor should not have 

included ineligible loans in the portfolio (i.e., those improperly extended prior to the Cut-Off 

Date), its profit from selling these loans to HATS was improper.   

124. Moreover, Honor also profited by including loans in the pool that were of lower 

quality than represented. Specifically, loans modified under Honor’s undisclosed servicing 

policies were riskier and worth less than loans extended under industry-standard policies. 

Because Honor’s reckless extensions were not disclosed, these loans were sold to HATS at an 

amount that exceeded their true value, thereby also increasing Honor’s profits.   

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125. If outside parties had identified the ineligibility of included loans before 

securitization, Honor would have needed to replace those bad loans with ones actually meeting 

the collateral eligibility requirements. By extending the loans prior to the securitization, and 

failing to disclose their ineligibility, Honor had the chance to pass bad loans off to HATS and its 

investors, and retain better loans for itself.   

B. Honor Used Improper Loan Modifications to Delay Charge-Offs and 
Improperly Extract Money from HATS 

126. Honor’s use of improper loan modifications delayed the recognition of loan losses 

in the HATS portfolio, which affected the flow of monies through the structure of the deal, 

inflated the reported OC on HATS notes, and enabled Honor to profit at the expense of investors.   

127. As noted in Paragraph 70 above, when HATS closed, it started with an initial 

overcollateralization of 12.36% (or $12.36 million more in auto loan receivables than the $100 

million in notes issued). The OC served as a cushion to protect investors from potential loan 

losses – i.e., there were $112.36 million in loans securing $100 million in notes. HATS was 

designed to grow the OC protection for investors over time by using the “excess spread” between 

the very high interest rates on the subprime vehicle loans and the much lower interest due on the 

HATS notes. Because of this difference in interest rates, Honor anticipated collecting more 

money from the subprime loan borrowers each month than was necessary to pay HATS investors 

and monthly expenses. HATS was required to apply this “excess spread” to increase the OC over 

time by paying down principal on the investors’ notes. This approach to applying the excess 

spread was required to continue until HATS reached its target OC of 20.5% of the outstanding 

note balance. If HATS met and maintained its 20.5% OC target, any excess monies were 

released to Honor, which held the residual interest in HATS.  

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128. HATS purportedly hit its 20.5% OC target in May 2017 and maintained it 

between May and November 2017. During this period, as described above, Honor accelerated its 

use of improper modifications. Honor received $5.6 million in excess monies that flowed to it 

through the HATS cash flow structure. However, because HATS calculated the OC target by 

comparing the outstanding balance of the loan pool to the outstanding note balance, Honor’s 

delays in recognizing loan losses (as a result of the improper modifications) inflated the reported 

pool balance and allowed HATS to purportedly meet the OC target for some or all of this period.   

C. Collins and DiMeo Also Profited from this Misconduct  

129. Both Collins and DiMeo received bonuses that were calculated based on Honor’s 

profits. Since their misconduct increased Honor’s profits, it also increased their own bonus 

amounts. 

VII. DEFENDANTS CONTROLLED HONOR DURING THE RELEVANT PERIOD  
 
130. Collins and DiMeo founded Honor in 2000. Although they sold Honor to private 

equity funds in 2011, Collins and DiMeo continued to control virtually all aspects of Honor’s 

operations until they were terminated in December 2017 and May 2018, respectively.  

131. Collins, as CEO, oversaw all of Honor’s business activities and operations. 

Former employees said nothing at Honor occurred without his knowledge and approval. They 

said Collins maintained a tight “chain of command” where people were told to stay in their lanes 

and only report upward to their managers. He admonished employees who communicated 

outside their chain of command or across the department siloes at Honor. Since Collins was 

CEO, everyone at Honor reported up the management chain to Collins.   

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132. Collins was integral to all aspects of the offering and approved the Offering 

Materials. Collins also managed discussions with the underwriters, rating agencies, and investors 

in HATS.   

133. Collins directly supervised DiMeo, who personally applied the Honor Payments 

and improper loan extensions with Collins’ knowledge and approval.   

134. DiMeo held the title Chief Operating Officer and also acted as Honor’s 

Compliance Management Officer. He controlled all aspects of Honor’s loan servicing and 

collections activities. The servicing and collections teams—including accounting personnel 

entering loan transactions into the servicing database and call center employees responsible for 

telephoning borrowers to collect payments—all reported to DiMeo. 

135. DiMeo had direct oversight and control over the loan servicing information and 

data included in the Offering Materials and MSRs. 

FIRST CLAIM FOR RELIEF 
 

Fraud in the Offer or Sale of Securities—Violations of Securities Act Section 17(a)  
[15 U.S.C. § 77q(a)] 

136. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though 

fully set forth herein.  

137. By virtue of the foregoing, from no later than December 2016 through at least 

their terminations from Honor in December 2017 and May 2018, respectively, Collins and 

DiMeo have, directly or indirectly, in the offer or sale of securities, by use of the means or 

instruments of transportation or communication in interstate commerce or by use of the mails, 

(1) employed a device, scheme, or artifice to defraud with scienter; (2) obtained money or 

property by means of an untrue statement of material fact or omission to state a material fact 

necessary in order to make the statements made, in light of the circumstances under which they 

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were made, not misleading, and (3) engaged in transactions, practices or courses of business that 

operated or would operate as a fraud or deceit upon the purchasers of such securities.  

138. Accordingly, Defendants violated and, unless restrained and enjoined, will again 

violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].  

SECOND CLAIM FOR RELIEF 
(In the Alternative) 

 
Fraud in the Offer or Sale of Securities—Aiding and Abetting Honor’s Violations of 

Securities Act Section 17(a)  
[15 U.S.C. § 77q(a)] 

139. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though 

fully set forth herein.  

140.  By virtue of the foregoing, Honor, directly or indirectly, in the offer or sale of 

securities, by use of the means or instruments of transportation or communication in interstate 

commerce or by use of the mails, (1) employed a device, scheme, or artifice to defraud with 

scienter; (2) obtained money or property by means of an untrue statement of material fact or 

omission to state a material fact necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading, and (3) engaged in transactions, 

practices or courses of business that operated or would operate as a fraud or deceit upon the 

purchasers of such securities. Accordingly, Honor violated of Section 17(a) of the Securities Act 

[15 U.S.C. § 77q(a)].  

141. By virtue of the foregoing, Defendants were aware that their actions were part of 

an overall course of conduct that was improper or illegal and provided substantial assistance to 

Honor in the violation of securities laws. 

142. Accordingly, Defendants aided and abetted and, unless restrained and enjoined, 

will again aid and abet, violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].  

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THIRD CLAIM FOR RELIEF 
 

Fraud—Violation of Exchange Act Section 10(b) and Rules 10b-5(a) & (c) Thereunder  
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(a) & (c)] 

143. The SEC realleges and incorporates by reference Paragraphs 1 to 135 as though 

fully set forth herein.  

144. By virtue of the foregoing, from no later than December 2016 through at least 

their terminations from Honor in December 2017 and May 2018, respectively, Collins and 

DiMeo directly or indirectly, acting with scienter, by use of the means or instrumentalities of 

interstate commerce, or of the mails, or of a facility of a national securities exchange, in 

connection with the purchase or sale of a security: (i) employed devices, schemes or artifices to 

defraud; and (ii) engaged in acts, practices or courses of business which operated or would 

operate as a fraud or deceit upon another person. 

145. By reason of the conduct described above, Defendants, directly or indirectly, 

violated, and unless restrained and enjoined, will again violate, Section 10(b) of the Exchange 

Act [15 U.S.C. § 78j(b)] and Rule 10b-5(a) and (c) thereunder [17 C.F.R. § 240.10b-5(a) & (c)].  

FOURTH CLAIM FOR RELIEF 
(Against Defendant Collins) 

 
Fraud—Violation of Exchange Act Section 10(b) and Rule 10b-5(b) Thereunder  

[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b)] 

146. The SEC realleges and incorporates by reference Paragraphs 1 to 135 as though 

fully set forth herein.  

147. By virtue of the foregoing, from no later than December 2016 through at least his 

termination from Honor in December 2017, Collins, directly or indirectly, acting with scienter, 

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by use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of 

a national securities exchange, in connection with the purchase or sale of a security, made untrue 

statements or omitted to state material facts necessary in order to make the statements made, in 

the light of the circumstances under which they were made, not misleading.  By reason of the 

conduct described above, Collins, directly or indirectly, violated, and unless restrained and 

enjoined, will again violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 

10b-5(b) thereunder [17 C.F.R. § 240.10b-5(b)]. 

FIFTH CLAIM FOR RELIEF 
(Against Defendant DiMeo) 

 
Fraud — Aiding and Abetting Honor’s Violations of Exchange Act Section 10(b)  

and Rule 10b-5(b) Thereunder  
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5(b)] 

 
148.   The SEC realleges and incorporates by reference Paragraphs 1 to 135 as though 

fully set forth herein.  

149.   By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by 

use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a 

national securities exchange, in connection with the purchase or sale of a security, made untrue 

statements or omitted to state material facts necessary in order to make the statements made, in 

the light of the circumstances under which they were made, not misleading.  Accordingly, Honor 

violated Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder [17 C.F.R. § 240.10b-

5(b)]. 

150. By virtue of the foregoing, DiMeo was aware his actions were part of an overall 

course of conduct that was improper or illegal and provided substantial assistance to Honor in 

the violation of securities laws. 

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151. Accordingly, DiMeo aided and abetted and, unless restrained and enjoined, will 

again aid and abet, violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder 

[17 C.F.R. § 240.10b-5(b)]. 

SIXTH CLAIM FOR RELIEF 
(In the Alternative as to Defendant Collins)  

Fraud—Aiding and Abetting Honor’s Violation of Exchange Act Section 10(b) and Rules 
10b-5 (a), (b) & (c) Thereunder  

[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5] 

152. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though 

fully set forth herein.  

153. By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by 

use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a 

national securities exchange, in connection with the purchase or sale of a security: (a) employed 

devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or omitted 

to state material facts necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading; and (c) engaged in acts, practices, 

or courses of business which operated or would operate as a fraud or deceit upon another person. 

As a result, Honor violated Section 10(b) of the Exchange Act and Rules 10b-5 (a) –(c) 

thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (a) – (c)]. 

154. By virtue of the foregoing, Collins was aware that his actions were part of an 

overall course of conduct that was improper or illegal and provided substantial assistance to 

Honor in the violation of securities laws.  Accordingly, Collins aided and abetted and, unless 

restrained and enjoined, will again aid and abet, the violations of Section 10(b) of the Exchange 

Act and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]. 

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SEVENTH CLAIM FOR RELIEF 
(In the Alternative as to Defendant DiMeo) 

Fraud—Aiding and Abetting Honor’s Violation of Exchange Act Section 10(b) and Rules 
10b-5 (a) & (c) Thereunder  

[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (a) & (c)] 

155. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though 

fully set forth herein.  

156. By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by 

use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a 

national securities exchange, in connection with the purchase or sale of a security: (a) employed 

devices, schemes, or artifices to defraud; and (b) engaged in acts, practices, or courses of 

business which operated or would operate as a fraud or deceit upon another person. As a result, 

Honor violated Section 10(b) of the Exchange Act and Rules 10b-5 (a) and (c) thereunder [15 

U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5 (a) & (c)]. 

157. By virtue of the foregoing, DiMeo was aware that his actions were part of an 

overall course of conduct that was improper or illegal and provided substantial assistance to 

Honor in the violation of securities laws. 

158. Accordingly, DiMeo aided and abetted and, unless restrained and enjoined, will 

again aid and abet, the violations of Section 10(b) of the Exchange Act and Rules 10b-5 (a) and 

(c) thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]. 

 EIGHTH CLAIM FOR RELIEF 
(In the Alternative) 

Fraud—Control Person Liability under Section 20(a) of the Exchange Act [15 U.S.C. 
§ 78t(a)] for Honor’s Violation of Exchange Act Section 10(b) and Rule 10b-5 Thereunder  

[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5] 

159. The SEC realleges and incorporates by reference Paragraphs 1 to 135, as though 

fully set forth herein.  

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160. By virtue of the foregoing, Honor, directly or indirectly, acting with scienter, by 

use of the means or instrumentalities of interstate commerce, or of the mails, or of a facility of a 

national securities exchange, in connection with the purchase or sale of a security: (a) employed 

devices, schemes, or artifices to defraud; (b) made untrue statements of material fact or omitted 

to state material facts necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading; and (c) engaged in acts, practices, 

or courses of business which operated or would operate as a fraud or deceit upon another person. 

Therefore, Honor violated of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder [15 

U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]. 

161.  As alleged herein, Defendants, exercised general control over Honor as well the 

power and ability to control Honor’s specific actions, statements, and/or omissions that 

constituted violations of the securities laws.  

162. Accordingly, Defendants are liable as control persons under Section 20(a) of the 

Exchange Act [15 U.S.C. § 78t(a)] for Honor’s violations of Section 10(b) of the Exchange Act 

and Rule 10b-5 thereunder [15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]. 

 

RELIEF SOUGHT 

WHEREFORE, the SEC respectfully requests that this Court: 

I. 

Find that each of the Defendants committed the violations alleged in this Complaint;  

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II. 

Enter an injunction, in a form consistent with Rule 65(d) of the Federal Rules of Civil 

Procedure, permanently restraining and enjoining each of the Defendants from violating, directly 

or indirectly, the laws and rules they are alleged to have violated in this Complaint;  

III. 

Order that Defendants be permanently prohibited from acting as an officer or director of 

any public company pursuant to Section 20(e) of the Securities Act [15 U.S.C. § 77t(e)] and 

Section 21(d)(2) [15 U.S.C. § 78u(d)(2)] of the Exchange Act;  

IV. 

Order that each of the Defendants disgorge any and all ill-gotten gains, together with pre-

judgment interest, derived from the improper conduct set forth in this Complaint;  

V. 

Order that each of the Defendants pay civil money penalties pursuant to Section 20(d) of 

the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. 

§ 78u(d)]; and 

VII. 

Grant such other relief as this Court may deem just or appropriate. 

JURY DEMAND 

The SEC demands a trial by jury on all claims so triable. 

 

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Respectfully submitted this 23rd day of September 2021. 

 

     By: /s Jonathan S. Polish  

Jonathan S. Polish 
U.S. SECURITIES & EXCHANGE COMMISSION 
175 W. Jackson Blvd., Suite 1450 
Chicago, Illinois 60604 
(312) 353-6884 
 [email protected] 
 
Attorney for the Plaintiff 
 
 
 

Of counsel 
David A. Nasse (pro hac vice motion to be filed) 
U.S. SECURITIES & EXCHANGE COMMISSION 
100 F Street N.E. 
Washington, DC 20549 
(202) 551-4426 
[email protected] 
 
Christopher E. Martin (pro hac vice motion to be filed) 
U.S. SECURITIES & EXCHANGE COMMISSION 
Byron Rogers Federal Office Building 
1961 Stout Street, Suite 1700 
Denver, CO 80294-1961 
(303) 844-1106 
[email protected] 

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