Bonds

Bond firm sued by ex-employee, claiming lapses with HBCU loans

Rice Financial Products Co. was sued by a former employee who claims she was fired for raising concerns about the firm’s work on a federal program that provides low-cost loans to historically black colleges and universities.

Gyliane Morgan alleges the company retaliated against her in 2020 after she pointed to the firm’s oversight failings — including not flagging defaults by borrowers — stemming from its role in a U.S. Department of Education program that helps finance campus projects, according to a wrongful termination lawsuit she filed March 27 in a New York federal court.

The Morehouse College campus in Atlanta, Georgia. Morehouse was one of the colleges thsat received loans under the HBCU Capital Financing Program.

Bloomberg News

The bond-underwriting firm was hired by the education department in 2009 to administer its HBCU Capital Financing Program. Rice reviewed loan applications from schools and assessed the credit risk. The loans were financed and guaranteed by the federal government, with Rice monitoring the performance of the loans.

Rice’s Capital Access Program closed more than $2 billion in loans for both public and private HBCU’s, including to Morehouse College, Hampton University and Clark Atlanta University, according to the lawsuit. 

Morgan, a former senior vice president at the Rice, claims in her lawsuit that the firm failed to implement basic compliance-monitoring and risk-management protocols and didn’t meet its obligation to the Department of Education. Morgan alleged she discovered errors in loan-transaction documents that reflected inadequate due diligence. 

She also said that Rice failed to flag defaults by several borrowers, violating the terms of its contract with the government. The suit said the federal government extended deferments to 13 borrowers in 2019.

Spokespeople for Rice and the Department of Education declined to comment. The attorney for Morgan didn’t respond to requests for comment.

Morgan, a former director at Kroll Bond Rating Agency who joined Rice in 2018, said she raised her concerns internally before bringing them to Donald Watson, a Department of Education official. She said she was fired in 2020 after she refused to approve a loan to an HBCU medical school that didn’t meet the program’s requirements.

Watson declined to comment. 

The case is Morgan v. Rice, 24-cv-2305, US District Court, Southern District of New York (Manhattan)

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