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BRAHMAN PARTNERS II, L.P., BRAHMAN PARTNERS III, L.P., BRAHMAN PARTNERS II OFFSHORE, LTD., BRAHMAN INSTITUTIONAL PARTNERS, L.P., BRAHMAN C.P.F. PARTNERS, L.P., BRAHMAN PARTNERS IV, L.P., BRAHMAN PARTNERS IV (CAYMAN), LTD., and BH INVESTMENTS FUND, L.L.C., Plaintiffs,

v.

OCWEN FINANCIAL CORPORATION, WILLIAM ERBEY, and RONALD FARIS,
Defendants.

MAR 20, 2018

COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS AND THE COMMON LAW

Plaintiffs Brahman Partners II, L.P., Brahman Partners III, L.P., Brahman Partners II Offshore, Ltd., Brahman Institutional Partners, L.P., Brahman C.P.F. Partners, L.P., Brahman Partners IV, L.P., Brahman Partners IV (Cayman), Ltd., and BH Investments Fund, L.L.C., (“Plaintiffs”) are investment funds that purchased the common stock of Defendant Ocwen Financial Corporation (“Ocwen” or the “Company”).

Plaintiffs, through their undersigned attorneys, by way of this Complaint and Jury Demand, bring this action against Ocwen and certain of its former and present officers and directors, Defendants William Erbey (“Erbey”) and Ronald Faris (“Faris” and, collectively with Erbey, the “Individual Defendants”), and allege the following upon personal knowledge as to themselves and their own acts, and upon information and belief as to all other matters.

Plaintiffs’ information and belief is based on, inter alia, an investigation by their attorneys, which investigation includes, among other things, a review and analysis of:

Ocwen’s filings with the U.S. Securities and Exchange Commission (“SEC”); a January 20, 2016 SEC order instating a settled administrative proceeding against Ocwen (the “SEC Consent Order”);

an October 5, 2015 SEC order instituting a settled administrative proceeding against Ocwen’s affiliate, Home Loan Servicing Solutions Ltd. (the “HLSS Consent Order”); various letters sent by the Superintendent of the New York State Department of Financial Services to Ocwen;

consent orders and agreements between Ocwen, Ocwen Loan Servicing LLC, and the NYDFS;

the National Mortgage Settlement (“NMS”) and related public filings; several reports issued by Joseph A. Smith, Jr. concerning Ocwen’s compliance with the NMS;

pleadings, motion papers, exhibits to declarations filed in the matter In re Ocwen Financial Corporation Securities Litigation, 14-cv-81057-WPD (S.D. Fla.) (the “Class Action Proceeding”);

decisions, opinions and orders issued by the Court in the Class Action Proceeding; pleadings, motion papers, exhibits to declarations filed in the matter Broadway Gate Master Fund, Ltd., et al. v. Ocwen Financial Corp., et al., 16-cv-80056-WPD (S.D. Fla.) (the “Broadway Gate Proceeding”); decisions, opinions and orders issued by the Court in the Broadway Gate Proceeding;

pleadings, motion papers, and exhibits to declarations filed in the matter Consumer Financial Protection Bureau v. Ocwen Financial Corp. et al., 17-cv-80495-KAM (S.D. Fla.) (the “CFPB Proceeding”);

and other public documents and media reports concerning Ocwen and its affiliates.

Many of the facts supporting the allegations contained herein are known only to Defendants or are exclusively within their custody and/or control. Plaintiffs believe that further substantial evidentiary support will exist for the allegations in this Complaint after a reasonable opportunity for discovery.

NATURE OF THE ACTION

1. Plaintiffs bring this action under the federal securities laws and under the common law to recover the investment losses they suffered as a result of numerous false and misleading statements that Ocwen and its executives made to induce Plaintiffs to purchase the common stock of Ocwen. Plaintiffs suffered significant investment losses when a series of partial disclosures were made to the market and the price of Ocwen’s common stock plummeted as a result.

2. Ocwen is a mortgage servicing company based in Florida that was founded and –until recently– led by Defendant Erbey. Erbey has since been forced to resign his position. Defendant Erbey’s right-hand man in running Ocwen was his long time compatriot, Defendant Faris.

3. Plaintiffs are investment funds managed by a common adviser based in New York.

4. In 2013, Defendants sought to induce Plaintiffs to invest in Ocwen. Rather than providing accurate information about the company, however, Defendants made numerous misrepresentations to Plaintiffs’ investment adviser to induce Plaintiffs to purchase Ocwen stock.

5. Over the course of 2013, Defendants induced Plaintiffs to purchase hundreds of millions of dollars of Ocwen stock by making false and materially misleading statements concerning related-party transactions, regulatory compliance, and disclosure controls.

6. As this Court has found as a matter of law in another investor suit, Defendants made false and misleading statements concerning the purported policies Ocwen had adopted to prevent conflicts of interest, and about Erbey’s recusal from the approval of related-party transactions.

Between 2009 and 2012, Erbey spun off four of Ocwen’s businesses into separate public companies that served as customers of and service providers to Ocwen. Erbey was Chairman of Ocwen and all of these related companies, and a large shareholder of Ocwen and most of the related companies.

Defendants repeatedly represented that Ocwen had adopted policies, procedures, and practices to avoid potential conflicts of interest arising from Erbey’s positions with each of these companies, including Erbey recusing himself from the negotiation and approval of transactions between Ocwen and the related companies.

7. However, Ocwen had no such policies, and Erbey regularly approved transactions between Ocwen and the related companies.

8. Thus, in resolving a motion for summary judgment in the Class Action Proceeding several years later, this Court held that Defendants’ statements concerning Ocwen’s adoption of policies to avoid potential conflicts of interest, and their statements about Erbey’s recusal from the negotiation and approval of transactions between Ocwen and the related companies, were materially false and misleading as a matter of law.

The Court determined that Ocwen did not have a specific policy requiring that Erbey recuse himself from related-party transactions, and that Erbey did not, in fact, recuse himself from all related-party transactions.

9. In December 2014, Ocwen entered into a consent order with the New York State Department of Financial Services (the “NYDFS 2014 Consent Order”) pursuant to which it admitted Erbey’s improper involvement in related-party transactions. As a result of these conflicts and misconduct, Erbey agreed to resign from his position with Ocwen and all of the related companies.

10. Defendants also made false statements about Ocwen’s regulatory compliance. As a mortgage servicer, Ocwen is heavily regulated because its actions can result in people losing their most important asset: their home.

Thus, Ocwen was required to service mortgage loans in compliance with a number of overlapping servicing standards set forth in a 2011 agreement with the New York State Department of Financial Services (“NYDFS 2011 Agreement”) and in the National Mortgage Settlement (“NMS”).

Under these servicing standards, Ocwen agreed to end Robo-signing, improve staffing levels and training requirements, provide a dedicated single point of contact for borrowers, ensure that any force-placed insurance was reasonably priced and obtained in an arm’s-length transaction, not charge improper fees to borrowers, and undertake certain best practices in pursuing foreclosures.

Ocwen’s failure to comply with these requirements could subject it to penalties, loss of license, or restrictions on its ability to purchase new mortgage servicing rights. On October 31, 2013, Defendant Faris publicly represented Ocwen’s “strong compliance” with regulatory requirements.

11. However, Ocwen was not complying with regulatory requirements – in a number of ways. According to the NYDFS 2014 Consent Order – to which Ocwen expressly agreed, including the facts stated therein – Ocwen had been backdating letters to borrowers “for years.”

That is, Ocwen had been sending letters to borrowers containing deadlines that predated the mailing of the letters, potentially resulting in the improper denial by Ocwen of modification requests and other relief to which homeowners were entitled. Other significant regulatory violations identified in the NYDFS 2014 Consent Order included:

• Ocwen failed to confirm that it had the right to foreclose before initiating foreclosure proceedings;

• Ocwen failed to ensure that its statements to the court in foreclosure proceedings were correct;

• Ocwen pursued foreclosure even while modification applications were pending; and

• Ocwen failed to maintain records confirming that it is not pursuing foreclosure of members of the military serving active duty.

12. At the heart of Ocwen’s regulatory compliance issues was its proprietary servicing platform, REALServicing, which was created by one of Ocwen’s related companies, Altisource Solutions. According to one of Ocwen’s federal regulators, the Consumer Financial Protection Bureau (“CFPB”), Ocwen’s servicing platform was compromised and unreliable: “REALServicing suffers from fundamental system architecture and design flaws, including a lack of properly managed data, lack of automation, and lack of capacity.”

In an email quoted in the CFPB’s federal complaint against Ocwen, Ocwen’s Head of Servicing described REALServicing as “an absolute train wreck”1 that caused him to want to “change systems tomorrow” if he could. Indeed, today Ocwen no longer uses REALServicing and has instead switched to a servicing platform run by a non-Ocwen-related entity.

1 Unless otherwise noted, emphasis in quotations has been added to the original.

13. According to documents in the Class Action Proceeding and the Broadway Gate Proceeding publicly filed after the close of discovery in those cases, Ocwen did not have a compliance management system in place in 2013. The CFPB requires a regulated entity, such as Ocwen, to “develop and maintain a sound compliance management system” in order to assure compliance with regulatory requirements. The absence of a compliance management system at Ocwen is another reason why Faris’s October 31, 2013 representation of Ocwen’s “strong compliance” was materially false and misleading.

14. Finally, Defendants falsely certified that Ocwen had effective disclosure controls and procedures so that any material information would be promptly discovered and publicly disclosed. In each of its periodic filings with the SEC during the relevant time period, Ocwen’s CEO and CFO personally certified that Ocwen had designed and implemented effective disclosure controls and procedures. However, these certifications were materially false and misleading in light of the fact that Ocwen failed to disclose to investors that:

(a) it had not adopted a specific policy requiring Erbey’s recusal from related-party transactions;

(b) Erbey actually approved related-party transactions;

(c) Ocwen had been backdating letters to borrowers for years;

(d) Ocwen’s mortgage servicing platform was a “train wreck”; and

(e) Ocwen did not have a compliance management system in place.

15. Plaintiffs purchased their Ocwen common stock between May 2013 and early February 2014 in reliance on Defendants’ misrepresentations. In making the decisions to invest in Ocwen common stock, Plaintiffs’ investment adviser read, reviewed, listened to, and relied on Defendants’ materially misleading statements.

Plaintiffs’ investment adviser also relied on the integrity of the market price of Ocwen’s common stock. Plaintiffs and their investment adviser were unaware of the falsity of Defendants’ statements when Plaintiffs purchased Ocwen stock.

16. Defendants’ misrepresentations caused Plaintiffs to purchase Ocwen common stock at artificially-inflated prices. Had it not been for these repeated material misrepresentations, Plaintiffs either would not have purchased their Ocwen shares or would not have paid the prices they paid.

17. When information about Ocwen’s related-party conflicts, regulatory noncompliance and lack of disclosure controls was partially publicly disclosed and processed by the market in February 2014, Plaintiffs suffered significant investment losses.

18. Plaintiffs therefore bring this action to recover the damages suffered as a result of the wrongs committed by Defendants.

JURISDICTION AND VENUE

19. The claims asserted herein arise under and pursuant to Sections 10(b), 18 and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b), 78r and 78t(a), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and under state common law.

20. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1331, and has supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367(a).

21. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. § 1391. Many of the acts giving rise to the violations complained of herein, including the dissemination of false and misleading information, occurred in this District.

22. In connection with the acts, transactions, and conduct alleged herein, Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the United States mails, interstate telephone communications, and the facilities of a national securities exchange and market.

PARTIES

A. Plaintiffs

23. Plaintiff Brahman Partners II, L.P. is a Delaware limited partnership whose investment adviser has its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit A.

24. Plaintiff Brahman Partners III, L.P. is a Delaware limited partnership whose investment adviser has its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit B.

25. Plaintiff Brahman Partners II Offshore, Ltd. is a Cayman Islands company whose investment adviser has its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit C.

26. Plaintiff Brahman Institutional Partners, L.P. was at all relevant times a Delaware limited partnership whose investment adviser had its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit D.

27. Plaintiff Brahman C.P.F. Partners, L.P. was at all relevant times a Delaware limited partnership whose investment adviser had its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit E.

28. Plaintiff Brahman Partners IV, L.P. is a Delaware limited partnership whose investment adviser has its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit F.

29. Plaintiff Brahman Partners IV (Cayman), Ltd. is a Cayman Islands company whose investment adviser has its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit G.

30. Plaintiff BH Investments Fund, L.L.C. is a Delaware limited liability company whose investment adviser has its main office location in New York, New York. A list of the dates on which it purchased Ocwen common stock during the relevant period is attached hereto as Exhibit H.

31. At all relevant times, Brahman Capital Corp. (“Brahman”) acted as investment adviser to Plaintiffs in connection with their purchases of Ocwen common stock.

B. Defendants

32. Defendant Ocwen is a Florida corporation with its principal place of business at 1661 Worthington Road, Suite 100, West Palm Beach, FL 33409. At all relevant times, Ocwen was a publicly-traded company.

33. Defendant Erbey is the founder and former Chairman of Ocwen. Upon information and belief, Erbey resides in Saint Croix, U.S. Virgin Islands.

34. Defendant Faris is the Chief Executive Officer of Ocwen. Upon information and belief, Faris resides at 11970 Torreyanna Circle, West Palm Beach, FL 33412.

FACTUAL ALLEGATIONS

I. Events Prior to Plaintiffs’ Investment in Ocwen

A. The Mortgage Servicing Industry

35. Ocwen’s primary line of business is residential mortgage loan servicing. Ocwen is one of the largest mortgage servicers in the United States. Unlike traditional mortgage loan servicers, Ocwen is not a bank regulated by the Federal Deposit Insurance Corporation or the Office of the Comptroller of the Currency, but rather a financial services company.

36. Mortgage loan servicers play an important role in the mortgage industry. The servicers are the entities responsible for
(i) collecting and remitting the monthly payments of principal and interest made by the homeowner to repay the mortgage loan,

(ii) administering the escrow accounts from which the borrower’s property taxes and homeowners insurance are paid, and

(iii) managing loans when the borrower has become delinquent in making payments (including negotiating loan modifications with the borrower or instituting foreclosure proceedings against the mortgaged property).

It is the servicer, and not the lender, that the homeowner communicates with about their mortgage loan.

37. Thus, as a mortgage servicer, Ocwen is required to process and apply homeowner mortgage payments, communicate with homeowners about their loan, insurance and property tax payments, and create accurate files for each homeowner. Ocwen is the counterparty who decides whether a struggling homeowner’s loan terms can be modified, or whether a delinquent borrower’s home should be foreclosed upon.

38. A servicer’s electronic servicing platform is critical to the proper execution of these functions, as well as to the servicer’s ability to service loans in accordance with regulatory requirements. Servicers input loan and borrower information into these electronic servicing platforms. If the information is inputted incorrectly, or the servicing platform has deficiencies that produce inaccurate information, servicers can make critical errors that lead to harsh results, including the loss of a home.

39. Servicers are also the parties responsible for obtaining homeowners insurance when a homeowner has let his insurance coverage lapse. The insurance procured by the servicer in such circumstances is called “force placed” insurance.

40. In today’s capital markets, mortgage loans are frequently pooled together into securitized trusts in which interests, or “residential mortgage backed securities,” are sold to investors.
Companies that service loans owned by such securitized trusts are obligated to make servicing advances to the trusts; that is, the servicer is required to pay the trust for missed payments that the servicer expects the borrower will ultimately pay.

Although servicers are entitled to be reimbursed for any servicing advances they make, the existence of such a requirement requires the servicer to maintain a financing facility.

41. A servicer’s primary form of remuneration is its mortgage servicing fee, which is a percentage of the unpaid principal balance, or “UPB,” of the mortgage loans being serviced.

Servicers may also earn ancillary fees such as retaining the interest that accrues on loan payments between the time they are paid by the borrower and remitted to the lender or the trust, and in some circumstances collecting late fees from homeowners during a period of delinquency.

42. The party that owns the right to service a mortgage loan is said to hold the mortgage servicing rights, or “MSRs.” Sometimes, the holder of MSRs will hire a subservicer or a special servicer to service a particular mortgage loan.

B. Erbey, Ocwen and the Related Companies

43. Ocwen was founded in 1988 by Erbey and his business partner, Barry Wish, following the dissolution of Wish and Erbey’s existing venture, The Oxford Financial Group.

44. During its early years, Wish and Erbey focused Ocwen’s growth on the acquisition of nonperforming loans.

45. Initially, Wish was Ocwen’s Chairman and Erbey was its CEO. However, Erbey replaced Wish as Chairman in 1996. Erbey served as Ocwen’s Chairman and CEO until 2010, when he appointed Faris as CEO. Faris had served Erbey in various roles at Ocwen since 1991, working his way up the corporate ladder to become Erbey’s right-hand man. Erbey remained as Chairman of Ocwen after he appointed Faris CEO.

46. In 1999, frustrated with the increasing regulatory scrutiny that Ocwen was receiving from the Office of Thrift Supervision, Erbey commenced a “de-banking” process for Ocwen, turning Ocwen from a thrift bank into a financial services company. The de-banking process was completed in 2004.

47. Part of Erbey’s subsequent plan for Ocwen was to “spin off” certain of Ocwen’s business segments into related, but purportedly independent, public companies. Erbey became Chairman of all of these new companies, while continuing in his position as Chairman of Ocwen. He also received large equity positions in most of the new companies.

48. In 2009, Erbey spun off Ocwen Solutions into a company called Altisource Portfolio Solutions S.A. (“Altisource Solutions”). Ocwen Solutions had performed a number of services for Ocwen, one of which was developing the technology that Ocwen used to service mortgage loans. Following the spin-off, Ocwen entered into a long-term licensing agreement to use Altisource Solutions’ electronic servicing platform (or “system of record”), REALServicing. Ocwen is Altisource Solution’s largest customer.

49. Altisource Solutions created an insurance agency subsidiary called Beltline Road Insurance Agency (“Beltline”). In August 2013, Ocwen appointed Beltline as its exclusive insurance representative.

50. In 2011, Erbey created a new business entity called Home Loan Servicing Solutions, Ltd. (“HLSS”). The purpose of HLSS was to allow Ocwen to pursue an “asset-lite” strategy.

Ocwen sold many of its MSRs to HLSS, meaning that HLSS received the servicing fees and made the servicing advances on those loans, while Ocwen retained the right to subservice those loans and keep the ancillary fees. Erbey became Chairman of HLSS and received stock in HLSS.

51. In 2012, Erbey spun off two more public companies: Altisource Residential Corporation (“Altisource Residential”) and Altisource Asset Management Corporation (“Altisource Asset Management”).

The purpose of Altisource Residential is to acquire non- performing loans from Ocwen, and then convert foreclosed properties into rental units. The income from those rental properties are passed through to Altisource Residential’s investors.

Erbey became Chairman of Altisource Residential and received a substantial ownership percentage of Altisource Residential.

52. Altisource Asset Management is the asset manager for Altisource Residential under a fifteen-year asset management agreement between the two entities.

As of December 31, 2013, Altisource Asset Management had only seven employees, and shared the same executive officers as Altisource Residential.

Erbey became Chairman of Altisource Asset Management and received a substantial beneficial ownership percentage of Altisource Asset Management.

53. Throughout this Complaint, Altisource Solutions, HLSS, Altisource Residential, and Altisource Asset Management will be referred to collectively as the “Related Companies.”

C. Ocwen’s Growth

54. As is well known, the collapse of the U.S. housing market and the resulting subprime mortgage crisis in 2007 led to a global financial crisis in 2008.

55. During the global financial crisis, Ocwen took advantage of the resulting increase in mortgage loan delinquencies. Among other things, Ocwen’s reduced labor costs, which it achieved by outsourcing customer service positions to India, allowed it to acquire and service large volumes of subprime loans.

56. In response to the global financial crisis, governments around the globe passed sweeping reforms concerning the regulation and supervision of banks. For example, in July 2010, Congress enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

57. This heightened regulatory environment allowed Ocwen to further benefit from the financial crisis because it was no longer a bank. As a result of the reforms and increased compliance framework, several large banks exited the mortgage servicing business and sold their MSRs to non-banks.

58. Ocwen purchased many of the divesting banks’ servicing businesses and MSRs.

For example, in 2011, Ocwen acquired Goldman Sach’s mortgage servicing arm, Litton Loan Servicing. Similarly, in 2012 Morgan Stanley exited the mortgage servicing industry by selling its servicing unit, Saxon, to Ocwen.

59. Ocwen’s largest acquisition during this time period was its 2013 purchase of 1,740,000 loans, with a UPB of $183.1 billion, from Residential Capital, LLC (“ResCap”).

60. From 2010 through 2013, Ocwen grew rapidly via portfolio and business acquisitions. In 2010, Ocwen serviced approximately $74 billion UPB of mortgage loans. By 2013, that number had risen to approximately $500 billion.

D. Regulatory Servicing Standards

61. Despite its non-bank status, Ocwen was not free from the increased regulatory oversight imposed in the wake of the financial crisis.

62. In 2011, the NYDFS – due to its concern with Ocwen’s rapid growth – required Ocwen to enter into an agreement governing Ocwen’s servicing practices. The NYDFS 2011 Agreement contained 62 paragraphs of mortgage servicing practices to which Ocwen agreed to adhere.

Among other things, Ocwen agreed to end Robo-signing, improve staffing levels and training requirements, provide a dedicated single point of contact for borrowers, ensure that any force-placed insurance is reasonably priced and obtained in an arm’s-length transaction, not charge improper fees to borrowers, and undertake certain best practices in pursuing foreclosures.

63. In 2012, the NYDFS discovered that Ocwen had violated that agreement, and therefore required Ocwen to retain a compliance monitor to conduct a comprehensive review of Ocwen’s servicing operations over a two-year period (the “NYDFS Compliance Monitor”).
The NYDFS Compliance Monitor was required to submit an initial “Compliance Review Report,” followed by periodic “Progress Reports,” and an “Action Plan” for Ocwen to remediate its noncompliance with the NYDFS Agreement.

64. In February 2012, the CFPB (a new federal agency created under Dodd-Frank), forty-nine states, and the District of Columbia announced a global settlement of federal and state investigations against the country’s five-largest mortgage servicers (at that time, Bank of America Corporation, JP Morgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc.) for improper mortgage practices (the “National Mortgage Settlement” or “NMS”). ResCap is a subsidiary of Ally Financial, and thus became subject to the NMS too.

65. Among other things, the National Mortgage Settlement included servicing standards with which servicers were required to comply, many of which overlapped with the servicing standards in the NYDFS 2011 Agreement.

The NMS servicing standards required servicers to:

(a) fix common flaws in foreclosure and bankruptcy procedures (including ensuring that the servicer has the right to foreclose before instituting foreclosure proceedings, and verifying that factual assertions made in court documents are accurate);

(b) adopt policies and processes to oversee and manage third-party providers retained by the servicer;

(c) adopt loss mitigation procedures to reduce foreclosures (including a prohibition on instituting foreclosure proceedings against a borrower with a pending loan modification application);
(d) establish a single point of contact for each borrower;

(e) implement standard loan modification timelines (including providing the borrower with thirty days to appeal the denial of a loan modification request);

(f) implement special procedures to protect active military personnel from foreclosure;

(g) not charge unreasonable fees to the borrower; and

(h) not unnecessarily impose force-placed insurance on a borrower.

66. Moreover, servicers subject to the National Mortgage Settlement are required to set up an “Internal Review Group,” establish adequate staffing levels and improve training of mortgage professionals.

67. Although Ocwen initially was not a party to the National Mortgage Settlement, when it acquired the ResCap loans, it was required to service those loans in accordance with the NMS servicing standards.

68. In December 2013, Ocwen reached a separate agreement with several governmental authorities to comply with the National Mortgage Settlement. This agreement required Ocwen to service all loans, not just the ResCap loans, in accordance with the NMS.

II. Defendants’ Representations to Induce Plaintiffs to Invest in Ocwen

69. To induce Plaintiffs to purchase Ocwen’s common stock, Defendants made numerous representations about Ocwen’s business. These representations included assurances about the safeguards Ocwen had implemented to protect against potential conflicts of interest, Ocwen’s compliance with regulatory standards, and the implementation of effective disclosure controls and procedures.

A. Representations Concerning Ocwen’s Policies to Avoid Potential Conflicts of Interest and Erbey’s Recusal from Transactions with the Related Companies

70. Erbey’s control over both Ocwen and the Related Companies created concerns for Plaintiffs and the investment community about the existence of potential conflicts of interests in transactions between Ocwen and one of more of the Related Companies.
Specifically, Plaintiffs and other investors were concerned about the possibility that, based on his leadership position at the Related Companies, Erbey could cause Ocwen to enter into business deals with the Related Companies that were less favorable than Ocwen would otherwise achieve in an arm’s-length transaction with nonaffiliated third parties.

71. Plaintiffs therefore sought assurances that Erbey would not be dictating or influencing the terms of the business deals between Ocwen, on the one hand, and the Related Companies, on the other.

72. In response to such concerns, Defendants repeatedly represented that Ocwen had sufficient safeguards in place to prevent Erbey’s interference in such deals.

73. In Ocwen’s annual report for 2012, issued on or about March 1, 2013, Ocwen, Erbey, and Faris represented: “We have adopted policies, procedures and practices to avoid potential conflicts involving significant transactions with related parties such as Altisource [Solutions], including Mr. Erbey’s recusal from negotiations . . . and board approvals of such transactions.”

74. Ocwen made similar statements in its proxy statement for its annual meeting of shareholders issued on April 3, 2013. Specifically, Ocwen stated that: “Due to the nature of Mr. Erbey’s obligations to each of [Ocwen, HLSS, Altisource Solutions, Altisource Residential and Altisource Asset Management], he recuses himself from decisions pertaining to any related transactions.”

75. Erbey made such representations himself during telephone conference calls with investors. On a December 3, 2013 conference call, Erbey told investors:

“I’d like to stress, first of all, that [the Related Companies] are not affiliates, that they are independent companies. They have independent boards, and they have management teams.”

A few minutes later, Erbey stated emphatically:

“[W]e have [a] robust related party transaction approval process. Any related party transaction between the [Related Companies and Ocwen], I actually recuse myself from . . . .”

B. Representations Concerning Regulatory Compliance

76. Ocwen’s compliance with the NYDFS 2011 Agreement and the National Mortgage Settlement was important to Plaintiffs. Ocwen’s failure to comply with regulatory requirements – and, in particular, the servicing standards imposed by the NYDFS 2011

Agreement and the NMS – could result in the imposition of substantial penalties that would adversely affect Ocwen’s business operations and results.

77. Ocwen’s compliance with regulatory requirements was particularly important with respect to the transfer of the ResCap loans – the Company’s largest mortgage loan acquisition ever – onto the REALServicing electronic servicing platform.

78. On October 31, 2013, Ocwen, Faris and Erbey held an investor call to discuss the financial results for the third quarter of 2013. During that call, Faris discussed the transfer of ResCap loans onto the REALServicing platform.

Faris informed investors that the integration costs of the ResCap platform had been higher than expected because Ocwen had been “careful to assure excellent customer service and strong compliance throughout the transfer process.” The import of that statement was clear:

Ocwen was going to extra lengths to ensure that it was complying with the applicable servicing standards as it transferred the ResCap loans onto the REALServicing platform.

C. Representations Concerning Effectiveness of Disclosure Controls and Procedures

79. Ocwen was required to implement safeguards so that any material developments at the Company would be disclosed to investors.

80. Accordingly, Ocwen reported that it had effective disclosure procedures and controls to ensure that material information was publicly disclosed. For example, in its annual report for 2012, Ocwen stated that:

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Annual Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

81. Under the Sarbanes-Oxley Act of 2002, Ocwen’s CEO and CFO were required to personally certify as to the effectiveness of Ocwen’s internal controls relating to disclosure.

Thus, for example, Faris signed a certification in connection with Ocwen’s 2012 10-K in which he stated that the CFO and he had
“[d]esigned such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to [Ocwen], including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared” and that the CFO and he had
“[e]valuated the effectiveness of [Ocwen’s] disclosure controls and procedures and presented in [the accompanying report] our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.”

82. Faris provided identical certifications with Ocwen’s quarterly reports for the first, second and third quarters of 2013.
III. Plaintiffs Purchase Ocwen Common Stock in Reliance on Defendants’ Representations

83. Plaintiffs are investment funds managed by Brahman.

84. Plaintiffs, through Brahman, specifically relied on the representations set forth above prior to purchasing Ocwen stock, as well as on the integrity of the market price of Ocwen common stock.
85. Brahman began building a “long position” – that is, buying stock based on a belief that the stock’s price would increase over time – for Plaintiffs in Ocwen in May 2013.

86. Prior to purchasing Ocwen stock for Plaintiffs, Brahman reviewed Ocwen’s public disclosures, investor presentations and financial statements, and had discussions with Ocwen management.

87. As Plaintiffs continued to purchase Ocwen stock throughout 2013 and in January and early February of 2014, Brahman kept abreast of publicly-disclosed developments concerning Ocwen by, among other things, reviewing Ocwen’s SEC filings. Brahman also continued to have direct communications with Ocwen management.

88. Ocwen viewed Brahman as a significant institutional investor whose purchase of Ocwen stock was necessary to the company’s success and to drive the stock price higher. Defendants Erbey and Faris had a significant economic interest in inducing Brahman to purchase Ocwen stock.

89. When purchasing Ocwen stock on behalf of Plaintiffs, Brahman actually read (or heard) and relied on each of the statements described above.

90. Each of the representations made by Defendants was material to Plaintiffs.

91. The statements concerning Ocwen’s adoption of policies to avoid potential conflicts of interest and Erbey’s recusal from transactions with the Related Companies were material to Plaintiffs because Erbey’s position as Chairman of the Related Companies created the potential that Erbey would act against Ocwen’s interests in transactions between Ocwen and the Related Companies.

92. The statement concerning Ocwen’s strong compliance with regulatory requirements was material to Plaintiffs because Ocwen’s failure to comply with those standards could result in the imposition of significant penalties against Ocwen.

93. The statements concerning the effectiveness of Ocwen’s disclosure controls and procedures were material to Plaintiffs because such disclosure controls and procedures would ensure that conflicts of interest and regulatory violations would be publicly disclosed by Ocwen.

94. Had Brahman known the truth (as described below), it would not have purchased Ocwen common stock on behalf of Plaintiffs or, if it had done so, would not have paid the price it did.

IV. Defendants’ Representations to Plaintiffs Were Materially False and Misleading

95. Unbeknownst to Brahman and Plaintiffs at the time, the material representations that Defendants made concerning Ocwen’s adoption of policies to avoid potential conflicts of interest and Erbey’s recusal from related-party transactions, Ocwen’s strong compliance with regulatory requirements, and the existence of effective disclosure controls and procedures at Ocwen were either false or omitted truthful information that rendered the representations materially misleading.

A. Ocwen Did Not Have a Recusal Policy and Erbey Failed to Recuse Himself from Approving Transactions with the Related Companies

96. Contrary to Defendants’ representations set forth above, Ocwen did not have effective policies in place to prevent potential conflicts of interest, and Erbey did not recuse himself from the approval of related-party transactions.

97. On December 19, 2014, Ocwen entered into the 2014 NYDFS Consent Order. Ocwen agreed to the factual recitation set forth in that order.

98. The 2014 NYDFS Consent Order disclosed that Ocwen had widespread conflicts of interest with related parties. Specifically, contrary to its representations in its 2012 annual report, Ocwen agreed in the NYDFS Consent Order that it did

“not have a written policy that explicitly require[d] potentially conflicted employees, officers, or directors to recuse themselves from involvement in transactions with [the Related Companies].”

99. Moreover, Erbey did not recuse himself “from approvals of several transactions” with the Related Companies.

100. Details of some of the transactions from which Erbey failed to recuse himself were fleshed out in an October 2015 Consent Order between HLSS and the SEC (the “HLSS Consent Order”).

The HLSS Consent Order describes how Erbey, in fact,

“approved many transactions between HLSS and Ocwen in both his HLSS- and Ocwen-related capacities.”

101. As noted above, HLSS was founded to make Ocwen “asset-lite” by transferring certain Ocwen-owned MSRs to HLSS and requiring HLSS to make the servicing advances on those MSRs.

102. Between 2012 and 2013, HLSS and Ocwen entered into nine transactions in which Ocwen transferred MSRs to HLSS.

103. For each of those transactions, Ocwen and HLSS had to negotiate the servicing fee that HLSS would collect for each MSR.

104. The transactions had to be approved by Ocwen’s Credit Committee or Executive Committee, and by HLSS’s Credit Committee. Erbey was a member of all three of these committees. Faris also sat on Ocwen’s Executive Committee.

105. In 2012, Ocwen entered into five of these transactions with HLSS, which totaled approximately $67.5 billion in UPB. In 2013, Ocwen entered into another four transactions with HLSS, totaling approximately $120 billion in UPB.

106. Erbey personally approved at least six of these nine transactions between Ocwen and HLSS, both in his capacity as Chairman of Ocwen and Chairman of HLSS.

107. Furthermore, in 2014, Erbey failed to recuse himself from a transaction between Ocwen and HLSS concerning HLSS’s purchase of $672 million of loans previously purchased by Ocwen. According to the HLSS Consent Order, “[i]n a February 2014 email addressed to members of both HLSS and Ocwen senior management, [Erbey] approved this purchase on the condition that it did not trigger losses for HLSS.”

108. Thus, rather than recusing himself from the approval of a related-party transaction –as he represented to Plaintiffs that he always did– Erbey inserted himself into the transaction and added terms that favored HLSS over Ocwen.

109. This illustrates the conflict of interest that Erbey had as both Chairman of Ocwen and Chairman of the Related Companies, as Erbey favored the interest of HLSS at the expense of Ocwen.

110. The SEC Consent Order provides even more examples of Erbey’s failure to recuse himself from related-party transactions and the absence of any policy at Ocwen to guard against potential conflicts of interest.

111. In addition to the HLSS conflicts identified in the HLSS Consent Order, the SEC Consent Order identified at least one additional, material related-party transaction from which Erbey failed to recuse himself.

Specifically, Erbey voted, as a member of the Ocwen Board of Directors, to approve a $75 million bridge loan from Altisource Solutions to Ocwen. According to the SEC Consent Order:

In December 2012, Ocwen entered into an agreement to borrow
$75 million from Altisource as an unsecured bridge loan to serve as part of the consideration paid by Ocwen in connection with Ocwen’s acquisition of another mortgage servicer.

[Erbey] voted to approve Ocwen’s entry into the loan agreement.

In his role as Chairman of Altisource, [Erbey] recused himself from the decision to approve the loan.

However, he reviewed and approved the Altisource board presentation before it was circulated to the Altisource Board of Directors for the vote.

112. In light of the documented evidence of the Ocwen-HLSS and Ocwen-Altisource related-party transactions from which Erbey not only failed to recuse himself, but also actively participated in – the SEC Consent Order concluded:

“[T]here were no written policies or procedures regarding recusal and the practice that existed was flawed, inconsistent, and ad hoc.” Thus, the Company “failed to devise and maintain its disclosed internal controls sufficient to ensure that [Erbey] recused himself from all approvals involving potential conflicts of interest in Ocwen’s related party transactions.”

113. Another related-party transaction that Erbey approved was disclosed by the New York Department of Financial Services (“NYDFS”) in a letter that it sent to Ocwen on August 4, 2014.

In that letter, the NYDFS revealed that Ocwen had entered into a transaction with an agent of Altisource Solutions to procure force-placed insurance for Ocwen, and that Erbey had expressly approved the transaction.

114. Specifically, in January 2014, Altisource Solutions provided a memo to Ocwen’s Credit Committee recommending that Ocwen retain Southwest Business Corporation (“SWBC”) as Ocwen’s force-placed insurance agent. Erbey approved the transaction as a member of Ocwen’s Credit Committee.

115. As part of the deal, SWBC was required to pay Altisource Solutions’ subsidiary, Beltline, a portion of the commissions it received from insurers because Altisource Solutions had recommended SWBC to Ocwen.

These fees amounted to about $60 million per year being paid to Altisource Solutions for performing essentially no work.

116. Ocwen also agreed to pay SWBC a monitoring fee for monitoring whether its borrowers’ homeowners insurance coverage had lapsed. Altisource Solutions provided SWBC with access to Ocwen’s loan files and, in return, SWBC was required to remit to Altisource Solutions 75% of the monitoring fee paid by Ocwen, even though Altisource Solutions’ existing contracts with Ocwen already required it to provide businesses designated by Ocwen with access to Ocwen’s loan files.

Moreover, Ocwen agreed to pay SWBC double what it paid its previous force-placed insurance agent for providing monitoring services. Thus, under the deal, Ocwen was indirectly paying Altisource Solutions approximately $5 million per year to provide a service it was already contractually obligated to provide, all pursuant to a deal approved by Erbey.

117. This again illustrates the conflict of interest that Erbey had as both Chairman of Ocwen and Chairman of the Related Companies, as Erbey favored the interest of Altisource Solutions at the expense of Ocwen.

118. This Court has now held that – as a matter of law – Defendants’ statements concerning Ocwen’s adoption of a policy to avoid potential conflicts of interest, including Erbey recusing himself from the negotiation and approval of significant transactions with the Related Companies (the “Related Party Statements”), were materially false and misleading.

119. In partially granting the plaintiffs’ motion for summary judgment in the Class Action Proceeding, this Court found that “the Related Party Statements are clear; it is plain that Ocwen, through its 10-Ks and proxy statement, assured investors of policies, practices and procedures to avoid conflicts of interest with the Related Companies.”

However, the Court held that such a “policy, if it existed, was not written.”

Furthermore, Ocwen did not have “a specific policy, written or otherwise, that required Erbey’s recusal from Related Party Transactions. . . . Therefore, Ocwen’s and Erbey’s statements were misrepresentations.”

120. The Court further found that it

“is also clear from Erbey’s statement at the [December 3, 2013] Investor Day Conference, as well as the 10-Ks and proxy statement, that Erbey and Ocwen told investors that Erbey recused himself from Related Party Transactions.”

However, this Court found as a matter of law that “Erbey did not recuse himself from several flow transactions with HLSS.” Accordingly,

“Ocwen’s and Erbey’s statements were misrepresentations.”

B. Ocwen Failed to Comply with Regulatory Requirements

121. Despite its representations to the contrary, Ocwen failed to properly meet its compliance obligations under the 2011 NYDFS Agreement and the NMS.

122. First, Ocwen failed to comply with numerous servicing standards imposed by those agreements. For example, Ocwen improperly backdated letters advising borrowers of their right to appeal. On October 21, 2014, the NYDFS notified Ocwen that it had “uncovered serious issues with Ocwen’s systems and processes, including Ocwen’s backdating of potentially hundreds of thousands of letters to borrowers, likely causing them significant harm.”

123. When Ocwen denied a loan modification request from a borrower, it sent the borrower a denial letter. The denial letter stated that the borrower had thirty days to appeal the denial of the modification request. Due to a problem with Ocwen’s servicing platform, however, Ocwen dated the denial letters prior to the date that they were actually sent to the borrower. Thus, by the time the borrower received the letter, her thirty days to appeal often had already lapsed.

124. Although one of its employees discovered this backdating issue in 2013 and reported the problem to Ocwen’s Vice President of Compliance, Ocwen failed to investigate or disclose the problem. In April 2014, the same employee raised the issue again. However, Ocwen again failed to disclose the problem. In December 2014, Ocwen consented to the appointment of an operations monitor by the NYDFS to finally address the problem, which, as Ocwen agreed in the 2014 NYDFS Consent Order, had been going on “for years.”

125. Furthermore, in the 2014 NYDFS Consent Order, Ocwen agreed that it had violated various other servicing standards, including by improperly foreclosing on soldiers currently serving on active duty. Among other things, Ocwen:

• failed to confirm that it had the right to foreclose before initiating foreclosure proceedings;

• failed to ensure that its statements to the court in foreclosure proceedings were correct;

• pursued foreclosure even while modification applications were pending;

• failed to maintain records confirming that it is not pursuing foreclosure of service members on active duty; and

• failed to assign a designated customer care representative.

126. The dire state of Ocwen’s electronic servicing platform also caused Ocwen to fail to comply with its regulatory obligations. According to the CFPB’s complaint against Ocwen, Ocwen inputted incomplete and inaccurate borrower loan information into REALServicing. And even when Ocwen inputted accurate information into REALServicing, REALServicing “generated inaccurate information about borrowers’ loans due to system deficiencies.” This meant that Ocwen was not properly servicing mortgage loans in accordance with regulatory requirements. As stated by the CFPB, REALServicing lacked “the necessary automation and functionality to handle basic servicing operations.”

127. According to the CFPB, the problem with REALServicing was particularly acute with respect to the ResCap loans that Ocwen acquired and then attempted to transfer to REALServicing beginning in 2013.

Ocwen boarded ResCap loans with inaccurate loan information, as well loans “that contained payment history data that [Ocwen] had reason to believe was inaccurate or incomplete.” Ocwen also failed to verify that prior servicing advances or fees for the ResCap loans were “valid and actually owed by borrowers.”

In boarding loans onto REALServicing in 2013, Ocwen was missing invoices or documents to support “$98 million in corporate advances charged to borrowers.”

128. REALServicing suffered from additional problems alleged in the CFPB complaint. For example, there were more than 10,000 comment codes and flags in REALServicing, but Ocwen did not have a complete data dictionary for employees to use to determine the correct comment code or flag to apply to a particular loan in a particular situation.

129. Furthermore, REALServicing “lacked the capacity to process the large number of loans that Ocwen . . . acquired and, in part as a result, [REALServicing] has not been functional for lengthy periods of time.”

130. Members of Ocwen’s senior management were well aware of the problems with REALServicing, yet failed to disclose them to the market. Indeed, according the CFPB complaint, in 2014 Ocwen’s Head of Servicing emailed Defendant Faris to complain about REALServicing, describing it as:

An absolute train wreck. I know there’s no shot in hell, but if I could change systems tomorrow, I would. I can’t tell you the number of hours I and others spend on basic servicing technology blocking and tackling. I’m not talking about differentiators here. I’m talking about getting the system to stay online, escrow analysis to work, letters to print, etc. It’s ridiculous.

131. Ultimately, Ocwen’s Head of Servicing’s prayers were answered, when in late 2017 Ocwen began to transition from REALServicing to a different electronic servicing platform licensed by an independent third party.

132. However, the damage had already been done. During the time that Ocwen used REALServicing, the significant defects in that technology caused Ocwen to violate numerous regulatory requirements designed to ensure the accurate and proper servicing of mortgage loans.

133. On the same day that the CFPB filed suit against Ocwen, thirty state mortgage banking and regulatory agencies issued cease-and-desist orders against Ocwen subsidiaries that, in general terms, prevent Ocwen from acquiring mortgage servicing rights and originating or acquiring new mortgage loans.

134. The egregiousness of Ocwen’s representations of its regulatory compliance is compounded by the fact that in 2013 Ocwen had no compliance management system in place.

135. The CFPB requires a regulated entity, such as Ocwen, to “develop and maintain a sound compliance management system” in order to assure compliance with regulatory requirements.

136. However, according to documents filed in the Class Action Proceeding and the Broadway Gate Proceeding, Ocwen did not have a compliance management system in place in 2013.

137. After conducting months of discovery, the class action plaintiffs stated in their pretrial order that “Ocwen had not updated RealServicing’s systems and processes to be compliant with NYDFS or NMS servicing requirements, and did not have a compliance management system in place to assure that RealServicing complied with these standards.”

138. In the Broadway Gate Proceeding, the plaintiffs asserted in a publicly filed pretrial stipulation – again after the conclusion of months of discovery – that “Ocwen’s compliance management system was for all intents and purposes nonexistent, and its servicing system of record, REALServicing, was compromised and unreliable.”

C. Ocwen Did Not Have Effective Disclosure Controls and Procedures

139. Contrary to its public representations, Ocwen’s disclosure controls and procedures were nonexistent, let alone effective.

140. Ocwen had no disclosure controls with respect to preventing potential conflicts of interest in related-party transactions. As summarized in the SEC Consent Order: “[T]here were no written policies or procedures governing when an officer or director with a conflict of interest was required to be recused from negotiating or approving a related party transaction.” Moreover, “Ocwen personnel never developed guidelines under which such recusal was appropriate. This caused a number of control deficiencies.”

141. The SEC Consent Order identified two major deficiencies in Ocwen’s disclosure controls with respect to related-party transactions. “First, the responsibility for determining whether recusal was appropriate was left largely to [Erbey], the person with the conflict of interest.” That is, it was left to the conflicted individual to determine whether he or she should be recused from the negotiation or approval of the related party transaction. “While Ocwen’s in- house counsel occasionally provided advice on whether [Erbey] could participate in a related party transaction, there was no meaningful oversight of [Erbey]’s determination.”

142. Second, Ocwen personnel lacked any understanding of when recusals were required. According to the SEC Consent Order, with respect to Defendants’ representation in the 2012 annual report that Erbey recused himself from all significant transactions between Ocwen and the related parties, “Ocwen personnel had conflicting understandings of what types of transactions could qualify as significant, and they never attempted to reconcile these conflicting understandings.” Thus, there was no guidance of whether a transaction was sufficiently “significant” to warrant Erbey’s recusal. Furthermore, Erbey told the SEC that “the need to approve transactions in the Virgin Islands for tax reasons may have been grounds for participating in the approval” of related-party transaction, notwithstanding Ocwen’s purported recusal policy.
143. The letter backdating issue is also indicative of serious internal control failings at Ocwen. According to the NYDFS October 21, 2014 letter to Ocwen, the backdating issue was flagged for senior management in November 2013. However, Ocwen did not do anything “to investigate or remedy the problem” at that time, and did not alert “regulators, borrowers, or other interested parties.” The issue was then raised again internally at Ocwen in April 2014, and still the problem was not elevated via the proper channels so it could be properly disclosed. According to the NYDFS, the problem remained unresolved as of October 2014, even though it had existed for years and had been flagged internally months earlier.

144. Ocwen’s failure to timely verify the accuracy of loan data being boarded onto REALServicing constituted a further lack of effective internal controls. Loans acquired by Ocwen from other servicers often were transferred from systems of record with different data fields from REALServicing. To assure that these loans were being properly serviced once boarded onto REALServicing, Ocwen had to verify the accuracy of critical loan data fields. However, Ocwen often failed to conduct this verification process in a timely manner. As a result, improperly boarded loans were serviced incorrectly by Ocwen for months without Ocwen discovering the errors and disclosing the material deficiencies in its servicing platform.

145. For example, Ocwen began boarding the ResCap loans onto REALServicing in the third quarter of 2013. However, according to the CFPB complaint, Ocwen did not begin verifying that these loans were being correctly serviced until September 2014. Thus, when Faris made his October 31, 2013 representation of Ocwen’s “strong compliance,” Ocwen had boarded 340,000 ResCap loans onto REALServicing but had not verified that a single loan had been properly boarded.

146. Finally, Ocwen’s lack of a compliance management system further renders its certification of the effectiveness of disclosure controls and procedures materially misleading. A compliance management system is required to ensure that a regulated entity, such as Ocwen, is complying with all applicable rules and regulations. Without a compliance management system, Ocwen did not have controls in place to make sure that any regulatory issues were being properly addressed and that material information concerning those issues was being disclosed.

V. Two Partial Disclosures in February 2014 Cause the Price of Ocwen’s Stock to Plummet, Resulting in Significant Damages Suffered by Plaintiffs

147. In February 2014, two partial disclosures with respect to the above-described misrepresentations were released to the market, causing the price of Ocwen common stock to significantly decline and Plaintiffs to suffer significant losses on their purchases of Ocwen stock.

148. On February 6, 2014, the NYDFS halted indefinitely Ocwen’s planned purchased of $39 billion of mortgage loans from Wells Fargo. Ocwen’s announcement of the indefinite hold on this transaction partially revealed to the market Ocwen’s regulatory compliance issues.

149. In a June 21, 2017 opinion issued in the Class Action Proceeding, the Court explained why:

This corrective disclosure revealed to the market that [the NYDFS], an agency charged with policing regulatory compliance of mortgage servicers, had concerns about Ocwen’s growth. This announcement logically leads to the following inference: [the NYDFS], the regulatory agency, had concerns related to regulatory compliance, which caused it to halt Ocwen’s transaction. This announcement revealed to the market that, despite multiple assurances of regulatory compliance, Ocwen had regulatory compliance issues.

150. Thus, the February 6, 2014 announcement was partially corrective of Ocwen and Faris’s material misstatement of Ocwen’s “strong compliance” on October 31, 2013. This partial disclosure was also partially corrective of Ocwen’s statements concerning the effectiveness of its disclosure controls and procedures because it revealed that Ocwen had material regulatory noncompliance issues that had not been disclosed to the market.

151. Upon the release of this information, the price of Ocwen common stock dropped over 4%, from a close on February 5, 2014 of $ 43.20 per share to a close of $ 41.38 per share on February 6, 2014.

152. On February 26, 2014, the NYDFS sent a letter to Ocwen stating that it had “uncovered a number of potential conflicts of interest between Ocwen and other public companies with which Ocwen is closely affiliated.” The letter identified those companies as HLSS, Altisource Solutions, Altisource Residential and Altisource Asset Management. The NYDFS continued: “Indeed, the facts our review has uncovered to date cast serious doubts on recent public statements made by the company that Ocwen has a ‘strictly arms-length business relationship’ with those companies.”

153. As the Court found in its opinion issued in the Broadway Gate Proceeding on November 7, 2017, this partial disclosure was partially corrective of Ocwen’s recusal statements because it concerned the same subject matter as those statements. This partial disclosure was also partially corrective of the disclosure controls and procedures statements – as the Court found in the Broadway Gate Proceeding on November 7, 2017 – because it revealed that Ocwen did not have effective disclosure controls and procedures to assure that Ocwen would disclose its lack of a recusal policy and Erbey’s failure to recuse himself from related-party transactions.

154. Upon the release of this letter, the price of Ocwen common stock dropped almost 7%, from a close on February 25, 2014 of $39.52 per share to a close of $36.76 per share on February 26, 2014.

155. Although the full truth about the falsity of Ocwen’s misstatements was not revealed until the end of the 2014, including numerous disclosures between August and December 2014, the partial disclosures set forth above caused Ocwen’s stock price to decline significantly.

DEFENDANTS’ FALSE AND MISLEADING STATEMENTS

I. Misrepresentations Concerning Ocwen’s Recusal Policy and Erbey’s Recusal from Transactions with the Related Companies

156. Ocwen’s annual report for 2012, filed with the SEC on Form 10-K on or about March 1, 2013, misrepresented to investors that: “We have adopted policies, procedures and practices to avoid potential conflicts involving significant transactions with related parties such as Altisource [Solutions], including Mr. Erbey’s recusal from negotiations . . . and board approvals of such transactions.” The 2012 annual report was signed by Defendants Erbey and Faris.

157. Ocwen’s annual proxy statement for 2013, filed with the SEC on Schedule 14A on April 3, 2013, misrepresented to investors that: “Due to the nature of Mr. Erbey’s obligations to each of [Ocwen, HLSS, Altisource Solutions, Altisource Residential and Altisource Asset Management], he recuses himself from decisions pertaining to any related transactions.” The proxy statement was signed by Defendant Erbey.

158. In a December 3, 2013 conference call, Defendant Erbey misrepresented to investors that: “I’d like to stress, first of all, that [the Related Companies] are not affiliates, that they are independent companies. They have independent boards, and they have management teams [W]e have [a] robust related party transaction approval process. Any related party transaction between the [Related Companies and Ocwen], I actually recuse myself from”

159. The statements set forth above in paragraphs 156 through 158 were materially false and misleading because Ocwen had not adopted policies to prevent potential conflicts of interest, and Erbey did not recuse himself from the approval of related-party transactions.

160. Specifically, as agreed to by Ocwen in the 2014 NYDFS Consent Order, “Ocwen d[id] not have a written policy that explicitly require[d] potentially conflicted employees, officers, or directors to recuse themselves from involvement from transactions with [the Related Companies].”

161. Moreover, as agreed to by Ocwen in the 2014 NYDFS Consent Order, Erbey did not recuse himself “from approvals of several transactions” with the Related Companies.

162. This conclusion is confirmed by the SEC Consent Order, which found that “there were no written policies or procedures regarding recusal [at Ocwen] and the practice that existed was flawed, inconsistent, and ad hoc.” Thus, Ocwen “failed to devise and maintain its disclosed internal controls sufficient to ensure that [Erbey] recused himself from all approvals involving potential conflicts of interest in Ocwen’s related party transactions.”

163. Furthermore, according to the HLSS Consent Order, Erbey “approved many transactions between HLSS and Ocwen in both his HLSS- and Ocwen-related capacities.” Erbey personally approved at least six transactions entered into between HLSS and Ocwen in 2012 and 2013. Furthermore, in 2014, Erbey approved a purchase of $672 million of loans by HLSS from Ocwen “on the condition that it did not trigger losses for HLSS.”

164. Additionally, according to an August 4, 2014 open letter from the NYDFS to Ocwen, in January 2014 Erbey approved Ocwen’s retention of SWBC as Ocwen’s force-placed insurance agent, even though SWBC kicked back tens of millions of dollars of fees to Altisource Solutions in return for its appointment by Ocwen.

165. Moreover, as disclosed in the SEC Consent Order, in December 2012 Erbey voted as a member of the Ocwen Board of Directors to approve a $75 million bridge loan from Altisource Solutions to Ocwen, reviewing and approving a presentation before that was circulated to the Altisource Board of Directors as the basis for their vote to approve the loan.

166. Finally, in partially granting the plaintiffs’ motion for summary judgment in the Class Action Proceeding, this Court held that – as a matter of law – Defendants’ statements concerning Ocwen’s adoption of a policy to avoid potential conflicts of interest, including Erbey recusing himself from the negotiation and approval of significant transactions with the Related Companies, were materially false and misleading.

II. Misrepresentations Concerning Ocwen’s Regulatory Compliance

167. On October 31, 2013, Ocwen, Faris and Erbey held an investor call to discuss the financial results for the third quarter of 2013. During that call, Faris discussed the transfer of ResCap loans onto the REALServicing platform. Faris informed investors that the integration costs of the ResCap platform had been higher than expected because Ocwen had been “careful to assure excellent customer service and strong compliance throughout the transfer process.” Faris thus represented to the market that not only was Ocwen complying with its regulatory obligations, but also that Ocwen’s compliance was “strong.”

168. This statement was materially false and misleading. As Ocwen subsequently agreed to in the 2014 NYDFS Consent Order, Ocwen – in violation of the servicing standards of the 2011 NYDFS Agreement and the NMS – (a) “fail[ed] to confirm that it had the right to foreclose before initiating foreclosure proceedings”; (b) “fail[ed] to ensure that its statements to the court in foreclosure proceedings were correct”; (c) “pursu[ed] foreclosure even while modification applications were pending”; (d) “fail[ed] to maintain records confirming that it is not pursuing foreclosure of servicemembers on active duty”; and (e) “fail[ed] to assign a designated customer care representative.”

169. Ocwen also improperly backdated letters to borrowers, in violation of numerous servicing standards under the 2011 NYDFS Agreement and the NMS. Ocwen agreed in the 2014 NYDFS Consent Order that the improper backdating had been going on “for years” prior to December 2014.

170. The dire state of Ocwen’s electronic servicing platform also caused Ocwen to fail to comply with its regulatory obligations. Ocwen inputted incomplete and inaccurate borrower loan information into REALServicing. And even when Ocwen inputted accurate information into REALServicing, REALServicing “generated inaccurate information about borrowers’ loans due to system deficiencies.” Furthermore, there were more than 10,000 comment codes and flags in REALServicing, but Ocwen did not have a complete data dictionary for employees to use to determine the correct comment code or flag to apply to a particular loan in a particular situation. Also, REALServicing “lacked the capacity to process the large number of loans that Ocwen . . . acquired and, in part as a result, [REALServicing] has not been functional for lengthy periods of time.” These problems with REALServicing meant that Ocwen was not properly servicing mortgage loans in accordance with regulatory requirements.

171. According to the CFPB, the problem with REALServicing was particularly acute with respect to the ResCap loans that Ocwen acquired and then attempted to transfer to REALServicing beginning in 2013. Ocwen boarded ResCap loans with inaccurate loan information, as well loans “that contained payment history data that [Ocwen] had reason to believe was inaccurate or incomplete.” Ocwen also failed to verify that prior servicing advances or fees for the ResCap loans were “valid and actually owed by borrowers.” In boarding loans onto REALServicing in 2013, Ocwen was missing invoices or documents to support “$98 million in corporate advances charged to borrowers.”

172. Finally, Ocwen did not have a compliance management system in 2013. Thus, Ocwen had no system in place to assure its compliance with servicing requirements imposed by regulators.

173. Ocwen reported that it had effective disclosure procedures and controls to ensure that material information was publicly disclosed.
174. In its annual report for 2012, Ocwen stated that:

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Annual Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

175. In its quarterly report for the first quarter of 2013, filed with the SEC on Form 10-Q on or about May 8, 2013, Ocwen stated that:

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of March 31, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013, our disclosure controls and procedures

(1) were designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and

(2) were operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Securities Exchange Act of 1934

(i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and

(ii) accumulated and communicated to management, including the Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

176. In its quarterly report for the second quarter of 2013, filed with the SEC on Form 10-Q on or about August 6, 2013, Ocwen stated that:

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of June 30, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls and procedures

(1) were designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and

(2) were operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Securities Exchange Act of 1934

(i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and

(ii) accumulated and communicated to management, including the Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

177. In its quarterly report for the third quarter of 2013, filed with the SEC on Form 10-Q on or about November 5, 2013, Ocwen stated that:

Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of September 30, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, our disclosure controls and procedures

(1) were designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and

(2) were operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Securities Exchange Act of 1934

(i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and

(ii) accumulated and communicated to management, including the Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.

178. Faris signed a certification in connection with Ocwen’s 2012 10-K in which he stated that the CFO and he had “[d]esigned such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to [Ocwen], including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared” and that the CFO and he had “[e]valuated the effectiveness of [Ocwen’s] disclosure controls and procedures and presented in [the accompanying report] our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.”

179. Faris provided identical certifications with Ocwen’s quarterly reports for the first, second and third quarters of 2013.

180. The statements set forth above in paragraphs 174 through 179 were materially false and misleading for a number of reasons.

181. Ocwen had no disclosure controls with respect to preventing potential conflicts of interest in related-party transactions. As summarized in the SEC Consent Order: “[T]here were no written policies or procedures governing when an officer or director with a conflict of interest

was required to be recused from negotiating or approving a related party transaction.” Moreover, “Ocwen personnel never developed guidelines under which such recusal was appropriate. This caused a number of control deficiencies.”

182. The SEC Consent Order identified two major deficiencies in Ocwen’s disclosure controls with respect to related-party transactions. “First, the responsibility for determining whether recusal was appropriate was left largely to [Erbey], the person with the conflict of interest.” That is, it was left to the conflicted individual to determine whether he should be recused from the negotiation or approval of the related-party transaction. “While Ocwen’s in- house counsel occasionally provided advice on whether [Erbey] could participate in a related party transaction, there was no meaningful oversight of [Erbey]’s determination.”

183. Second, Ocwen personnel lacked any understanding of when recusals were required. According to the SEC Consent Order – with respect to Defendants’ representation in the 2012 annual report that Erbey recused himself from all significant transactions between Ocwen and the related parties – “Ocwen personnel had conflicting understandings of what types of transactions could qualify as significant, and they never attempted to reconcile these conflicting understandings.” Thus, there was no guidance as to whether a transaction was sufficiently “significant” to warrant Erbey’s recusal. Furthermore, Erbey told the SEC that “the need to approve transactions in the Virgin Islands for tax reasons may have been grounds for participating in the approval” of related-party transactions, notwithstanding Ocwen’s purported recusal policy.

184. The letter backdating issue is also indicative of serious internal control failings at Ocwen. According to the NYDFS October 21, 2014 letter to Ocwen, the backdating issue was flagged for senior management in November 2013. However, Ocwen did not do anything “to investigate or remedy the problem” at that time, and did not alert “regulators, borrowers, or other interested parties.” The issue was then raised again internally at Ocwen in April 2014, and still the problem was not elevated to the proper channels so it could be properly disclosed. According to the NYDFS, the problem remained unresolved as of October 2014, even though it had existed for years and had been flagged internally months earlier.

185. Ocwen’s failure to timely verify the accuracy of loan data being boarded onto REALServicing constituted a further lack of effective internal controls. Improperly boarded loans were serviced incorrectly by Ocwen for months without Ocwen discovering the errors and disclosing the material deficiencies in its servicing platform.

186. Finally, Ocwen did not have a compliance management system. Without a compliance management system, Ocwen did not have controls in place to make sure that any regulatory issues were being properly addressed and that material information concerning those issues was being disclosed.

III. Misrepresentations Concerning the Effectiveness of Ocwen’s Disclosure Controls and Procedures

SUMMARY OF DEFENDANTS’ SCIENTER

187. Plaintiffs repeat and reallege each and every paragraph contained above as if set forth herein.

188. Defendants Erbey and Faris acted with scienter with respect to the materially false and misleading statements discussed above.

189. Defendant Erbey knew that he did not recuse himself from approving transactions between Ocwen and the Related Companies. Indeed, as the Court has already found in the Class Action Proceeding, “Erbey would have knowledge of his approval of related party transactions if he personally approved them.” Erbey also knew that Ocwen had not adopted a policy requiring his recusal from related-party transactions.

190. Defendant Faris, as a member of the Executive Committee that approved such transactions, also knew that Erbey did not recuse himself from the approval of transactions between Ocwen and the Related Companies. Faris, as a member of Ocwen’s Compliance Committee, knew that Ocwen had not adopted policies, procedures and practices to avoid potential conflicts in transactions between Ocwen and the Related Companies.

191. As senior executives of Ocwen, Erbey’s and Faris’s knowledge of Erbey’s involvement in the related party transactions is imputable to Defendant Ocwen.

192. Defendant Faris knew that Ocwen was not in compliance with regulatory standards because he sat on Ocwen’s Compliance Committee, which was responsible for ensuring Ocwen’s compliance with all applicable laws and regulations. As an executive of Ocwen, Faris’s knowledge is imputable to Defendant Ocwen.

193. Faris was also aware of the significant problems with REALServicing. Indeed, according to the CFPB complaint, Ocwen’s Head of Servicing wrote in an email to Faris that REALservicing was an “absolute train wreck” and that if he “could change systems tomorrow, [he] would.”

194. Faris certified that he conducted an evaluation of the effectiveness of Ocwen’s disclosure controls and procedures. He therefore knew that Ocwen lacked effective disclosure controls and procedures.

195. As a senior executive of Ocwen, Faris’s knowledge is imputable to Defendant Ocwen.

SUMMARY OF DEFENDANTS’ NEGLIGENCE

196. Erbey and Faris were at least negligent in making the misstatements set forth above.

197. Had Erbey acted with the standard of care required of a Chairman of a public company, he would have been aware that he was improperly not recusing himself from the approval of transactions between Ocwen and the Related Companies, that Ocwen did not have strong compliance with regulatory requirements, and that Ocwen did not have effective disclosure controls and procedures

198. Had Faris acted with the standard of care required of a CEO of a public company, he would have been aware that Erbey was improperly not recusing himself from the approval of transactions between Ocwen and the Related Companies, that Ocwen did not have strong compliance with regulatory requirements, and that Ocwen did not have effective disclosure controls and procedures.

PLAINTIFFS’ ACTUAL RELIANCE

199. Plaintiffs, through Brahman, actually, read (or heard), reviewed, and relied upon Defendants’ misrepresentations prior to purchasing Ocwen stock.

200. Brahman began purchasing Ocwen common stock for Plaintiffs in May 2013.

201. Prior to purchasing Ocwen stock for Plaintiffs, one or more employees of Brahman actually read, reviewed and relied upon Ocwen’s public disclosures, investor presentations and financial statements, including the 2012 annual report, the quarterly report for the first quarter of 2013, and the 2013 annual proxy statement.

202. As Plaintiffs continued to purchase Ocwen stock throughout 2013 and early 2014, Brahman kept abreast of publicly-disclosed developments concerning Ocwen, and prior to purchasing stock, as applicable, actually read (or heard), reviewed, and relied upon Ocwen’s quarterly reports for the second and third quarters of 2013, investor presentations, the October 31, 2013 conference call, and the December 3, 2013 conference call.

203. When purchasing Ocwen stock on behalf of Plaintiffs, Brahman actually read (or heard) and relied on each of the statements described above.

204. Had Brahman known the truth, it would not have purchased Ocwen common stock on behalf of Plaintiffs or, if it had done so, would not have paid the price it did.

PRESUMPTION OF RELIANCE

205. In addition to Plaintiffs’ actual reliance, Plaintiffs intend in the alternative to rely upon the presumption of reliance established by the fraud-on-the-market doctrine in that, among other things:

(a) Defendants made public misrepresentations or failed to disclose material facts during the relevant time period;

(b) the omissions and misrepresentations were material;

(c) Ocwen common stock traded in an efficient market;

(d) the misrepresentations alleged would tend to induce a reasonable investor to misjudge the value of Ocwen common stock; and

(e) Plaintiffs purchased Ocwen common stock between the time Defendants misrepresented or failed to disclose material facts and the time when the true facts were disclosed, without knowledge of the misrepresented or omitted facts.

206. The market for Ocwen common stock was open, well-developed and efficient at all relevant times. As a result of the aforementioned materially false and misleading statements and failures to disclose, Ocwen common stock traded at artificially inflated prices during the relevant period.

207. At all relevant times, the market for Ocwen common stock was efficient for the following reasons, among others:

(a) Ocwen filed periodic reports with the SEC;

(b) the stock was listed and actively traded on the NYSE;

(c) numerous analysts, including analysts from BofA Merrill Lynch, Citigroup and Barclays, followed Ocwen; and

(d) Ocwen regularly communicated with public investors via established market communication mechanisms, including through regular disseminations of press releases on the major news wire services and through other wide-ranging public disclosures, such as communications with the financial press, securities analysts and other similar reporting services.

208. Plaintiffs purchased Ocwen common stock in reliance on the market price of Ocwen common stock, which reflected all the information in the market, including the misstatements by Defendants.

LOSS CAUSATION

209. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused the economic loss suffered by Plaintiffs. During the time that Plaintiffs purchased Ocwen common stock, as set forth in Exhibits A through H, the market price of those securities was artificially inflated as a direct result of Defendants’ materially false and misleading statements and omissions. As a series of partial but inadequate disclosures was issued, as detailed above in paragraphs 147 through 154, the price of those securities dropped, and Plaintiffs were damaged.

210. Defendants sought to assure investors that Ocwen had adopted policies to avoid potential conflicts of interest in related-party transactions, including Erbey recusing himself from the negotiation and approval of transactions with the Related Companies. In doing so, Defendants concealed the foreseeable risk that Ocwen’s lack of policies and Erbey’s involvement in related-party transactions would lead to increased scrutiny from, and potential penalties imposed by, its regulators. That risk partially materialized when the NYDFS issued its February 26, 2014 letter to Ocwen stating that it had “uncovered a number of potential conflicts of interest between Ocwen and other public companies with which Ocwen is closely affiliated,” thus causing the price of Ocwen stock to decline as detailed above.

211. Defendants Ocwen and Faris also sought to assure investors that Ocwen was in “strong compliance” with its regulatory obligations. In doing so, they concealed the foreseeable risk that Ocwen’s regulatory noncompliance would lead to increased scrutiny from, and potential penalties imposed by, its regulators. That risk partially materialized when, on February 6, 2014, the NYDFS halted indefinitely Ocwen’s planned purchased of $39 billion of mortgage loans from Wells Fargo, causing the price of Ocwen stock to decline as detailed above.

212. Finally, Defendants sought to assure investors that Ocwen had effective disclosure controls and procedures. In doing so, they concealed the foreseeable risk that Ocwen’s lack of disclosure controls and procedures would lead to increased scrutiny from, and potential penalties imposed by, its regulators. That risk partially materialized when, on February 6, 2014, the NYDFS halted indefinitely Ocwen’s planned purchased of $39 billion of mortgage loans from Wells Fargo, and when, on February 26, 2014, the NYDFS publicly disclosed that it had “uncovered a number of potential conflicts of interest between Ocwen and other public companies with which Ocwen is closely affiliated,” both of which caused the price of Ocwen stock to decline as detailed above.

NO SAFE HARBOR

213. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. The specific statements pleaded herein were not “forward-looking statements” nor were they identified as “forward-looking statements” when made. Nor was it stated with respect to any of the statements forming the basis of this Complaint that actual results “could differ materially from those projected.” To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements.

Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, Defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of Ocwen who knew that those statements were false when made.

FIRST CAUSE OF ACTION

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Against All Defendants

214. Plaintiffs repeat and reallege paragraphs 23-195 and 199-213 as if set forth herein.

215. This Cause of Action is asserted against Defendants Ocwen, Erbey, and Faris for violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j, and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.

216. Defendants Ocwen, Erbey, and Faris, both directly and indirectly, used the means and instrumentalities of interstate commerce in the United States to make the materially false and misleading statements and omissions of material fact alleged herein to:

(i) deceive the investing public, including Plaintiffs, as alleged herein;

(ii) artificially inflate and maintain the market price of Ocwen common stock; and

(iii) cause Plaintiffs to purchase Ocwen common stock at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, Ocwen, Erbey, and Faris took the actions set forth above.

217. Defendants Ocwen, Erbey, and Faris both directly and indirectly:

(i) employed devices, schemes and artifices to defraud;

(ii) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and

(iii) engaged in acts, practices, and a course of business that operated as a fraud and deceit upon the purchasers of Ocwen common stock in an effort to artificially inflate and maintain the market prices for Ocwen common stock in violation of Section 10(b) of the Exchange Act and Rule 10b- 5.

218. By virtue of their high-level positions at the Company, Erbey and Faris were authorized to make public statements, and made public statements on Ocwen’s behalf. These senior executives were privy to and participated in the creation, development, and issuance of the materially false and misleading statements alleged herein, and/or were aware of the Company’s and their own dissemination of information to the investing public that they recklessly disregarded was materially false and misleading.

219. In addition, Ocwen, Erbey, and Faris had a duty to disclose truthful information necessary to render their affirmative statements not materially misleading so that the market price of the Company’s securities would be based on truthful, complete and accurate information.

220. Defendants Ocwen, Erbey, and Faris acted with knowledge or reckless disregard for the truth of the misrepresented and omitted facts alleged herein, in that they failed to ascertain and disclose the facts, even though such facts were known or readily available to them. Defendants Ocwen’s, Erbey’s, and Faris’s material misrepresentations and omissions were done knowingly and/or recklessly, and had the effect of concealing the truth with respect to Ocwen’s operations, business, performance and prospects from the investing public, Erbey’s recusal from the negotiation and approval of transactions with the Related Companies, Ocwen’s compliance with regulatory requirements, and the effectiveness of Ocwen’s disclosure controls and procedures. By concealing these material facts from investors, Ocwen, Erbey and Faris supported the artificially inflated price of Ocwen’s securities.

221. The dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, artificially inflated the market price of Ocwen’s securities. In ignorance of the fact that the market prices were artificially inflated, and relying directly or indirectly upon the materially false and misleading statements made by Ocwen, and upon the integrity of the market in which the Company’s securities trade, or upon the absence of material adverse information that was recklessly disregarded by Ocwen, Erbey, and Faris, but not disclosed in public statements by Ocwen, Erbey, and Faris, Plaintiffs purchased Ocwen common stock at artificially inflated prices. As a series of partial but inadequate disclosures were issued, the price of Ocwen’s securities substantially declined.

222. At the time of the material misrepresentations alleged herein, Plaintiffs were ignorant of their falsity, and believed them to be true. Had Plaintiffs known the truth with respect to the business, operations, performance and prospects of Ocwen, which was concealed by Ocwen, Erbey, and Faris, Plaintiffs would not have purchased Ocwen common stock, or if they had purchased such securities, they would not have done so at the artificially inflated prices that they paid.

223. By virtue of the foregoing, Defendants Ocwen, Erbey, and Faris have violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

224. As a direct and proximate result of Defendants Ocwen’s, Erbey’s, and Faris’s, wrongful conduct, Plaintiffs have suffered damages in connection with their transactions in the Company’s securities.

225. Taking into account, inter alia, tolling of the limitations period by the filing of the class action complaint against Defendants Ocwen, Erbey, and Faris in the matter In re Ocwen Financial Corporation Securities Litigation, 14-cv-81057-WPD (S.D. Fla.), as well as a tolling agreement between Plaintiffs and Defendants, Plaintiffs have brought this claim within two years of discovery of the violations alleged herein, and within five years of the violations alleged herein. Consequently, this action is timely.

SECOND CAUSE OF ACTION

Violations of Section 18 of the Exchange Act Against All Defendants

226. Plaintiffs repeat and reallege paragraphs 23-73, 79-91, 93-156, 159-166, 173-186, 196-204, and 209-213 as if set forth herein.

227. As alleged herein, Defendants Ocwen, Erbey and Faris negligently caused statements to be made in the Company’s 2012 annual report (filed with the SEC pursuant to the rules or regulations of the Exchange Act), and Defendants Ocwen and Faris negligently caused statements to be made in the Company’s quarterly reports for the first, second and third quarters of 2013 (filed with the SEC pursuant to the rules or regulations of the Exchange Act), which statements were, at the time and in light of the circumstances under which made, false or misleading with respect to material facts.

228. In purchasing Ocwen stock, Plaintiffs’ investment team actually read, and had direct eyeball reliance on, the statements in the 2012 annual report, and on the statements in the first, second and third quarter reports of 2013.

229. Specifically, one or more employees of Brahman actually read and relied upon the following statements:
• “We have adopted policies, procedures and practices to avoid potential conflicts involving significant transactions with related parties such as Altisource [Solutions], including Mr. Erbey’s recusal from negotiations regarding and credit committee and board approvals of such transactions.” – 2012 annual report.

• “Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this Annual Report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.” – 2012 annual report.

• “Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of March 31, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2013, our disclosure controls and procedures (1) were designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) were operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.” – 2013 first quarter report.

• “Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of June 30, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2013, our disclosure controls and procedures (1) were designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) were operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.” – 2013 second quarter report.

• “Our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of September 30, 2013. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, our disclosure controls and procedures (1) were designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the period in which this report was being prepared and (2) were operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including the Chief Executive Officer or Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure.” – 2013 third quarter report.

• Ocwen’s CEO and CFO had “[d]esigned such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under their supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this report is being prepared” and had “[e]valuated the effectiveness of [Ocwen’s] disclosure controls and procedures and presented in [the accompanying report] our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.” – Faris certifications to 2012 annual report, 2013 first quarter report, 2013 second quarter report, and 2013 third quarter report.

230. In ignorance of the falsity of Defendants’ statements or of the true facts, Plaintiffs purchased Ocwen’s securities in actual, eyeball reliance upon Defendants’ representations.

231. Defendants’ materially false or misleading statements artificially inflated the price of Ocwen securities.

232. Had they known the true facts, Plaintiffs would not have purchased the Ocwen securities and/or would not have purchased them at the inflated price they paid.

233. Upon the partial disclosure of the true facts and/or the partial materialization of the concealed risks, the price of Ocwen common stock dropped, and Plaintiffs suffered damages in an amount to be proven at trial.

234. By reason of the foregoing, Defendants Ocwen, Erbey and Faris are liable to Plaintiffs for violations of Section 18 of the Exchange Act, 15 U.S.C. §78r.

235. Taking into account, inter alia, tolling of the limitations period by the filing of the class action complaint against Defendants Ocwen, Erbey and Faris in the matter In re Ocwen Financial Corporation Securities Litigation, 14-cv-81057-WPD (S.D. Fla.), as well as a tolling agreement between Plaintiffs and Defendants, Plaintiffs have brought this claim within one year of discovery of the violations alleged herein, and within three years of the accrual of this cause of action.

THIRD CAUSE OF ACTION

Violations of Section 20(a) of the Exchange Act Against the Defendants Erbey and Faris

236. Plaintiffs repeat and reallege each and every allegation contained in each of the foregoing paragraphs as if set forth herein.

237. This Cause of Action is asserted against Defendants Erbey and Faris and is based upon Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).

238. Each of Defendants Erbey and Faris was at the time of the wrongs alleged herein a controlling person of Ocwen within the meaning of Section 20(a) of the Exchange Act.

239. By virtue of their high level positions, and their ownership and contractual rights, substantial participation in, and/or awareness of, the Company’s operations and/or knowledge of the materially false and misleading statements filed with the SEC and disseminated to the investing public, Defendants Erbey and Faris had the power to influence and control, and did in fact influence and control, directly or indirectly, the decision-making of the Company.

240. Defendants Erbey and Faris were provided with or had unlimited access to copies of the Company’s reports, press releases, public filings, and other statements alleged herein to be materially false and misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected. In particular, Defendants Erbey and Faris each had direct and supervisory involvement in the day- to-day operations of the Company, and therefore are presumed to have had the power to control or influence the particular false and misleading statements and omissions giving rise to the securities violations alleged herein.

241. By reason of the conduct alleged in the First Cause of Action, Ocwen is liable for violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and Defendants Erbey and Faris are liable pursuant to Section 20(a) based on their control of Ocwen.

242. By reason of the conduct alleged in the Second Cause of Action, Ocwen is liable for violations of Section 18 of the Exchange Act, and Defendants Erbey and Faris are liable pursuant to Section 20(a) based on their control of Ocwen.

243. Defendants Erbey and Faris are liable for the aforesaid wrongful conduct, and are liable to Plaintiffs for the substantial damages suffered in connection with their purchases of Ocwen common stock.

244. Taking into account, inter alia, tolling of the limitations period by the filing of the class action complaint against Defendants Ocwen, Erbey and Faris in the matter In re Ocwen Financial Corporation Securities Litigation, 14-cv-81057-WPD (S.D. Fla.), as well as a tolling agreement between Plaintiffs and Defendants, Plaintiffs have brought this claim within two years of discovery of the violations alleged herein, and within five years of the violations alleged herein. Consequently, this action is timely.

FOURTH CAUSE OF ACTION

Fraud Against All Defendants

245. Plaintiffs repeat and reallege paragraphs 23-195, 199-204, and 208-212 as if set forth herein.

246. Defendants Ocwen, Erbey, and Faris made, authorized or caused the representations and/or omissions set forth above.

247. Those representations and omissions were material.

248. The material representations set forth above were knowingly made by such Defendants with the intent to deceive, and such Defendants’ representations omitted and concealed material statements of fact from Plaintiffs.

249. Each such Defendant knew its representations were false and/or misleading, and their omissions were material and rendered their representations misleading, at the time they were made or omitted.

250. Defendants knew that Plaintiffs would receive and rely on such representations, and intended that their false and/or misleading statements would induce Plaintiffs to purchase Ocwen common stock at inflated prices.

251. Plaintiffs reasonably and justifiably relied on such misrepresentations and omissions. Plaintiffs would not have purchased Ocwen common stock at all, or at the prices they paid, had they known the true facts regarding, inter alia, Erbey’s approval of transactions with the Related Companies, Ocwen’s violation of regulatory requirements, and Ocwen’s lack of effective disclosure controls and procedures.
252. As a direct and proximate result of such reliance, and these Defendants’ fraudulent misconduct, Plaintiffs have suffered damages.

FIFTH CAUSE OF ACTION

Negligent Misrepresentation Against All Defendants

253. Plaintiffs repeat and reallege paragraphs 23-186, 196-204, and 208-212 as if set forth herein.

254. Defendants Ocwen, Erbey, and Faris authorized or caused the representations and/or omissions set forth above.

255. These Defendants supplied false information for use by Plaintiffs in making an investment decision.

256. Defendants Ocwen, Erbey, and Faris were aware that Plaintiffs were a large investor and actively sought to induce Plaintiffs to purchase Ocwen common stock. Plaintiffs’ purchases of large amounts of stock helped keep Ocwen’s stock price high because of increased demand. Defendants Erbey and Faris collectively held millions of shares and options to acquire Ocwen common stock at the time Plaintiffs purchased Ocwen common stock. Thus, Defendants Erbey and Faris directly benefitted from Plaintiffs’ purchases of Ocwen stock, and had a pecuniary interest in those transactions. As a result of their pecuniary interest in the transactions, Defendants Erbey and Faris had a duty to exercise reasonable care and competence in providing information about Ocwen to Plaintiffs.

257. Defendants Erbey and Faris made misrepresentations that they knew, or should have known, to be false in order to induce Plaintiffs to purchase Ocwen common stock.

258. Defendants Erbey and Faris breached their duty to exercise reasonable care in making these misrepresentations to Plaintiffs.

259. Plaintiffs reasonably relied on the information Defendants Ocwen, Erbey and Faris provided and were damaged as a result of these misrepresentations. Plaintiffs would not have purchased Ocwen common stock at all, or at the prices they paid, had they known the true facts regarding, inter alia, Erbey’s approval of transactions with the Related Companies, Ocwen’s violation of regulatory requirements, and Ocwen’s lack of effective disclosure controls and procedures.

260. By reason of the foregoing, Defendants are liable to Plaintiffs for negligent misrepresentation.

261. As a direct and proximate result of Defendants’ negligent misrepresentations, Plaintiffs have suffered damages.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs respectfully request relief and judgment, as follows:

(a) Awarding compensatory damages against Defendants for all damages sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial, including pre-judgment and post-judgment interest thereon;

(b) Awarding Plaintiffs punitive damages;

(c) Awarding Plaintiffs their attorneys’ fees and costs; and

(d) Such other and further relief as the Court may deem just and proper.

JURY DEMAND

Plaintiffs hereby demand a trial by jury as to all issues so triable.

 

Dated: March 20, 2018 Respectfully submitted,

/s/ Robert F. Elgidely

Robert F. Elgidely Florida Bar No. 111856 (Joined Fox Rothschild in 2019)
relgidely@gjb-law.com

GENOVESE JOBLOVE & BATTISTA
200 East Broward Boulevard, Suite 1110 Fort Lauderdale, FL 33301
Tel. 954.453.8022

and

Of Counsel
LOWENSTEIN SANDLER LLP

Lawrence M. Rolnick, NY Bar No. 2024784
lrolnick@lowenstein.com

Marc B. Kramer, NY Bar No. 2167146
mkramer@lowenstein.com

Michael J. Hampson, NY Bar No. 4699120
mhampson@lowenstein.com
1251 Avenue of the Americas New York, NY 10020
Tel. 212.262.6700

Thomas E. Redburn, Jr., NJ Bar No. 033661995
tredburn@lowenstein.com
One Lowenstein Drive Roseland, NJ 07068
Tel. 973.597.2500

Attorneys for Plaintiffs (all but Redburn defected to a new startup, Founding Partner, Rolnick Kramer Sadighi LLP; “Value-Driven Results Through Litigation”)

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ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

THIS CAUSE comes before the Court upon Defendants Ocwen Financial Corporation (“Ocwen”), William Erbey (“Erbey”), and Ronald Paris’ s (“Faris” ) Motion to Dismiss, filed May 22, 2018. (DE 35).

All of the Plaintiffs submitted a response in opposition to Defendants’ Motion to Dismiss on June 15, 2018. (DE 38). Defendants replied on June 26, 2018. (DE 39).

Pursuant to the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u- 4(b)(3)(B), this case has been stayed and all pretrial deadlines have been vacated pending resolution of this Motion to Dismiss. (DE 37). For the reasons set forth below, Defendants’ Motion is granted in part and denied in part.

I. BACKGROUND

Defendant Ocwen was founded by Defendant Erbey in 1988 and is one of the largest mortgage loan servicers in the United States. (DE 1 11 35, 43). At all times relevant to this lawsuit, Defendant Erbey was the Executive Chairman of Ocwen and Defendant Faris was Ocwen’s Chief Executive Officer. (DE 35 at 3).

Since at least 2009, Ocwen has been spinning off certain of its business segments into four purportedly independent companies: Altisource Solutions S.A. (“Altisource Solutions”), Home Loan Servicing Solutions, Ltd., Altisource Residential Corporation (“Altisource Residential”), and Altisource Asset Management Corporation (“Altisource Asset”) (collectively, the “Related Companies”). (DE 1 11 47 -52). As the Related Companies were created, Erbey received significant equity stakes in each of them and, while maintaining his position as Executive Chairman at Ocwen, became Chairman of all of them. (Id. 1 47).

After each Related Company was spun off from Ocwen, Ocwen continued to do business with the Related Company.

By 2012, Ocwen licensed loan servicing technology from Altisource Solutions, hired as its exclusive insurance agency a subsidiary of Altisource Solutions, sold non-performing loans to Altisource Residential, and signed a fifteen-year asset management agreement with Altisource Asset. (Id. 1148-52).

Ocwen grew rapidly between 2010 and 2013, acquiring, for example, Goldman Sach’s and Morgan Stanley’s mortgage servicing businesses. (Id. 158). One such purchase was of 1.74 billion loans from Residential Capital, LLC (the “ResCap” loans). (Id. 1 59). Ocwen’s rapid growth led to increased regulatory oversight.

In 2011, the New York State Department of Financial Services (the “NYDFS”) required Ocwen to enter into an agreement governing Ocwen’s mortgage servicing practices (the “2011 NYDFS Agreement”). (Id. 162).

In 2012, the NYDFS discovered that Ocwen had violated the 2011 NYDFS Agreement and required Ocwen to retain a compliance monitor to review Ocwen’s servicing practices for a two-year period. (Id.,r 63).

Moreover, the ResCap loans purchased by Ocwen were subject to the National Mortgage Settlement (“NMS”) with the Consumer Finance Protection Bureau (“CFPB”), which meant that Ocwen had to adhere to the servicing standards set forth in the NMS. (Id. ,r,r 64-65).

Plaintiffs Brahman Partners II, L.P., Braham Partners III, L.P., Braham Partners II Offshore, Ltd., Braham Institutional Partners, L.P., Braham C.P.F. Partners, L.P., Braham Partners IV, L.P., Braham Partners IV (Cayman), Ltd., and BH Investment Fund, L.L.C. (collectively, “Braham Partners”) are investment funds managed by a common advisor. (Id. ,r 3).

Plaintiffs purchased significant amounts of Ocwen stock in 2013. (Id. ,r 5). Plaintiffs allege that their purchases of Ocwen stock were made in reliance on material misstatements or omissions
made by Defendants regarding Erbey’s involvement in the Related Companies, Ocwen’s disclosure controls and procedures, and Ocwen’s compliance with its regulatory obligations.

Plaintiffs’ Complaint pleads fives causes of action against Defendants: (1) violations by all Defendants of Section lO(b) of the Securities Exchange Act and Rule 1Ob-5, (2) violations by all Defendants of Section 18 of the Securities Exchange Act, (3) violations of Section 20(a) of the Securities Exchange Act by Defendants Erbey and Faris, (4) common law fraud by all Defendants, and (5) negligent misrepresentation by all Defendants.

II. LEGALSTANDARD

A. Pleading standards

A motion to dismiss under Rule 12(b)(6) challenges the legal sufficiency of a complaint. Fed. R. Civ. P. 12(b)(6). When reviewing a motion to dismiss, a court must view the complaint in the light most favorable to the plaintiff and must take the factual allegations stated therein as true. Erickson v. Pardus, 551 U.S. 89, 93 (1997); Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1369 (11th Cir. 1997).

When assessing the sufficiency of a complaint’s factual allegations, a court need not demand perfect clarity.

According to Rule 8(a), a complaint need only contain ” a short and plain statement of the claim showing that the pleader is entitled to relief in order to give the defendant fair notice of what the claim is and the grounds upon which it rests .” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotations omitted); Fed. R. Civ. P. 8(a). This standard does, however, require more than bare allegations or conclusions by the plaintiff. The factual assertions must be sufficient “to raise a right to relief above the speculative level.” Bell Atlantic Corp., 550 U.S. at 555 (citation omitted). “Dismissal is appropriate where it is clear the plaintiff can prove no set of facts in support of the claims in the complaint.” Marshall Cty. Bd. of Educ. v. Marshall Cty. Gas. Dist., 992 F.2d 1171, 1174 (11th Cir. 1993).

In addition to the pleading standards under Rule 8(a), fraud claims must also meet the special pleading requirements under Rule 9(b), which states that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b).

A complaint alleging fraud must therefore set forth “(1) precisely what statements or omissions were made in which documents or oral representations; (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) them; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendant obtained as a consequence of the fraud.” FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir. 2011).

Rule 9(b)’s heightened pleading requirements apply to any cause of action for fraud, so Plaintiffs must meet the Rule 9(b) standard for all of their causes of action. Failure to satisfy the Rule 9(b) pleading standards is a ground for dismissal. Id.

Private securities fraud claims must additionally meet the heightened pleading standard of the PSLRA. 15 U.S.C. § 78u-4(b). The PSLRA mandates that in any private action brought under the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (the “Securities Exchange Act”), in which the plaintiff alleges that the defendant made a material misstatement or omission of fact, “the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” Id. § 78u-4(b)(l).

Additionally, ” in any private action arising under [the Securities Exchange Act] in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2)(A).

The PLSRA also dictates that private actions brought under the Securities Exchange Act must allege loss causation, ” that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.” Id. § 78u-4(b)(4).

B. Substantive claims

The Complaint pleads fives causes of action against Defendants: (1) violations by all Defendants of Section 1O(b) of the Securities Exchange Act and Rule 1Ob-5, (2) violations by all Defendants of Section 18 of the Securities Exchange Act, (3) violations of Section 20(a) of the Securities Exchange Act by Defendants Erbey and Faris, (4) common law fraud by all Defendants, and (5) negligent misrepresentation by all Defendants.

Section 10(b) of the Securities Exchange Act forbids the use of any manipulative or deceptive device in connection with the purchase or sale of any security in contravention of rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). 15 U.S.C. § 78j(b).

Rule lOb-5 makes it unlawful for any person “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). “To state a claim under§ l0(b) and Rule l0b-5, a plaintiff must allege: (1) a material misrepresentation or omission; (2) made with scienter; (3) a connection with the purchase or sale of a security; (4) reliance on the misstatement or mission; (5) economic loss [i.e. damages]; and (6) a causal connection between the material misrepresentation or omission and the loss, commonly called ‘loss causation.”‘ FindWhat, 658 F.3d at 1295 (quoting Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1236 (11th Cir. 2008)) (alterations in original).

Section 20 of the Securities Exchange Act is not a freestanding claim, but is a way of imposing liability “not only on the person who actually commits a securities law violation, but also on an entity or individual that controls the violator.” Thompson v. RelationServe Media, Inc., 610 F.3d 628, 635 (11th Cir. 2010).

To state a claim against Defendants Erbey and Faris under Section 20, Plaintiffs must allege that Defendants Erbey and Faris had both (1) the power to control the general affairs of the entity liable for the primary Section 10(b) or Rule 10b-5 violations when that violation occurred and (2) the power to control or influence the specific policy that resulted in the primary violation under Section lO(b) or Rule l0b-5. Broadway Gate Master Fund, Ltd. v. Ocwen Fin. Corp., 2016 WL 9413421 (S.D. Fla. June 29, 2016).

Section 18 of the Securities Exchange Act imposes liability for misleading statements made “in any application, report, or document filed pursuant to [the Securities Exchange Act] or any rule or regulation thereunder.” 15 U.S.C. § 78r(a). “Under section 18, a plaintiff must only plead and prove that the defendant made or caused to be made a material misstatement or omission in a document filed with the Securities Exchange Commission and that the plaintiff relied on the misstatement or omission.” Magna Inv. Corp. v. John Does One through Two Hundred, 931 F.2d 38, 39 (11th Cir. 1991) (per curiam).

To state a claim for common law fraud in Florida, a plaintiff must allege that (1) the defendant made a false statement or omission of material fact (2) while knowing the statement was false, (3) the statement was made for the purpose of inducing the plaintiff to rely on it, (4) plaintiffs reliance was reasonable, and (5) the plaintiff suffered damages. Arnold, 839 F. Supp.2d at 1289 (citing Mergens v. Dreyfoos, 166 F.3d 1114 (11th Cir. 1999)).

To state a claim for negligent misrepresentation, plaintiff must state that “1) the defendant made a misrepresentation of material fact; 2) the defendant either knew of the misrepresentation, made the misrepresentation without knowledge of its truth or falsity, or should have known the representation was false; 3) the defendant intended to induce another to act on the misrepresentation; and 4) an injury resulted to the plaintiff who acted in justifiable reliance upon the misrepresentation.” Id. (citing Gilchrist Timber Co. v. ITT Rayonier, Inc., 127 F.3d 1390, 1393 (11th Cir. 1997)).

III. DISCUSSION

Plaintiffs set forth three sets of statements by Defendants that they allege are material misstatements or omissions intended to induce Plaintiffs to buy Ocwen stock. The first set of statements concerns Erbey’s conflicts of interest (the “Erbey Statements”), the second concerns the controls and procedures that Ocwen had in place to ensure that the company adequately disclosed information about the company’s health to its investors (the “Disclosure Controls & Procedures Statements” or the “DC&P Statements”), and the third concerns Ocwen’s regulatory compliance (the “Regulatory Compliance Statement”).

In response to these allegations, Defendants argue that Plaintiffs’ entire Complaint should be dismissed because Plaintiffs do not properly plead loss causation as to any of the misstatements. Defendants also argue that the claims based on the Regulatory Compliance Statement should be dismissed because, first, the statement is mere puffery and thus not actionable, and second, Plaintiffs fail to adequately plead scienter.

Because loss causation is sufficient to resolve the Motion to Dismiss as to the Regulatory Compliance Statement, I need not take up Defendants’ other arguments regarding that alleged misstatement.

A. State Law Causes of Action

Defendants argue that Plaintiffs’ entire Complaint, including the state law causes of action for fraud and negligent misrepresentation, should be dismissed because Plaintiffs fail to plead loss causation. (DE 35 at 1).

Loss causation, however, is not an element of fraud or negligent misrepresentation under Florida law. See Lopez v. Rica Foods, Inc., 277 Fed. Appx. 931, 932-33 (11th Cir. 2008) (holding that the lower court erred in forcing plaintiffs to plead loss causation for claims of fraudulent or negligent misrepresentation); Johnson v. Davis, 480 So.2d 625, 627 (Fla. 1985) (listing elements of fraud under Florida law). ”

To adequately plead causation in a fraud claim under Florida law, a plaintiff must only allege damage or injury as a result of the misrepresentation. ” Lopez , 277 Fed. Appx. at 932- 33.

Damages need not be pleaded with particularity, so though the Complaint is not terribly specific regarding Plaintiffs’ damages, it does sufficiently allege that Plaintiffs were damaged by Defendants’ misrepresentations. (DE 1 1252, 261).

Accordingly , Defendants’ Motion to Dismiss is denied as to the state law claims, Counts IV-V, in the Complaint.

B. Loss Causation

To show loss causation, “a plaintiff must offer proof of a causal connection between the misrepresentation and the investment’s subsequent decline in value.” Meyer v. Greene, 710 F.3d 1189, 1195 (11th Cir. 2013) (quotations omitted). “The plaintiff must show that the defendant’s fraud-as opposed to some other factor-proximately caused his claimed losses.” FindWhat, 658 F.3d at 1309.

Plaintiffs here rely on a fraud-on-the-market theory of loss causation.

A fraud-on-the­ market theory of causation is based on the idea that, in an efficient market, information that is already known by the market will not cause a change in stock price because that information has already been incorporated by the market into the stock price. Id. at 1310.

When new information is released, however, stock prices may be affected. A plaintiff can thus attempt to show that a material misrepresentation or omission caused their loss by showing that, when that misrepresentation or omission was clarified or revealed to the public, the stock price decreased and that decrease was more likely than not attributable to the clarification or revelation of the misrepresentation. Id. at 1310-1311.

Specifically, a plaintiff can prove loss causation by: “(l) identifying a corrective disclosure (a release of information that reveals to the market the pertinent truth that was previously concealed or obscured by the company’s fraud); (2) showing that the stock price dropped soon after the corrective disclosure; and (3) eliminating other possible explanations for the price drop, so that the factfinder can infer that is it more probable than not that it was the corrective disclosure-as opposed to other possible depressive factors­ that caused at least a substantial amount of price drop.”1 Id. at 1311-12 (footnote and quotations omitted).

1 In the alternative, Plaintiffs also attempt to prove loss causation through the mat erialization-of-risk theory. (DE 38 at 14- 15). Under the materialization-of-risk theory, a plaintiff need not show that a corrective disclosure revealed the truth of an earlier misstatement; instead, a plaintiff need only show that the defendant concealed information that would pose a risk to the stock’s value and that the concealed risk materialized, thereby causing the price inflation induced by the concealment of that risk to fall. Hubbard v. BankAtlantic Bancorp., Inc., 688 F.3d 713, 726 (11th Cir. 2012).

The Eleventh Circuit, however, has twice declined to decide whether the materialization-of-risk theory is an acceptable means of proving loss causation in this Circuit. See id.; Sapssov v. Health Mgmt. Assocs., Inc., 608 Fed. Appx. 855, 861 n.7 (11th Cir. 2015) (per curiam).

In Hubbard, the Eleventh Circuit assumed-without deciding whether the theory can be used in this Circuit-that the materialization-of-risk theory was valid in order to explain why, even under that theory, the plaintiff failed to prove loss causation. Hubbard, 688 F.3d at 726 n.25. In Sapssov, after finding that the plaintiff failed to allege loss causation under a “corrective disclosure” theory, the Eleventh Circuit still declined to even analyze the plaintiff’s allegations under the materialization-of-risk theory. Sapssov, 608 Fed. Appx. at 861 n.7. The Eleventh Circuit wrote, by way of explanation, that “loss causation is sufficient to resolve this case.” Id.

Because the materialization-of-risk theory is not recognized by any controlling precedent in this Circuit, I decline to recognize it here.

There is, however, current and clear precedent on the definitional requirements of a corrective disclosure for purposes of the fraud-on-the-market theory of loss causation. That precedent is sufficient to resolve this case.

An alleged corrective disclosure must meet certain definitional requirements. First, a corrective disclosure must relate to the same subject matter as the prior misstatement-“only then can the disclosure be said to have a ‘corrective effect,’ rather than merely a ‘negative effect.”‘ Id. at 1311 n.128 (quoting In re Initial Public Offering Sec. Litig., 399 F. Supp.2d 261, 266 (S.D.N.Y. 2005)) (emphasis in original). The corrective disclosure need not “precisely mirror” the earlier misstatement , but it must at least “relate back to the misrepresentation and not to some other negative information about the company.” Meyer, 710 F.3d at 1197 (quoting In re Williams Sec. Litig.-WCG Subclass, 558 F.3d 1130, 1140 (10th Cir. 2009)). Second, a corrective disclosure must-by definition-reveal new information, and cannot merely confirm information that is already disclosed. FindWhat, 658 F.3d at 1311 n.28.

Plaintiffs need not plead a single, complete corrective disclosure, but can instead show that earlier misstatements were corrected through a series of partial corrective disclosures. Meyer, 710 F.3d at 1197.

Additionally, the Eleventh Circuit has held that “the commencement of an SEC investigation, without more, is insufficient to constitute a corrective disclosure.” Id. at 1201. Though the announcement of a regulatory investigation reveals the possibility of fraud

and its accompanying sanctions, and may therefore be immediately followed by a decrease in stock price, investigations do not, “in and of themselves, reveal to the market that a company’s previous statements were false or fraudulent.” Id.

Defendants argue that the alleged corrective disclosures do not share the same subject matter as the prior misstatements and do not reveal new information to the market.

I will discuss each set of alleged misstatements and corrective disclosures in turn.

1. The Erbey Statements

The first set of alleged misstatements identified by Plaintiffs concern Erbey’s position at and financial stake in Ocwen and the Related Companies. Plaintiffs allege that Ocwen represented to investors that they had “policies, procedures, and practices” in place “to avoid potential conflicts involving significant transactions” with the Related Companies. (DE 1 ,r 156).

Moreover, Ocwen reported that “[d]ue to the nature of Mr. Erbey’s obligations to each of (Ocwen and the Related Companies], he recuses himself from decisions pertaining to any related transaction.” (Id. ,r 157).

Erbey himself repeated such sentiments to investors on a December 3, 2013 conference call, saying,

“I’d like to stress, first of all, that [the Related Companies] are not affiliates, that they are independent companies. They have independent boards, and they have management teams… [W]e have (a] robust related party transaction approval process. Any related transaction between the (Related Companies and Ocwen], I actually recuse myself from.”

(Id. ,r 158). According to Plaintiffs, these statements are untrue because Ocwen did not have a written recusal policy and because Erbey did not recuse himself from transactions between Ocwen and the Related Companies. (Id. ,r,r 160-161).

Plaintiffs allege that these statements were partially corrected by a letter sent to Ocwen’s general counsel on February 26, 2014 by the NYDFS (the “February 26 Letter”). (Id. ,r 153).

The February 26 Letter announced the NYDFS’s concerns about potential conflicts of interest between Ocwen and the Related Companies and requested documentation from Ocwen about the relationship between Ocwen and the Related Companies. (DE 35-10).

Specifically, the February 26 Letter revealed that the NYDFS had discovered that Erbey was Executive Chairman of Ocwen and Chair of each of the Related Companies and that Erbey was the largest shareholder of Ocwen and each of the Related Companies. (Id.)

The February 26 Letter further revealed that Ocwen’s Chief Risk Officer himself had a conflict of interest with one of the Related Companies, and, perhaps most concemingly, “seemed not to appreciate the potential conflicts of interest posed by [his] dual role,” telling the NYDFS monitor that “Ocwen paid his entire salary, but he did not know and had apparently never asked which company paid his risk management staff.” (Id.)

The NYDFS requested “detailed information” about the financial interests of Ocwen officers in the Related Companies, the financial interests in Ocwen of officers of the Related Companies, and “[a]ll policies, procedures, and practices employed by Ocwen and the affiliated companies to avoid or mitigate potential conflicts of interest.” (Id. at 2).

Defendants argue that the February 26 Letter is not a corrective disclosure because it does not reveal new information. (DE 35 at 12). According to Defendants, “Plaintiffs’ Complaint is bereft of any allegations that Ocwen failed to disclose previously that members of its management owned shares in the Related Companies and that Mr. Erbey was chair of all the Related Companies.” (Id.)

I do not agree with Defendants’ analysis.

While Erbey’s position at and financial interest in Ocwen and the Related Companies may have been public knowledge, the February 26 Letter revealed that Ocwen did not have appropriate rules and procedures in place to prevent potential conflicts of interest, or, if Ocwen did have those rules and procedures, Erbey did not abide by them.

It is one thing to know that the company in which you have invested employs officers with potential conflicts of interest – of which the company is well aware and takes precautions to prevent – and another to find out that the precautions that you thought were in place were illusory.2

The February 26 Letter is at least a partial corrective disclosure as to the Erbey Statements, and Defendants’ Motion to Dismiss is denied as to those statements.

2 In Meyer, which  Defendants do not cite in either their Motion  to Dismiss or their reply in support of such Motion, the Eleventh Circuit held that the announcement of an investigation by a regulatory authority, without more, is insufficient to constitute a corrective disclosure. 710 F.3d at 1201.

The court reasoned that, though the announcement of an investigation may cause the stock price to fall, ”that is because the investigation can be seen to portend an added risk of future corrective action. That does not mean that investigations, in and of themselves, reveal to the market that a company’s previous statements were false or fraudulent.” Id. (emphasis in original). Still, the court noted that its holding was “not to say that an [] investigation could never form the basis for a corrective disclosure. We merely hold that the disclosure of an [] investigation, standing alone and without any subsequent disclosure of actual wrongdoing, does not reveal to the market the pertinent truth of anything.” Id. at 1201 n.13 (quotations omitted).

Though Defendants failed to raise this argument in their Motion, I note that, here, Meyer is not controlling.

First, the February 26 Letter revealed not just the fact of the NYDFS’s concerns, but also the subject of those concerns. The February 26 Letter detailed the specific conflicts of interest between Ocwen and the Related Companies  that concerned  the NYDFS, and provided sufficient detail to reveal­ at least partially-the falsity of Ocwen and Erbey’s recusal statements.

Second, Plaintiffs allege much more than just the NYDFS investigation. Plaintiffs allege that Ocwen entered into a consent order with the NYDFS in 2014, in which Ocwen agreed that it did not have a written recusal policy and that Erbey did not recuse himself from approving transactions  between Ocwen and the Related Companies.  (DE 1 ,r,r 159-161).

Plaintiffs further allege similar findings in a 2016 SEC order instituting a settled administrative proceeding against Ocwen and in a 2015 order instituting a settled administrative proceeding against one of the Related Companies.  (Id. ,r,r 162-165).

These facts are therefore distinguishable from Meyer, in which all that Plaintiffs alleged was  the regulatory investigation itself.

2. The DC&P Statements

The second set of alleged misstatements identified by Plaintiffs concerns Ocwen’s disclosure controls and procedures (“DC&P”).

In numerous annual and quarterly reports, Ocwen reported that it had in place effective DC&P to ensure that any information that the company was required to disclose pursuant to the Securities Exchange Act was actually discovered and disclosed by the company. (DE 1 ,i,i 173-177).

According to Plaintiffs, though, those reports were materially false and misleading. (Id. ,i 180).

To prove that statements about the efficacy of the company’s DC&P must have been false or misleading, Plaintiffs point to a variety of information that Ocwen allegedly should have, but did not, disclose: for example, Ocwen did not have rules necessary to prevent Erbey’s conflicts of interest from affecting transactions between Ocwen and the Related Parties, Ocwen did not properly verify the accuracy of loan data boarded onto its mortgage servicing technology, and Ocwen did not have a compliance management system. (DE I ,r,r 181, 185-186).

Plaintiffs point again to the February 26 Letter as a partial corrective disclosure for the DC&P Statements. (Id. ,r,r 152-153). Plaintiffs argue that the February 26 Letter disclosed to the market that the NYDFS, a regulatory agency, had concerns about Erbey’s potential conflicts of interest, and as such, the February 26 Letter “revealed that Ocwen did not have effective disclosure controls and procedures to assure that Ocwen would disclose its lack of a recusal policy and Erbey’s failure to recuse himself from related-party transactions.” (Id.,r 153).

Plaintiffs identify a second partial corrective disclosure for the DC&P Statements: an announcement made by Ocwen on February 6, 2014 (the “February 6 Announcement”). (Id.,r,r 148-151) In the February 6 Announcement, Ocwen disclosed that, at the request of the NYDFS,
Ocwen had put an indefinite hold on a previously announced purchase of the servicing rights to 184,000 loans from Wells Fargo. (DE 35-18).

The February 6 Announcement did not specify why the NYDFS requested that Ocwen halt the Wells Fargo transaction. (Id.) The February 6 Announcement simply stated that “Ocwen will continue to work closely with the NY DFS [sic] to resolve its concerns about Ocwen’s servicing portfolio growth.” (Id.)

Plaintiffs essentially make the same argument for both of these alleged corrective disclosures: though the corrective disclosures did not directly discuss Ocwen’s DC&P, the corrective disclosures reveal that other statements made by Ocwen-about Erbey’s conflicts of interest and Ocwen’s regulatory compliance-were false.

If Ocwen’s DC&P had operated as effectively as Ocwen claimed they did, Ocwen would not have been able to make the other false statements.

Therefore, in revealing the falsity of those other statements, the corrective disclosures also revealed the falsity of Ocwen’s statements about the efficacy of their DC&P.

I think that Plaintiffs ‘ logic is too circuitous.

“In order to qualify as corrective, the disclosure must share the same subject matter as the prior misstatement.” FindWhat, 658 F.3d at 1311 n.28.

Ultimately, the corrective disclosures alleged by Plaintiffs implicate Ocwen’s DC&P (or the lack thereof), but they do not deal directly with the subject of the DC&P.

Accordingly, Defendants’ Motion to Dismiss is granted as to the DC&P Statements.3

3 Plaintiffs do not argue that loss causation as to the DC&P Statements can be proved by a materialization-of-risk theory, so even if that theory were a sufficient means of proving loss causation, it would not affect my determination here. (DE 38 at 14-15).

3. The Regulatory Compliance Statement

The Regulatory Compliance Statement was made during an October 31, 2013 conference call held by Ocwen, Faris, and Erbey to discuss Ocwen’s financial results for the third quarter of 2013 with Ocwen investors. (DE 1 ,i 167).

During the call, Faris discussed the transfer of the ResCap loans, which Ocwen had recently purchased and which were subject to the NMS , onto Ocwen’s mortgage servicing platform, the REALServicing electronic servicing platform (“RealServicing”). (Id. ,i,i 60, 64-65, 77-78).

RealServicing was owned by Altisource Solutions, one of the Related Companies. (Id. ,i 48).

During the conference call, Faris told investors that the costs of integrating the ResCap loans onto the RealServicing platform had been higher than expected because Ocwen had been “careful to assure excellent customer service and strong compliance throughout the transfer process.” (Id. ,i 78).

According to Plaintiffs, Faris’s statement was materially misleading because Ocwen was not maintaining strong compliance with its regulatory obligations. (Id. ,i,i 168-172).

In 3 Plaintiffs do not argue that loss causation as to the DC&P Statements can be proved by a materialization-of-risk theory, so even if that theory were a sufficient means of proving loss causation, it would not affect my determination here. (DE 38 at 14-15).

particular, the RealServicing platform was rife with problems that caused Ocwen not to service mortgage loans in accordance with regulatory requirements. (Id. ,i,i 170-172).

Among the problems listed by Plaintiffs, Ocwen input incomplete and inaccurate borrower loan information into RealServicing;

RealServicing generated inaccurate information about borrowers’ loans even when accurate information had been put into the RealServicing platform; and RealServicing did not have the capacity to process the large number of loans that Ocwen had acquired and, as a result, was not functional “for lengthy periods of time.” (Id. ,i 170)

Plaintiffs allege that the Regulatory Compliance Statement was partially corrected by the February 6 Announcement that the NYDFS had halted Ocwen’s purchase of the Wells Fargo loans. (Id. ,i 150).
According to Plaintiffs, the February 6 Announcement revealed that Ocwen did not have, as Faris stated, “strong compliance.”

Though the February 6 Announcement did not directly reference Ocwen’s regulatory compliance, Plaintiffs argue that the announcement of sanctions by a regulatory agency leads directly to the inference that Ocwen must not have been compliant with its regulatory requirements.

As with the DC&P Statements, though, I think the connection between the Regulatory Compliance Statement and the alleged corrective disclosure is too attenuated.

The February 6 Announcement reveals only that the NYDFS was concerned with Ocwen’s “servicing portfolio growth,” but it does not specify the nature or subject of the NYDFS’s concerns. It does not mention Ocwen’s regulatory compliance at all, let alone the specific instance of supposed compliance alluded to by Faris on the October 31 conference call.

Although Plaintiffs seem to construe Paris’s statement as an assertion that Ocwen had strong compliance generally, it specifically concerned Ocwen’s compliance with its regulatory obligations during the transfer of the ResCap loans onto the RealServicing platform.

Given the complete lack of detail or explanation in the February 6 Announcement for why the NYDFS halted Ocwen’s purchase of the Wells Fargo loans, it is difficult to see how the February 6 Announcement could have corrected Paris’s specific statement about Ocwen’s compliance during the ResCap loan transfer.

Moreover, the Eleventh Circuit held in Meyer that the commencement of an investigation by a regulatory body, “without more, is insufficient to constitute a corrective disclosure.” Meyer, 710 F.3d at 1201.

As the Eleventh Circuit explained, regulatory investigations may cause stock prices to fall “because the investigation can be seen to portend an added risk of future corrective action.

That does not mean that the investigations, in and of themselves, reveal to the market that a company’s previous statements were false or fraudulent.” Id.

That is, the announcement of an investigation alone does not correct any previous misstatement to the investing public.

Here, the February 6 Announcement does nothing more than reveal the existence of an investigation by the NYDFS. The February 6 Announcement gives no detail or clue as to the subject of the NYDFS’ s concerns or the regulatory obligations that Ocwen failed to meet.

The Eleventh Circuit has stated that “loss causation analysis in a fraud-on-the-market case focuses on the following question: even if the plaintiffs paid an inflated price for the stock as a result of the fraud . . . did the relevant truth eventually come out and thereby cause the plaintiffs to suffer losses?” FindWhat, 658 F.3d at 1312.

The February 6 Announcement did not reveal any relevant truth that could have caused the Plaintiffs’ losses.

The Motion to Dismiss is accordingly granted with regard to the Regulatory Compliance Statement.

It is hereby ORDERED AND ADJUDGED that:

(1) Defendants Motion to Dismiss (DE 35) is GRANTED IN PART AND DENIED IN PART, consistent with this Order.

(2) The prior Order Setting Trial Date (DE 25) and Pretrial Scheduling Order (DE 26) are VACATED.

An amended schedule will be entered by a separate Order.

(3) Defendants’ Corrected Motion to Strike Notice of Supplemental Authority (DE 42) is DENIED AS MOOT.

(4) Defendants’ Motion to Strike Notice of Supplemental Authority (DE 41) 1s STRICKEN.

DONE AND ORDERED.

Acceleration

Who is Presiding Judge Andrea Gundersen, Mortgage Foreclosure Division, Seventeenth Judicial Circuit?

Judge Gundersen presides over all foreclosures in Broward County. She has been referred to JQC, asking that she be removed from the bench.

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FL Honest Lending Report

REPUBLISHED BY LIT: JUL 5, 2021

After orchestrating one of the largest consumer frauds in American history, the banking industry continues the unethical and illegal servicing and foreclosure practices that were uncovered during the “robo-signing” scandal which eventually led to the $25b settlement with 49 State Attorneys General in 2012.

While some of the unethical practices regarding origination were curbed after the settlement, unethical servicing and fraudulent foreclosures continue to plague homeowners.

Floridians for Honest Lending (FHL) reviewed several hundred foreclosure complaints filed in 2019 by Bank of America, the Bank of New York Mellon, and JP Morgan Chase in the Eleventh and Seventeenth Judicial Circuit Courts that comprise Miami-Dade and Broward counties respectively. Upon that review, FHL found 369 foreclosure complaints were filed with rubber-stamped blank endorsements with signatures of David SpectorLaurie MederMichele Sjolander, and Cynthia Riley, whose names became synonymous with the robo-signing scandal. Of those, 325 were loans originated by Countrywide, the disgraced mortgage company that was bought by Bank of America in 2008.

In addition, FHL found that in Miami-Dade alone, 310 homes had been sold at auction since January 2019 that included these same rubber-stamped blank endorsements from these same rubber-stamped blank endorsements, 21 of which were sold during the COVID-19 pandemic.

The fraudulent rubber-stamped blank endorsements are used to establish standing and the banks’ right to foreclose on homeowners, the same homeowners that were sold predatory loans and pushed into foreclosure with unethical servicing practices.

This practice of filing false documents was documented by 60 Minutes in 2011 and was part of the complaint filed by the 49 State Attorneys General.

It was discovered after the $25b National Mortgage Settlement that Bank of America and JP Morgan Chase continued to submit forged documents, now relying on forgery and perjury, in foreclosures across the nation.

Unfortunately, the banks’ reckless greed left millions of properties with mortgages and promissory notes corrupted and the chain of title on those properties broken, putting trial court judges in an uncomfortable position of either taking the banking industry to task for these forged documents or kicking a family out of their home.

Unfortunately, with little scrutiny from the media, legislators, or regulators, our court system has heavily favored the latter.

In fact, FHL’s review found that in Broward county, 217 of the 219 foreclosure complaints filed in 2019 that included fraudulent rubber stamps were assigned to Judge Andrea Gundersen.

Of these cases assigned to Judge Gundersen, 126 of them have been closed, none of which were ruled in favor of the defendant.

Currently, Judge Gundersen presides over all foreclosures in Broward County.

She was reassigned from Family Court and does not have prior experience in foreclosure litigation.

Since her reassignment, defense attorneys have filed motions for judicial disqualification against Judge Gundersen for allowing attorneys for Bank of America to misrepresent the law and argue that “fraud on the court” is allowed in foreclosure because of a “litigation privilege” and ordering the defendant to pay the Bank’s attorney’s fees for challenging the fraud.

In April 2021, Judge Gundersen granted nineteen motions for disqualification in cases she presided over.

The clients have referred Judge Gundersen to the Judicial Qualifications Commission asking that she be removed from the bench.

These fraudulent foreclosures impact real people like Ana Rodriguez, an 82-year-old homeowner who was a former Cuban political prisoner, who now faces eviction because she was sold a predatory loan by Countrywide.

It impacts people like Mrs. Marie Williams-James who never missed a mortgage payment but Bank of America foreclosed on her anyway and Mr. and Mrs. Simpson who were working on a mortgage modification when the Judge refused the bank’s motion for continuance and forced the Simpsons into a fraudulent foreclosure judgment.

There is a new foreclosure crisis looming due to the economic effects of the COVID-19 pandemic. As we get the pandemic under control, the federal government will be under increased pressure from the banking industry to lift the FHFA moratorium for federally-backed mortgages from Fannie Mae and Freddie Mac.

That moratorium only protects borrowers who had strong enough credit scores to qualify for government-backed mortgages. The elderly, communities of color, and first-time homebuyers who took subprime mortgages are not protected by any moratorium and are still being evicted during the pandemic.

The issue of fraudulent foreclosures must be resolved before this new crisis begins. This is an issue that demands action at the local, state, and federal levels from legislators, regulators, and our judicial system.

We cannot continue to allow fraud in our justice system for the convenience of the banking industry and at the expense of homeowners’ American Dream.

Floridian for Honest Lending is a project of Opportunity For All Floridians, a 501c4 non-profit organization. We believe that our system will only work with transparency, honesty, and accountability. Our research can be found here.

Each complaint filed by the banks’ attorneys is linked in the second column. The forged rubber stamps can usually be found on the promissory notes that are included in the exhibits.

Below you can also find a sample of the varied David Spector signatures.

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Bankers

The Fl. Bar Complaint by Judge Hanzman Against Attorney Bruce Jacobs is Personal

Judge Michael Hanzman’s name is appearing frequently in sanctions orders and Florida bar complaints of late and LIF investigates.

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Judge Michael Hanzman’s name is appearing frequently maligning lawyers and judges in orders, sanctions and/or bar complaints of late. Upon review LIF notes a trend; apparent abuse of office and power for personal vendetta’s.

LIF will be highlighting his cases separately and updating this and other articles frequently to expand on this breaking news story.

Update: July 25, 2021

On July 12, 2021, The Florida Bar’s amended request for extension of time is granted and the referee is allowed to and including September 17, 2021, in which to file the required referee’s report. ALL OTHER TIMES ARE EXTENDED ACCORDINGLY.

NOV 3, 2020 | REPUBLISHED BY LIT: JUN 20, 2021

COMPLAINT

The Florida Bar, Complainant, files this Complaint against Bruce Jacobs, respondent, pursuant to the Rules Regulating The Florida Bar and alleges the following:

1. Respondent is, and at all times mentioned in the complaint was, a member of The Florida Bar, admitted on September 24, 1997, and is subject to the jurisdiction of the Supreme Court of Florida.

2. Prior to the filing of this Complaint, there has been a finding of probable cause by a grievance committee as required by Rule 3-7.4(l) Rules Regulating The Florida Bar. The presiding member of that committee has approved the instant Complaint.

COUNT I: AS TO THE FLORIDA BAR FILE NO. 2019-70,188(11H)

3. Respondent’s conduct came to the attention of The Florida Bar as a result of a referral by the Third District Court of Appeal for the State of Florida.

4. Respondent represented the defendant in a civil lawsuit in the case styled HSBC Bank et. al, v. Aquasol Condominium Association, Inc., Case No.:13-29724-CA-01.

5. After a final judgment of foreclosure was entered in favor of the bank, respondent filed an appeal to the Third District Court of Appeal.

6. One of the issues raised by respondent on appeal was that the bank lacked standing to foreclose against his client because the bank was not the holder and owner of the note.

Yet, that issue had been addressed and ruled on in the seminal case HSBC Bank, USA, NA v. Buset, 241 So.3d 882 (Fla. 3d DCA 2018), which held that in order to establish standing in a foreclosure action you must prove that you were either the holder or owner of the note.

7. Respondent did not cite to, acknowledge, or address, the controlling adverse decision in Buset in his briefs, even though respondent was counsel of record in both the trial court and on appeal and was, therefore, fully aware of Buset’s holding and its binding nature on the court.

8. Notwithstanding same, the Third District Court of Appeal affirmed the trial court’s decision, finding no merit in the arguments raised by the appellant.

9. Respondent then filed a motion for rehearing and rehearing en banc.

In his motion, respondent made disparaging and reckless comments regarding the judiciary. Excerpts of his comments are highlighted below:

  • “Most disturbing, the opinion sends the wolves after Aquasol’s counsel personally by commending the trial court’s ‘patience’ for not holding him in contempt of court. Truthfully, no court should dare make the front page of the paper for jailing an attorney for asking about a false document in evidence. This Court’s opinion intentionally emboldens judges to abuse their contempt ”

 

  • “This Court’s insistence on ignoring established Florida Supreme Court law to benefit bad corporate citizens is certain to cause ”

 

  • “Fla. Stat. § 673.3011 controls enforcement of negotiable instruments, not mortgages. Ownership controls the right to enforce the mortgage. This Court is acting illegally by instructing the law is ”

 

  • “I refuse to accept the idea that you cannot win when you are right. This is a biblical, spiritual journey for me. I have faith I will be protected because I am acting so clearly within the law and this Honorable Court is ”

 

  • “It’s become clear to me that the ‘powers that be’ support this fraudulent foreclosure system that took so long to put in place. If only the Courts enforced the 2001 amendments to Article 9 and forced Banks to bring their contracts to prove their purchase of the debt to prove standing. This foreclosure crisis was such an interesting phenomenon. Courts kept covering up for Banks that were intentionally doing it wrong.”

 

  • “Banks have all the resources to do it right but made business decisions to do it fraudulently. It’s as if they knew the Courts would always let them get away with it. Some out of fear as elected officials. Some out of indifference. Some out of belief that banks and bad corporate citizens got them to their position and they are on that team. The banks should always win. I call those judges traitors to the constitution.”

 

  • “These banks have so much and keep taking more. They don’t care if you are rich or poor, white or It is easy to win when the game is rigged.”

 

  • “In the decade that I’ve fought on the trenches of foreclosure court, I’ve been blessed to help so many clients save their homes. Yet, I’ve had to warn them this broken system is riddled with fraud and The judges decide the rule of law, and whether any rule of law exists. Maybe the rule of law only applies to the rest of us.”

 

·        “This Court is sworn to protect and defend the constitution of the United States of America, not the foreclosure fraud of Bank of America or HSBC.”

 

  • “Why would anyone sworn to protect and defend the constitution stay silent while domestic enemies destroy our democracy from within? Is this really the world Americans should live in where those in power do not do what is right?”

 

  • “I’m fighting the modern-day monopoly. I am calling all the patriots who swore the oath to protect and defend the Constitution to join me. Any court that protects the monopoly over the rule of law is a traitor to the constitution and should be tried for ”

 

  • “This Court should not ignore Florida Supreme Court precedent and the actual facts of the dispute to reach a pre-determined result of blow the dogwhistle for judges to attack Aquasol’s counsel with contempt and jail for doing his job.

10. Upon review of respondent’s motion, which included a review of his initial and reply briefs, on or about September 26, 2018, the court issued an Order to Show Cause within ten days as to why the court should not impose sanctions against respondent for filing a motion and briefs which violated both the Florida Rules of Appellate Procedure and The Rules Regulating The Florida Bar. (A copy of the Third District Court of Appeal’s order is attached as Exhibit “A”).

11. On or about December 5, 2018, the court entered its order imposing sanctions. (A copy of the Third District Court of Appeal’s order is attached as Exhibit “B”).

Specifically, the court found that respondent impugned the qualifications or integrity of the court without any objectively or reasonable basis for doing so. The court further found that respondent filed a motion that was frivolous or in bad faith and was subject to sanctions pursuant to Florida Rule of Appellate Procedure 9.410(a) which provides:

“After 10 days’ notice, on its own motion, the court may impose sanctions for any violation of these rules, or for the filing of any proceeding, motion, brief, or other document that is frivolous or in bad faith. Such sanctions may include reprimand, contempt, striking of briefs or pleadings, dismissal of proceedings, costs, attorneys’ fees, or other sanctions.”

12. Additionally, the court found that not only did respondent’s conduct violate the Rules Regulating the Florida Bar, but it also violated the elementary norms of civility and professionalism.

13. As such, the court imposed reasonable attorney’s fees against Respondent not to exceed $5,000.00 and referred this matter to The Florida Bar.

14. Based on the foregoing, Respondent is in violation of Rule 4-8.2(a)

Impugning Qualifications and Integrity of Judges or Other Officers.

(A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, mediator, arbitrator, adjudicatory officer, public legal officer, juror or member of the venire, or candidate for election or appointment to judicial or legal office) of the Rules Regulating The Florida Bar.

COUNT II: AS TO THE FLORIDA BAR FILE NO. 2019-70,358(11H)

15. Respondent’s conduct came to the attention of The Florida Bar as a result of a referral by the Third District Court of Appeal for the State of Florida.

16. Respondent represented the defendant in a civil lawsuit in the case styled Bank of America, N.A., v. Ryan Atkin, Case No. 3D18-1840, Lower Tribunal No. 09-87096.

17. The plaintiffs filed a petition for writ of prohibition with regard to a denial of a motion to disqualify the trial judge.

18. On or about September 17, 2018, respondent filed a Response to the Writ and a Motion to Disqualify the Third District Court of Appeal from ruling in the Atkin matter.

19. In his response, respondent made disparaging and reckless comments regarding the judiciary. Excerpts of his comments are highlighted below:

• “In Simpson [sic], this Court violated the standard of review, ignored Florida Supreme Court precedent, and falsified the facts in contradiction to the record.”

• “The impartiality of this Court is objectively questioned and it cannot issue a ruling with integrity in this case.”

• A named circuit court judge acted with “blatant disregard for the rule of law and the client’s constitutional rights” in an unrelated case and was upheld by this Court.

• The same circuit court judge has “recently escalated her illegal conduct.”

• A different, unnamed circuit court judge changed a favorable ruling because opposing counsel “threw a fundraiser for the new judge who rotated into the division.”

20. Similarly, respondent made the following disparaging and reckless comments regarding the judges of the Third District Court of Appeal, as well as the justices of the Florida Supreme Court, in his jurisdictional brief to the United States Supreme Court which he attached as Appendix 1 to his Response to the Writ:

• “The opinion [of this Court] mispresented facts, ignored Florida Supreme Court law, and disregarded evidence showing fraud. The Florida Supreme Court declined jurisdiction to address this factually and intellectually dishonest result.”

• “The Third District Misrepresented the Amended Rule 1.540(b) Motion to reach a pre-determined result – foreclosure.”

• “… the Dishonesty of the Third DCA’s opinion.”

• “The Florida Supreme Court has repeatedly declined to protect the constitutional rights of foreclosure defendants.”

• “[I]n virtually every appeal where the trial judge ruled in favor of undersigned counsel’s client, including Simpson, the Third DCA reversed with intellectually and factually dishonest opinions.”

• This Court “attempt[ed] to cover up, protect, and ignore well- documented fraud on the court in foreclosures. All to ensure a pre- determined result – foreclosure.”

• “The Third DCA’s Opinion is pretextual and arbitrary.”

• “This Court is called on to act because the Florida Supreme Court has taken no action to prevent the Third DCA from improperly ignoring fraudulent conduct in foreclosures.”

• “It is objectively reasonable to fear the Third DCA acted to reach a predetermined outcome that favors banks over homeowners – foreclosure. If the Florida Supreme Court will not act, this Court must.”

• “Democracy will not fail if financial institutions are held to the rule of law. To the contrary, democracy falls if the public is allowed to believe Courts are biased in favor of bad corporate citizens and a fraudulent foreclosure process.”

21. Upon review of respondent’s pleadings, on or about December 14, 2018, the court issued an Order to Show Cause requiring respondent, within ten days, to address why the court should not impose sanctions against him for violations of both the Florida Rules of Appellate Procedure and Rules Regulating The Florida Bar. (A copy of the Third District Court of Appeal’s order is attached as Exhibit “C”).

22. Specifically, the court found a reasonable basis to conclude that respondent violated Rule 4-8.2(a) on September 17, 2018 when he filed his response to the petition for writ of prohibition.

23. The court also concluded that same was violated when respondent filed as Appendix 1 to his Response a copy of a jurisdictional brief that was filed in an unrelated case to the United States Supreme Court.

24. On or about April 10, 2019, the court entered its order of referral to The Florida Bar. (A copy of the Third District Court of Appeal’s order is attached as Exhibit “D”).

25. Based on the foregoing, Respondent is in violation of Rule 4-8.2(a) Impugning Qualifications and Integrity of Judges or Other Officers.

(A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, mediator, arbitrator, adjudicatory officer, public legal officer, juror or member of the venire, or candidate for election or appointment to judicial or legal office) of the Rules Regulating The Florida Bar.

COUNT III: AS TO THE FLORIDA BAR FILE NO. 2020-70,056(11H)

26. Respondent’s conduct came to the attention of The Florida Bar as a result of a referral by the Honorable Michael A. Hanzman of the Eleventh Judicial Circuit Court in Miami-Dade County.

27. Notably, Judge Hanzman’s referral raised similar concerns with regard to respondent’s conduct as those raised and sanctioned by the Third District Court of Appeals of Florida.

28. Here, respondent represented the defendant in a civil lawsuit in the case styled Bank of New York Mellon v. Ryan Atkin, Case No. 2009-87096 CA.

29. On or about July 26, 2019, respondent filed a Verified Motion for Judicial Disqualification. In his motion, respondent continued to make disparaging and reckless comments regarding a member of the judiciary.

(A copy of respondent’s Verified Motion for Judicial Disqualification excluding attachments is attached as Exhibit “E”).

Excerpts of his comments are highlighted below:

• Judge Hanzman refused to respect the notice of unavailability and his office advised the hearing was still scheduled to move forward at this juncture.

This is the latest of a series of improper actions by Judge Hanzman that gives rise to Mr. Atkin’s objectively reasonable fears that he will not be given a fair hearing in this court.

• Judge Hanzman Has Repeatedly Ignored Obvious Fraud on the Court by Large Financial Institutions in Foreclosures While Abusing His Power to Chill Defense Counsel’s Zealous Advocacy Against Those Financial Institutions.

• Judge Hanzman has made repeated statements on the record and off the record that reflect his indifference to large financial institutions presenting false evidence to the court to obtain the equitable relief of foreclosure.

His personal finances appear to be heavily invested in the financial services sector which gives Mr. Atkin a reasonable fear Judge Hanzman will not be fair and impartial because it will negatively impact his significant personal financial holdings.

• Here, this Honorable Court has allowed the most rich and powerful segment of our society, the financial sector in which he is personally heavily invested in, to engage in felony misconduct and walk away without any punishment in violation of the Judicial Canons and the rule of law.

The Court was “unimpressed” with these allegations of felony misconduct based on a prior foreclosure trial that involved entirely different misconduct which the Court similarly excused.

30. On July 29, 2019, respondent’s motion for disqualification was denied as untimely and legally insufficient.

31. In addition to the incident described above, on or about May 3, 2019 and July 14, 2019, respectively, respondent filed a Motion for Determination of Entitlement to Prevailing Party Attorneys’ Fees and Re-hearing, and a Motion for an Award of Attorney’s Fees and Costs for Order Determining Entitlement of Multiplier.

32. In denying the motions, the court found that the defendant was not entitled to attorney’s fees and costs because same was neither plead nor requested in his pleadings.

The court further explained that the rule with regard to a claim for attorney’s fees is well established pursuant to controlling authority which respondent did not cite to, acknowledge or address in his motion.

(A copy of Judge Michael A. Hanzman’s order is attached as Exhibit “F”).

33. Judge Hanzman’s July 31, 2020, order further stated:

“Apparently Defendant’s counsel – Bruce Jacobs – has not gotten the message or been deterred by our appellate court’s issuance of an Order to Show Cause based upon its finding of ‘a reasonable basis to conclude Mr. Jacobs violated his duty of candor to the tribunal … by failing to disclose to this court controlling adverse case law, ” Aquasol Condo Ass ‘n, Inc v. HSBC Bank USA, 43 Fla. L. Weekly D2271 (Fla. 3d Sept. 26 2018), or its later Order Imposing Sanctions” and referral to the Florida Bar for appropriate disciplinary proceedings based – in part- on Mr. Jacobs’ ‘extraordinary and corrosive ‘ attacks ‘on the integrity of the trial court and this court.

‘Aquasol Condo Ass ‘n, Inc v. HSBC Bank USA, Nat’/ Ass ‘n, 43 Fla. L. Weekly D2699 (Fla. 3d DCA Dec. 5, 2018). Despite the appellate court’s findings and Bar referral, Mr. Jacobs’ recently filed a scurrilous motion to disqualify this Court and once again violated Rule 4-8.2(a) of the Rules and Regulation of the Florida Bar by impugning the integrity of this Court, and he has once again failed to cite controlling authorities.

In sum, Mr. Jacobs is unrepentant, undeterred, and continues to engage in the exact same behavior he was sanctioned for and which is now presumably being investigated by the Bar. Accordingly, this Order will be sent to the Florida Bar so it may be considered as part of any disciplinary proceeding. ”

34. Based on the foregoing, Respondent is in violation of Rules 4- 3.3(a)(3) False Evidence; Duty to Disclose.

(A lawyer shall not knowingly: fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel) and Rule 4-8.2(a) Impugning Qualifications and Integrity of Judges or Other Officers.

(A lawyer shall not make a statement that the lawyer knows to be false or with reckless disregard as to its truth or falsity concerning the qualifications or integrity of a judge, mediator, arbitrator, adjudicatory officer, public legal officer, juror or member of the venire, or candidate for election or appointment to judicial or legal office) of the Rules Regulating The Florida Bar.

WHEREFORE, The Florida Bar prays respondent will be appropriately disciplined in accordance with the provisions of the Rules Regulating The Florida Bar as amended.

The court further explained that the rule with regard to a claim for attorney’s fees is well established pursuant to controlling authority which respondent did not cite to, acknowledge or address in his motion.

(A copy of Judge Michael A. Hanzman’s order is attached as Exhibit “F”).

Tonya L. Avery,
Bar Counsel
The Florida Bar
Miami Branch Office
444 Brickell Avenue
Rivergate Plaza, Suite M-100
Miami, Florida 33131-2404
(305) 377-4445
Florida Bar No. 190292
tavery@floridabar.org

Patricia Ann Toro Savitz,
Staff Counsel
The Florida Bar
651 E. Jefferson Street
Tallahassee,
Florida 32399-2300
(850) 561-5839
Florida Bar No. 559547
psavitz@floridabar.org

CERTIFICATE OF SERVICE

I certify that this document has been efiled with The Honorable John A. Tomasino, Clerk of the Supreme Court of Florida; with copies provided via email to Benedict P. Kuehne, at ben.kuehne@kuehnelaw.com and Roy D. Wasson, at roy@wassonandassociates.com Attorneys for Respondent, and that copies have been furnished by United States Mail via certified mail No. 7017 3380 0000 1082 7201, return receipt requested to Benedict P. Kuehne100 SE 2nd St. Ste. 3105, Miami, FL 33131-2100 and to Roy D. Wasson via certified mail No. 7017 3380 0000 1082 7218 at 28 W. Flagler St. Ste. 600, Miami, FL 33130-1893 and to Tonya L. Avery, Bar Counsel, The Florida Bar, via email at tavery@floridabar.org, on this 3rd day of November, 2020.

Patricia Ann Toro Savitz Staff Counsel

NOTICE OF TRIAL COUNSEL AND DESIGNATION OF PRIMARY EMAIL ADDRESS

PLEASE TAKE NOTICE that the trial counsel in this matter is Tonya L. Avery, Bar Counsel, whose address, telephone number and primary email address are The Florida Bar, Miami Branch Office, 444 Brickell Avenue Rivergate Plaza, Suite M-100Miami, Florida 33131-2404, (305) 377-4445 and tavery@floridabar.org; and Respondent need not address pleadings, correspondence, etc. in this matter to anyone other than trial counsel and to Staff Counsel, The Florida Bar, 651 E Jefferson Street, Tallahassee, Florida 32399-2300, psavitz@floridabar.org.

MANDATORY ANSWER NOTICE

RULE 3-7.6(h)(2), RULES REGULATING THE FLORIDA BAR, PROVIDES THAT A RESPONDENT SHALL ANSWER A COMPLAINT.

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Appellate Circuit

Judge Charles Wilson and Judge Lisa Branch Like Nothin’ Better than Reviving a Personal Vendetta

Our refrain remains the same. Check the case history to see if you’re about to be “stitched-up” by a panel which is maliciously assembled to execute personal vendettas.

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In This 2021 Foreclosure Case with Sanctions, two members of the Appellate Panel were on Prior Decisions.

In the case of Judge Wilson, he sat on the Coastal Bank v. Martin case (11th Cir.) and in the case of Judge Branch, she was a Panel member in the $2.7M judgment case referenced herein, the Greenstein v. Bank of Ozarks, while she was a Justice on the Court of Appeals in Georgia State Court. Now, the lawyer who was a named party in that case in relation to CEP–TEN Mile Resorts, is before Branch as a Federal Circuit Judge and both Wilson and Branch are conveniently and non-randomly assigned to the 3-panel in this case.

It’s another example of judicial bias from the Eleventh Circuit. “Our refrain remains the same” and we warn parties to do their homework and look to the lower court and aged history of litigants to see if you’re about to be “stitched-up” by a panel which is maliciously assembled to execute personal vendettas.

MAY 29, 2021

Coastal Bank v. Martin, No. 17-11998 (11th Cir. Nov. 20, 2017)

Greenstein v Bank of the Ozarks,  (GA COA, 2014)

(May 28, 2021)

Before WILSON, MARTIN, and BRANCH, Circuit Judges. PER CURIAM:

More than eight years after Truist Bank foreclosed on Roderick Wright’s and his mother’s homes,1 Wright sued Truist, alleging misconduct related to the underlying loans.

On Truist’s motion, the U.S. District Court for the Northern District of Georgia dismissed Wright’s complaint for failure to state a claim.

Wright argues that the district court erred in dismissing his complaint because:

(1) he pleaded an actionable claim for breach of duty by a notary public,

(2) his Georgia RICO Act claim was not time-barred, and

(3) his substantive claims were adequate to support his claims for punitive damages and attorney’s fees.

Because the district court properly dismissed these claims, we affirm.

Truist requests that we deem Wright’s appeal to be frivolous and award sanctions.

Wright requests that we strike portions of Truist’s motion for sanctions for ad hominem language and for us to award sanctions in his favor.

Because we conclude that Wright’s appeal is frivolous, we grant Truist’s motion for sanctions and remand to the district court for an assessment of attorney’s fees and costs.

As to Wright’s motion to strike and for sanctions, we conclude that the arguments in Truist’s motion for sanctions were not improper and deny Wright’s motion.

1 Truist was then known as the Branch Banking and Trust Company.

I. Background

A. Facts

Wright owned a real estate development business and began banking with Truist around 2000. In March 2010, Truist approached Wright with a restructuring plan for some of his commercial loans.

The plan involved securing and cross- collateralizing the loans with Wright’s and his mother’s homes.

Wright alleges that Truist told him that the restructuring plan would be in his best interests. In reliance on that representation, he subsequently executed the plan.

According to Wright, there were no witnesses or notaries present when he signed the plan documents. Afterwards, he alleges, Truist affixed false notary public attestations and witness signatures to the documents.

Truist then allegedly refused to accept full payoffs of the loans.

In November 2010, several months after the parties executed the restructuring plan, Truist foreclosed on Wright’s and his mother’s homes.

B. Procedural History

On December 16, 2019, Wright filed a complaint against Truist in the Superior Court of Gwinnett County, Georgia. Wright alleged that Truist was liable for breach of duty by a notary public, a violation of the Georgia RICO Act, punitive damages, and attorney’s fees.2

Truist subsequently removed the case to the U.S. District Court for the Northern District of Georgia.

2 Wright also alleged counts of fraud, breach of fiduciary duties, economic duress, and to “set aside improper documents.” Because the district court dismissed these claims and Wright

Truist then moved to dismiss Wright’s complaint for failure to state a claim upon which relief can be granted. In its motion, Truist argued that:

(1) Georgia law does not recognize a private cause of action based on violations of the notary public statutes,

(2) Wright’s Georgia RICO Act claim was barred by the applicable five-year statute of limitations, and

(3) Wright was not entitled to punitive damages or attorney’s fees because he failed to establish his underlying claims.

Wright responded and argued that Truist’s “procurement and participation in the intentional violations of” the notary public statutes was actionable under Georgia law, his Georgia RICO Act claim was timely because it “ar[ose] out of the conduct associated with the execution of [sealed documents]” and was subject to a twenty-year statute of limitations, and his claims for punitive damages and attorney’s fees survived because his underlying claims were adequately pleaded.

The district court granted Truist’s motion to dismiss.

It found that “[i]n Georgia, there is no private cause of action for a claim arising under the notary public statutes,” and that “employers are neither subject directly to nor held vicariously liable for violations of OCGA § 45-17-11 committed by a notary public employed by them.”

It rejected Wright’s argument that a twenty-year statute of limitations applied to his Georgia RICO Act claim because the Georgia RICO Act contains a five-year statute of limitations.

Lastly, it dismissed Wright’s claims for punitive damages and attorney’s fees because it had dismissed all of Wright’s underlying claims.

Wright timely appealed.

2 Wright also alleged counts of fraud, breach of fiduciary duties, economic duress, and to “set aside improper documents.” Because the district court dismissed these claims and Wright does not challenge that decision on appeal, we will limit our discussion to Wright’s remaining claims.

On appeal, Wright argues that the district court improperly dismissed his claim for breach of duty by a notary public because it “misinterpreted case law detailing liability of an employer that procured an employee-notary’s violation of [the notary public statute].”

He also argues that it erred in dismissing his Georgia RICO Act claim because it “failed to recognize that the racketeering activity alleged . . . related to the improper attestations of the notaries subjecting the RICO claim to twenty-year statute of limitations under O.C.G.A. § 9-3-23 because the false swearing and false statements were upon sealed instruments.”

Finally, he argues that because his claim for breach of duty by a notary public and his Georgia RICO Act claim “should be reinstated . . . [his claims] for punitive damages and attorneys’ fees should likewise be reinstated.”

After Wright filed his opening brief, Truist filed a motion for sanctions under Federal Rule of Appellate Procedure 38 and 28 U.S.C. § 1927.3

In its 28 U.S.C. § 1927 states:

“Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

Truist argued that Wright’s appeal was frivolous because it was clearly foreclosed by governing law. Truist also made references to the facts that:

(1) Wright’s counsel, Eric J. Nathan, had been sanctioned by this Court in Coastal Bank v. Martin, 717 F. App’x 860, 865–66 (11th Cir. 2017), for failing to disclose controlling authority,

and

(2) Truist had obtained a judgment against Nathan in a separate matter for $2,737,372.61. (LIF Comment: Greenstein v. Bank of the Ozarks, 757 S.E.2d 254 (Ga. Ct. App. 2014).

Based on these facts, Truist suggested that Wright and Nathan were waging a “vendetta” against it.

In response, Wright filed a motion to strike Truist’s motion for containing ad hominem language and requested sanctions.

He argued that Truist “inserted no fewer than eight ad hominem attacks directly, and unnecessarily, attacking the personal credibility and character of Counsel for Wright and Wright himself,” in violation of Eleventh Circuit Rule 25-6.4

According to Wright, it was inappropriate for Truist to mention that Nathan had been sanctioned by this Court or that it had obtained a judgment against Nathan.

He also requested that we impose sanctions against Truist and its counsel under our inherent authority for their purported “continued and pervasive ad hominem attacks.”

3 Rule 38 states: “If a court of appeals determines that an appeal is frivolous, it may, after a separately filed motion or notice from the court and reasonable opportunity to respond, award just damages and single or double costs to the appellee.”

28 U.S.C. § 1927 states: “Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”

4 Eleventh Circuit Rule 25-6 states: “When any paper filed with the court, including motions and briefs, contains . . . ad hominem or defamatory language . . . the court . . . may without prior notice take appropriate action . . . includ[ing] ordering that: the document be sealed; specified language or information be stricken from the documents; the document be struck from the record; the clerk be directed to remove the document from electronic public access; the party who filed the document either explain why including the specified language or disclosing the specified information in the document is relevant, necessary, and appropriate or file a redacted or replacement document.”

II. Analysis

We review the district court’s grant of Truist’s motion to dismiss de novo, accepting the allegations in Wright’s complaint as true and construing them in the light most favorable to him. McGroarty v. Swearingen, 977 F.3d 1302, 1306 (11th Cir. 2020).

A. Breach of Duty by a Notary Public

Wright argues that the district court erroneously dismissed his claim for breach of duty by a notary public. The district court dismissed the claim because it found that, “[i]n Georgia, there is no private cause of action for a claim arising under the notary public statutes.”
Under O.C.G.A. § 45-17-8(d), “[a] notary public shall not execute a notarial certificate containing a statement known by the notary to be false nor perform any action with an intent to deceive or defraud.” In Anthony v. American General Financial Services Inc., 697 S.E.2d 166, 171–75 (Ga. 2010) (“Anthony I”), the Supreme Court of Georgia held that the notary public statutes do not create a private cause of action. We subsequently adopted that ruling and affirmed a district court’s dismissal of “a private civil claim under the notary fee statute.”5

5 In his complaint, Wright bases his claim for breach of duty by a notary public on O.C.G.A. § 45-17-8(d) in conjunction with O.C.G.A. § 51-1-6. Section 51-1-6 states:

“When the law requires a person to perform an act for the benefit of another or to refrain from doing an act which may injure another, although no cause of action is given in express terms, the injured party  may recover for the breach of such legal duty if he suffers damage thereby.”

Wright does not make any argument related to O.C.G.A. § 51-1-6 on appeal.

Regardless, in Branch Banking & Trust Co. v. Morrisroe, 746 S.E.2d 859, 861 (Ga. Ct. App. 2013), the Court of Appeals of Georgia held that O.C.G.A. § 45-17-8(d) in conjunction with O.C.G.A. § 51-1-6 does not create a viable cause of action because “[a] duty cannot rest solely on OCGA § 51-1-6 . . . because it merely sets forth general principles of tort law.”

Thus, O.C.G.A. § 51-1-6 does not affect our analysis of whether there is a private cause of action for breach of duty by a notary public under O.C.G.A. § 45-17-8(d).

Anthony v. Am. Gen. Fin. Servs., Inc., 626 F.3d 1318, 1321 (11th Cir. 2010) (“Anthony II”).

Wright ignores these holdings and points to language in Anthony I where the Supreme Court of Georgia stated: “[A]lthough a corporation cannot be directly or vicariously liable for a violation of OCGA § 45-17-11, it still may be liable if it procures or otherwise qualifies as a party to or participating in such a violation by a notary.” 697 S.E.2d at 171;

See id. at 170 (“But under well-established principles, the corporation (or other person) may still be liable if it participates in or procures the notary’s violation. In terms of criminal liability, this is simply the concept of being a party to a crime.”).

He argues that this language permits his claim against Truist to go forward.

But Wright misinterprets this language. Although the Supreme Court of Georgia stated that a “corporation . . . may still be liable if it participates in or procures the notary’s violation,” Anthony I, 697 S.E.2d at 170 (emphasis omitted), it was not creating a private cause of action for violations of the notary public statutes.

Instead, it was merely noting that a plaintiff “may be able to pursue civil liability against [a party who violates the statute] under other applicable tort or contract laws of this State.” Id. at 175.

It is for those claims—for violations of “other applicable tort or contract laws”—that a corporation may be held liable as a joint wrongdoer under the notary public statutes.

See id. at 170 (“[I]n all cases, a person who maliciously procures an injury to be done to another, whether an actionable wrong or a breach of contract, is a joint wrongdoer and may be subject to an action either alone or jointly with the person who actually committed the injury.” (quoting O.C.G.A. § 51-12-30)).

Because the Supreme Court of Georgia and this Court have both clearly held that the notary public statutes do not create a private cause of action, the district court properly dismissed Wright’s claim.6

B. Georgia RICO Act

Next, Wright argues that the district court applied the wrong statute of limitations to his Georgia RICO Act claim.

Under the Georgia RICO Act, “[n]otwithstanding any other provision of law, a criminal or civil action or proceeding under this chapter may be commenced up until five years after the conduct in violation of a provision of this chapter terminates or the cause of action
accrues.” O.C.G.A. § 16-14-8 (2011)7;

See Glock, Inc. v. Harper, 796 S.E.2d 304, 306 (Ga. Ct. App. 2017).

The district court applied this five-year statute of limitations and found that Wright’s claim was “over three (3) years late” because “the most recent action taken by [Truist] relevant to this claim was on May 3, 2011, when it foreclosed on the last of the collateral properties.”8

Wright argues that his Georgia RICO Act claim is subject to the twenty-year statute of limitations of O.C.G.A. § 9-3-23 instead, because the claim arises out of conduct related to the execution of sealed instruments.9

This argument fails for two reasons.

First, the Georgia RICO Act states that the five-year statute of limitations applies “[n]otwithstanding any other provision of law.”10 O.C.G.A. § 16-14-8 (2011).

In his reply brief, Wright argues that “[t]he word ‘notwithstanding’ does not mean that no other rule could apply” and that nothing in the statute “prevent[s] a party from availing itself of a more liberal rule of law such as O.C.G.A. § 9-3-23.”11

But “notwithstanding” means: “Despite; in spite of.” Notwithstanding, Black’s Law Dictionary (11th ed. 2019).

Thus, we conclude that O.C.G.A. § 16-14-8 (2011) supplies the exclusive statute of limitations for Wright’s Georgia RICO Act claim. Because Wright did not file his claim within five years of May 3, 2011, the district court properly dismissed it.

Second, Wright’s expansive interpretation of the twenty-year statute of limitations for sealed instruments has been rejected by the Supreme Court of Georgia.

In Harris v. Black, the Supreme Court of Georgia held that “if suit is brought upon an official bond under seal, for a breach thereof,” then the twenty- year statute of limitations applies. 85 S.E. 742, 747 (Ga. 1915).

But “if the action is brought against the officer individually, and not upon his bond, different periods of limitations may apply according to whether the action sounds in tort or in contract; and if the former, the limitation is dependent upon the particular character of the tort.” Id.

Because Wright’s Georgia RICO Act claim is not a claim “upon an official bond,” it is not subject to the twenty-year statute of limitations of O.C.G.A. § 9-3-23 and was properly dismissed.

6 Even if O.C.G.A. § 45-17-8(d) created a private cause of action for breach of duty by a notary public, Wright’s claim would still fail because he did not meet the four-year statutes of limitations for injuries to realty or personalty under O.C.G.A. §§ 9-3-30 and 9-3-31. See, e.g., Godwin v. Mitzpah Farms, LLLP, 766 S.E.2d 497, 507 (Ga. Ct. App. 2014).

7 O.C.G.A. § 16-14-8 was amended in 2015. Because the amendment was not retroactive, see Glock, Inc. v. Harper, 796 S.E.2d 304, 306 (Ga. Ct. App. 2017), we will apply the version of the statute that was in effect at the relevant time.

8 Wright does not dispute that the statute of limitations on his Georgia RICO Act claim began to run on May 3, 2011.

9 See O.C.G.A. § 9-3-23 (“Actions upon bonds or other instruments under seal shall be brought within 20 years after the right of action has accrued.”).

10 Even though the district court dismissed Wright’s Georgia RICO Act claim based on O.C.G.A. § 16-4-8—the applicable statute of limitations—Wright did not discuss the statute at all in his opening brief.

C. Punitive Damages and Attorney’s Fees

Wright acknowledges that his claims for punitive damages and attorney’s fees must fail if his substantive claims are dismissed.

Because we affirm the district court’s dismissal of his substantive claims, we also affirm its dismissal of his claims for punitive damages and attorney’s fees.

See generally Mann v. Taser Int’l, Inc., 588 F.3d 1291, 1304–05 (11th Cir. 2009).

III. Sanctions

A. Wright’s Motion for Sanctions

Wright argues that we should strike certain language in Truist’s motion for sanctions for being ad hominem and requests sanctions for Truist’s decision to include that language in its motion.

In particular, he contends that it was inappropriate for Truist to mention that Nathan had been sanctioned by this Court for a frivolous appeal or that Truist had obtained a multi-million-dollar judgment against Nathan.

Truist’s motion for sanctions was based, in part, on 28 U.S.C. § 1927.

To prevail on its claim for sanctions under § 1927, Truist was required to “show subjective bad-faith.” Hyde v. Irish, 962 F.3d 1306, 1310 (11th Cir. 2020).

“This standard can be met either (1) with direct evidence of the attorney’s subjective bad faith or (2) with evidence of conduct so egregious that it could only be committed in bad faith.” Id. (quotation omitted);

See Amlong & Amlong, P.A. v. Denny’s, Inc., 500 F.3d 1230, 1242 (11th Cir. 2007) (“A determination of bad faith is warranted where an attorney knowingly or recklessly pursues a frivolous claim or engages in litigation tactics that needlessly obstruct the litigation of non-frivolous claims.” (quotation omitted)).

The facts that Nathan had been sanctioned by this Court for a frivolous appeal and that Truist had obtained a multi-million-dollar judgment against him are clearly relevant to whether Nathan “knowingly or recklessly pursue[d] a frivolous claim.” Amlong, 500 F.3d at 1242.

And because these facts were relevant to Truist’s claims, we decline to strike or seal Truist’s motion or the related filings.

See 11th Cir. R. 25-6 (suggesting that a paper filed with the court may contain arguably ad hominem language where it is “relevant, necessary, and appropriate”).

Because we conclude that it was not inappropriate for Truist to mention these facts, we deny Wright’s request for us to award sanctions.

To award sanctions under our inherent powers, we “must find that the lawyer’s conduct ‘constituted or was tantamount to bad faith.’” Thomas v. Tenneco Packaging Co., Inc., 293 F.3d 1306, 1320 (11th Cir. 2002) (quotation omitted).

In Thomas, we awarded sanctions where the lawyer made:

“(1) insulting remarks about opposing counsel’s physical traits and demeanor,

(2) comments that called into question opposing counsel’s fitness as a member of the bar,

(3) thinly veiled threats aimed at opposing counsel,

(4) a racial slur, and

(5) unsubstantiated claims that opposing counsel was a racist.”

Id. at 1323.

Unlike the lawyer in Thomas, Truist did not engage in conduct “tantamount to bad faith.”

As already discussed, Truist’s mention of the facts that Nathan had been sanctioned by this Court and that Truist had obtained a multi-million-dollar judgment against him was not inappropriate because it was relevant to Truist’s claims under § 1927.

11 Ordinarily, we do not consider an argument raised for the first time on reply.

Mamone V.United States, 559 F.3d 1209, 1210 n.1 (11th Cir. 2009).

But we will address Wright’s argument here to demonstrate that it is frivolous.

B. Truist’s Motion for Sanctions

Truist argues that Wright’s appeal is frivolous and requests that we award attorney’s fees and double costs under Federal Rule of Appellate Procedure 38.

Wright argues that his appeal is not frivolous—specifically, that “[t]he two enumerations of error in this case are essentially issues of first impression in this Court . . . and have not been fully addressed or settled by any Georgia Appellate Court.”

We may impose sanctions under Rule 38 against a party who “raises clearly frivolous claims in the face of established law and clear facts.”

Parker v. Am.Traffic Sols., Inc., 835 F.3d 1363, 1371 (11th Cir. 2016) (quotation omitted);

See Jackson v. Bank of Am., N.A., 898 F.3d 1348, 1359 (11th Cir. 2018).

“[A] claim is clearly frivolous if it is utterly devoid of merit.”

Parker, 835 F.3d at 1371 (quotation omitted).

When determining whether to award sanctions, we may review the “continuous series of events . . . which gave rise to this appeal.”

Bonfiglio v. Nugent, 986 F.2d 1391, 1393 (11th Cir. 1993).

Wright filed a complaint containing at least four counts that were barred by the applicable statutes of limitations, a conclusion that he does not challenge on appeal.

Then, on appeal, he raised two arguments that were directly foreclosed by precedent from the Eleventh Circuit and the Supreme Court of Georgia, and by the plain language of O.C.G.A. § 16-14-8 (2011).

See Bonfiglio, 986 F.2d at 1394 (awarding sanctions where the appellant “stubbornly filed [an] appeal in which he repeate[d] to this Court the utterly frivolous contentions he made in the district court”).

Finally, when Truist filed a motion for sanctions based on this conduct, Wright filed a meritless motion to strike and for sanctions.

Wright’s arguments on appeal were devoid of merit because Anthony I and Anthony II clearly establish that the notary public statutes do not create a private cause of action and because O.C.G.A. § 16-14-8 (2011) clearly establishes a five- year statute of limitations for Georgia RICO Act claims.

More egregiously, Wright did not even mention O.C.G.A. § 16-14-8 (2011)—the applicable statute of limitations, which the district court relied on to dismiss his Georgia RICO Act claim—in his opening brief.

Instead, he waited until his reply brief to argue that O.C.G.A. § 16-14-8 (2011) does not apply here because “[t]he word ‘notwithstanding’ does not mean that no other rule could apply.”

This argument is utterly devoid of merit and Wright has provided no non-frivolous argument why the Georgia RICO Act’s five-year statute of limitations does not bar his Georgia RICO Act claim.

Thus, as a sanction, we order Wright and his counsel to pay double the costs of this appeal, as well as reasonable attorney’s fees to Truist.

See Bonfiglio, 986 F.2d at 1394;

See Taiyo Corp. v. Sheraton Savannah Corp., 49 F.3d 1514, 1515 (11th Cir. 1995) (imposing joint and several liability for Rule 38 sanctions).

“We remand this case to the district court with instructions for it to calculate and assess the attorneys’ fees and costs that [Wright and his counsel are] to pay in connection with this appeal and to order that amount paid.” Bonfiglio, 986 F.2d at 1395.

IV. Conclusion

For these reasons, we affirm the district court’s decision and remand the case to the district court to assess attorney’s fees and costs.

AFFIRMED and REMANDED.

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