Connect with us

Published

on

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”)

YOUR DONATION(S) WILL HELP US:

• Continue to provide this website, content, resources, community and help center for free to the many homeowners, residents, Texans and as we’ve expanded, people nationwide who need access without a paywall or subscription.

• Help us promote our campaign through marketing, pr, advertising and reaching out to government, law firms and anyone that will listen and can assist.

Thank you for your trust, belief and support in our conviction to help Floridian residents and citizens nationwide take back their freedom. Your Donations and your Voice are so important.



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.

Bankers

Another Theft of Funds Case, This Time Against SunTrust Bank

Plaintiffs, domiciled in Venezuela, assert that Truist (Sunbank) was negligent in allegedly permitting fraud and theft of funds from their bank account.

Published

on

New case. Bookmark for updates.

DE LA RIVA v. SUNTRUST BANK

(1:21-cv-24412)

District Court, S.D. Florida

DEC 21, 2021 | REPUBLISHED BY LIT: DEC 24, 2021

AMENDED NOTICE OF REMOVAL1

COMES NOW Defendant, Truist Bank, formerly known as SunTrust Bank (“Truist”), by and through undersigned counsel and pursuant to the provisions of 28 U.S.C. §§ 1332, 1441 and 1446, appearing specially so as to preserve any and all defenses available under Rule 12 of the Federal Rules of Civil Procedure, any and all defenses under the federal laws of bankruptcy and specifically preserving the right to demand arbitration pursuant to contractual agreements and the Federal Arbitration Act, 9 U.S.C. §§ 1, et seq., and hereby gives notice of the removal of this action from the Circuit Court of Miami-Dade County, Florida, to the United States District Court for the Southern District of Florida, Miami Division. In support of this notice of removal, Truist states as follows:

1 The amended notice of removal clarifies the Plaintiff’s country of domicile.

INTRODUCTION

  1. Plaintiffs, Shedir de La Riva, Claudia Gil, Adriana Gil C. and Eduardo La Riva C. (“Plaintiffs”) commenced this action by filing a complaint against Truist Bank, formerly known as SunTrust Bank, Inc. in the Circuit Court of Miami-Dade County, Florida, Case Number 2021- 025111-CA-04 (24) on or about November 12, 2021.
  2. Plaintiffs’ complaint asserts that Truist was negligent in allegedly permitting fraud and theft of funds from their bank ¶ 20.
  3. Based on these allegations, Plaintiffs seek to recover damages from Truist with in an amount exceeding $271,020.00. Compl. ¶
  4. This Court has jurisdiction over all of Plaintiffs’ claims under 28 U.S.C. § 1332, which provides federal district courts with original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000.00, and where the action is between citizens of different states. See 28 S.C. § 1332(a)(1).

A.                 The Parties are Completely Diverse.

  1. Complete diversity exists between Plaintiffs and Truist in this matter.
  2. The Plaintiffs are citizens of and domiciled in Venezuela.
  3. Truist Bank is organized under the laws of North Carolina with its principal place of business in Charlotte, North Carolina, and is a wholly-owned subsidiary of Truist Financial Corporation.
  4. Truist Financial Corporation was formed by the merger of SunTrust Banks, Inc. with and into BB&T Corporation on December 6, 2019, the merger of SunTrust Bank Holding Company into BB&T Corporation on December 7, 2019, and BB&T Corporation’s subsequent change of its name to Truist Financial Corporation (also on December 7, 2019). On December 7, 2019, SunTrust Bank merged with and into Branch Banking and Trust Company. Branch Banking and Trust Company was renamed Truist Bank. SunTrust Bank was a wholly-owned subsidiary of SunTrust Banks, Inc.
  5. Truist Financial Corporation is organized under the laws of North Carolina with its principal place of business in Charlotte, North Carolina.
  6. Accordingly, the parties are completely diverse, as Plaintiffs are citizens of Venezuela, and Truist is a citizen of North Carolina.

B.        The Amount in Controversy Exceeds $75,000.

  1. Removal is also proper because the amount in controversy exceeds the $75,000 jurisdictional threshold, exclusive of interest and costs.
  2. In the Complaint, Plaintiffs seek to recover against Truist damages in excess of $271,020.00 under two causes of action sounding in negligence and gross negligence/recklessness. See Compl. ¶ 15-32.
  3. The amount in controversy therefore exceeds $75,000, exclusive of interest and costs.
  4. Accordingly, this case is properly removable because it is between citizens of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs.

ADOPTION AND RESERVATION OF DEFENSES

  1. Nothing in this notice of removal shall be interpreted as a waiver or relinquishment of any of Truist’s rights to assert any defense or affirmative matter, including, but not limited to, the defenses of: (1) lack of jurisdiction over the person; (2) improper venue; (3) insufficiency of process; (4) insufficiency of service of process; (5) improper joinder of claims and/or parties; (6) failure to state a claim; (7) the mandatory arbitrability of some or all of the claims; (8) failure to join indispensable parties; or (9) any other pertinent defense available under Fed. R. Civ. P. 12, any state or federal statute, or otherwise.

PROCEDURAL REQUIREMENTS

  1. This case is a civil action within the meaning of 28 S.C. § 1441(a).
  2. True and correct copies of “all process, pleadings, and orders” filed to date are attached hereto as Exhibit “A”, in conformity with 28 S.C. § 1446(a). There has been no other process, pleading, or order served upon Truist to date in this case.
  3. This Notice of Removal is being filed, pursuant to 28 U.S.C. § 1446, within thirty days from September 22, 2021, the date Truist was served with a copy of the See 28 U.S.C. § 1446(b).
  4. The United States District Court for the Southern District of Florida, Miami Division, is the court and division embracing the place where this action is pending in state court.
  5. Pursuant to 28 U.S.C. § 1446(d), contemporaneously with the filing of this notice of removal, Truist filed a copy of same with the clerk of the Clerk of Court in Miami-Dade County, Florida, as well as a notice of filing notice of removal. Written notice of the filing of this notice of removal has also been served upon the Plaintiff.
  6. Truist reserves the right to supplement this Notice of Removal by adding any jurisdictional defenses which may independently support a basis for removal.
  7. To the extent remand is sought by Plaintiff or otherwise visited by this Court, Truist requests the opportunity to brief the issues and submit additional arguments and evidence, and to be heard at oral argument.
  8. All defendants consent to the removal of this cause of action.

WHEREFORE, PREMISES CONSIDERED, Truist prays that this Court take jurisdiction of this action and issue all necessary orders and process to remove this action from the Circuit Court of Miami-Dade County, Florida, to the United States District Court for the Southern District of Florida.

DATED: December 22, 2021.

Respectfully submitted,

/s/ Nicholas S. Agnello                                               

Nicholas S. Agnello, Esq. (FL Bar No. 90844)
BURR & FORMAN LLP
350 East Las Olas Boulevard, Suite 1440
Ft. Lauderdale, FL 33301

Telephone: (954) 414-6200
Facsimile: (954) 414-6201

Primary Email: FLService@burr.com
Secondary Email: nagnello@burr.com
Secondary Email: rzamora@burr.com

 

David Elliott, Esq. (FL Bar No. 94237)
BURR & FORMAN LLP
420 North 20th Street, Suite 3400
Birmingham, AL 35203
Telephone: (205) 244-5631
Facsimile: (205) 244-5631

Primary Email: delliott@burr.com
Secondary Email: cwingate@burr.com
Secondary Email: sfoshee@burr.com

Counsels for Defendant Truist Bank, formerly known as SunTrust Bank, Inc.

YOUR DONATION(S) WILL HELP US:

• Continue to provide this website, content, resources, community and help center for free to the many homeowners, residents, Texans and as we’ve expanded, people nationwide who need access without a paywall or subscription.

• Help us promote our campaign through marketing, pr, advertising and reaching out to government, law firms and anyone that will listen and can assist.

Thank you for your trust, belief and support in our conviction to help Floridian residents and citizens nationwide take back their freedom. Your Donations and your Voice are so important.



U.S. District Court
Southern District of Florida (Miami)
CIVIL DOCKET FOR CASE #: 1:21-cv-24412-JAL

DE LA RIVA et al v. SUNTRUST BANK
Assigned to: Judge Joan A. Lenard

Case in other court:  11th Judicial Circuit in and For Miami-Dade Co, Fl, 2021- 025111-CA-04 (24)

Cause: 28:1332 Diversity-Notice of Removal

Date Filed: 12/21/2021
Jury Demand: None
Nature of Suit: 190 Contract: Other
Jurisdiction: Diversity
Plaintiff
SHEDIMAR DE LA RIVA represented by Victor K. Rones
Rones & Navarro
16105 NE 18th Avenue
North Miami Beach, FL 33162
305-945-6522
Email: vrones@victorkronespa.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
Plaintiff
Claudia Gil represented by Victor K. Rones
(See above for address)
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
Plaintiff
ADRIANA GIL C. represented by Victor K. Rones
(See above for address)
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
Plaintiff
EDUARDO LA RIVA C. represented by Victor K. Rones
(See above for address)
LEAD ATTORNEY
ATTORNEY TO BE NOTICED
V.
Defendant
SUNTRUST BANK represented by David Alan Elliott
Burr & Forman LLP
420 North 20th Street
Suite 3400
Birmingham, AL 35203
(205) 251-3000
Fax: (205) 458-5100
Email: delliott@burr.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICEDNicholas Steven Agnello
Burr & Forman LLP
350 E. Las Olas Boulevard
Suite 1420
Ft Lauderdale, FL 33301
954 414-6202
Fax: 954-414-6201
Email: nagnello@burr.com
LEAD ATTORNEY
ATTORNEY TO BE NOTICED

 

Date Filed # Docket Text
12/21/2021 1 NOTICE OF REMOVAL (STATE COURT COMPLAINT – Complaint) Filing fee $ 402.00 receipt number AFLSDC-15266134, filed by SUNTRUST BANK. (No Answer filed/No Motion to Dismiss filed) (Attachments: # 1 Civil Cover Sheet, # 2 Docket Sheet, # 3 Exhibit State Court File)(Agnello, Nicholas) Text Modified on 12/21/2021 (scn). (Entered: 12/21/2021)
12/21/2021 2 Clerks Notice of Judge Assignment to Judge Joan A. Lenard.Pursuant to 28 USC 636(c), the parties are hereby notified that the U.S. Magistrate Judge Lauren F. Louis is available to handle any or all proceedings in this case. If agreed, parties should complete and file the Consent form found on our website. It is not necessary to file a document indicating lack of consent.

Pro se (NON-PRISONER) litigants may receive Notices of Electronic Filings (NEFS) via email after filing a Consent by Pro Se Litigant (NON-PRISONER) to Receive Notices of Electronic Filing. The consent form is available under the forms section of our website. (scn) (Entered: 12/21/2021)

12/22/2021 3 AMENDED NOTICE OF REMOVAL by SUNTRUST BANK re 1 Notice of Removal (State Court Complaint), Amended (Attachments: # 1 Exhibit) (Agnello, Nicholas) Modified on 12/22/2021 (dj). (Entered: 12/22/2021)
Continue Reading

Bankers

Andy’s Wells Fargo Bank Account Balance is Unexpectedly $455k Lighter and He Wants Those Funds Back

The complaint clearly needs to be fleshed out as the basic information provided is insufficient to determine even the basic facts. We’re trackin’ it.

Published

on

Tong v. Wells Fargo Bank, N.A.

(3:21-cv-01236)

District Court, M.D. Florida

DEC 17, 2021 | REPUBLISHED BY LIT: DEC 18, 2021

VERIFIED COMPLAINT AND DEMAND FOR JURY TRIAL

Plaintiff ANDY TONG hereby sues Defendant, Wells Fargo Bank, N.A., and states as follows:

Jurisdiction

1. Plaintiff, Andy Tong (“Mr. Tong”), is an individual residing in Duval County, Florida.

2. Defendant, Wells Fargo Bank, N.A. (“WFB”) is a Foreign Profit Corporation with a principal address of 420 Montgomery Street, San Francisco, California 94163.

3. All actions material to these proceedings occurred within Columbia County, Florida.

4. Venue is proper under 28 U.S.C. 1391, as all persons, local government authorities and private business entities, involved in this dispute reside or are authorized to do business within the geographic boundaries subject to the Middle District of Florida, Jacksonville Division.

5. This Court has jurisdiction of this cause pursuant to 28 U.S.C. §1331, specifically under 15 U.S.C. §1693m(g) and 28 U.S.C. §1343. 

Background

6. At all times in question, Mr. Tong was the owner and holder of Money Market Account Number xxxxxxxxx5467 (the “Account”) with Defendant, WFB.

7. The Account is located in the United States.

8. An ATM/CheckCard Number xxxxxxxxxxxx5467 (“Check Card”) was issued on the Account to Mr. Tong.

9. At all times in question, Mr. Tong was the sole authorized signatory on the Account.

10. At all times in question, Mr. Tong was living in Columbia County, Florida.

11. On or about January 11, 2021 Mr. Tong went to the Wells Fargo branch in Gainesville to withdraw money from his account and noticed unauthorized funds were withdrawn.

12. On or about January 11, 2021, Mr. Tong advised WFB and reported the unauthorized transactions on the Account and requested all records pertaining to the Account.

13. Upon notifying WFB of the unauthorized transactions, WFB representative advised Mr. Tong that the Account was frozen so that no further unauthorized transactions could be made.

14. The Check Card was never out of Mr. Tong’s possession or control.

15. Prior to January 11, 2021, Mr. Tong never learned of or had reason to suspect of any counterfeit card or of any loss or theft of Account information used to make the unauthorized transfers.

16. With the exception of the occasional gas purchase, all of the transactions identified on the attached Exhibit “A” were unauthorized (the “Unauthorized Transactions.”)

17. As a result of the Unauthorized Transactions, the Account and Mr. Tong have lost approximately $454,636.17.

18. WFB is considered a “financial institution” per 15 U.S.C. §1693a(9).

 

19. “Electronic funds transfer” is defined as “any transfer of funds . . . which is initiated through an electronic terminal, telephonic instrument, or computer or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. Such term includes . . . direct deposits or withdrawals of funds ” 15 U.S.C. § 1693a(7); see also 12 C.F.R. § 205.3(b).

20. The rights, liabilities, and responsibilities of the parties to this action, with respect to the unauthorized transactions on the Account, are governed by the Electronic Fund Transfer Act (15 U.S.C. § 1693, et seq.) (the “EFTA”).

21. The purpose of the EFTA is “to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. The primary objective of this subchapter, however, is the provision of individual consumer rights.” (15 U.S.C. § 1693, ¶ (b) of the introduction).

22. According to § 1693m(a) of the EFTA, “ any person who fails to comply with any provision of this subchapter with respect to any consumer, except for an error resolved in accordance with section 1693f of this title, is liable to such consumer in an amount equal to the sum of (1) any actual damage sustained by such consumer as a result of such failure; (2)(A) in the case of an individual action, an amount not less than $100 nor greater than $1,000; and (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court.”

23. In order to be liable to Mr. Tong under § 1693m(a) of the EFTA, WFB must have failed to resolve an error in accordance with § 1693f of the EFTA.

24. For purposes of § 1693f of the EFTA, the unauthorized transactions reported by Mr. Tong constitute errors. See, 15 U.S.C. § 1693f(f)(1).

25. Pursuant to § 1693f of the EFTA, WFB was required to investigate the unauthorized transactions reported by Mr. Tong, determine whether an error had occurred, and report or mail the results of such investigation and determination to Mr. Tong and/or the other account holders within ten (10) business days after WFB received notice of the Unauthorized Transactions (i.e., within 10 business days after January 11, 2021 or, in lieu of such requirement, WFB could have, within ten (10) business days after receiving such notice, provisionally re-credited the Account for the amount of the unauthorized transactions, subject to 15 U.S.C. § 1693g, including any applicable interest, pending the timely conclusion of WFB’s investigation and determination of whether an error had occurred on the WFB Account. See, 15 U.S.C. § 1693f(a) and (c).

26. However, during the requisite ten (10) business-day period, WFB did not report or mail the results of WFB’s investigation and determination of Mr. Tong’s claim, nor did WFB provisionally re-credited the Account for any amount of the unauthorized transactions pending the conclusion of WFB’s investigation and its determination of whether an error had occurred on WFB Account.

27. Moreover, WFB was obligated to re-credit the Account for the amount of the Unauthorized Transactions, as the Check Card used to make the Unauthorized Transactions on the Account was not an accepted card or other means of access as defined in § 1693a of the EFTA. See, 15 U.S.C. § 1693g.

28. Even if the Check Card used to make the Unauthorized Transactions on the Account had been an accepted card or other means of access, as defined in § 1693a of the EFTA, WFB would have been required to reimburse their respective portions of the Account for the amount of the Unauthorized Transactions, less a maximum of fifty dollars ($50.00). See, 15 U.S.C. § 1693g.

29. WFB never re-credited the Account for any amount.

30. By letter dated January 25, 2021, WFB denied Mr. Tong’s claim of January 11, 2021. A true and correct copy of the Claim Denial Letter is attached hereto as Composite Exhibit “B.”

31. January 25, 2021 was more than ten (10) business days after January 11, 2021.

32. In the Claim Denial Letter, WFB stated that Mr. Tong had rights to obtain records upon which WFB decision was based. See Composite Exhibit “B.”

33. WFB was required, upon request, to promptly deliver or mail to Mr. Tong reproductions of all documents upon which WFB relied on to conclude that the unauthorized transactions (i.e., errors) did not occur. See, 15 U.S.C. § 1693f(d).

34. On or about February 16, 2021, Mr. Tong requested the records upon which WFB decision was based.

35. As of the date of this filing, WFB has not reimbursed Mr. Tong for the unauthorized expenditures.

36. Mr. Tong hired the undersigned counsel to represent him in this action, and has agreed to pay a reasonable fee and costs to the undersigned counsel in connection with such representation in accordance with 15 U.S.C. §1693m(a)(3).

37. All conditions precedent to this action have been performed, have occurred, or have been waived.

COUNT I VIOLATION OF 15 U.S.C. §1693f(a)

38. Plaintiff incorporates by reference in this count all allegations set forth above in Paragraphs 1 through 37.

39. This is an action for violation of 15 U.S.C. §1693f(a), which requires WFB investigate the alleged error and mail the results of the same to the consumer within ten (10) business days.

40. WFB did not, within ten (10) business days after receiving Mr. Tong’s claim of January 11, 2021, investigate the unauthorized transactions reported by Mr. Tong, determine whether an error had occurred, and report or mail the results of such investigation and determination to Mr. Tong.

41. WFB did not, within ten (10) business days after receiving Mr. Tong’s claim of January 11, 2021, provisionally re-credited the Account for the amount of the unauthorized transactions, subject to 15 U.S.C. § 1693g, including any applicable interest, pending the timely conclusion of WFB’s investigation and determination of whether an error had occurred on the Account.

42. By failing to timely report or mail the results of its purported investigation or, in lieu thereof, provisionally re-credit the Account, WFB violated 15 U.S.C. § 1693f(a).

WHEREFORE, Plaintiff ANDY TONG demands judgment against the Defendant, WELLS FARGO BANK, N.A., for actual damages, statutory damages of $1,000.00, attorneys’ fees and costs, and interest, plus any and all other relief this Honorable Court deems just and proper.

COUNT II VIOLATION OF 15 U.S.C. §1693f(c)

43. Plaintiff incorporates by reference in this count all allegations set forth above in Paragraphs 1 through 37.

44. This is an action for violation of 15 U.S.C. §1693f(c), which permits WFB, in lieu of investigating and providing the results to the consumer within ten (10) days, provisionally recredit the consumer’s account pending the conclusion of an investigation in to the alleged errors of the account.

45. WFB did not, within ten (10) business days after receiving Mr. Tong’s claim of January 11, 2021 investigate the Unauthorized Transactions reported by Mr. Tong, determine whether an error had occurred, and report or mail the results of such investigation and determination to Mr. Tong; therefore, WFB was required to provisionally re-credited the Account, within said ten (10)-business day period, for the amount of the Unauthorized Transactions, subject to 15 U.S.C. § 1693g, including any applicable interest, pending the timely conclusion of WFB’s investigation and determination of whether an error had occurred on the Account.

46. By failing to provisionally re-credit the Account, WFB violated 15 U.S.C. § 1693f(c).

WHEREFORE, Plaintiff ANDY TONG demands judgment against the Defendant, WELLS FARGO BANK, N.A., for actual damages, statutory damages of $1,000.00, attorneys’ fees and costs, and interest, plus any and all other relief this Honorable Court deems just and proper.

COUNT III VIOLATION OF 15 U.S.C. §1693f(d)

47. Plaintiff incorporates by reference in this count all allegations set forth above in Paragraphs 1 through 37.

48. This is an action for violation of 15 U.S.C. §1693f(d), which requires that WFB provide an explanation of its findings to the consumer within three (3) business days of the conclusion of its investigation. Moreover, upon the request of the consumer, it shall promptly deliver reproduction of all financial documents relied upon in concluding that an error did not occur.

49. Upon receipt of the records request by Mr. Tong, WFB was required to promptly deliver or mail reproductions of all documents upon which WFB relied to conclude that the Unauthorized Transactions did not occur.

50. WFB did not promptly deliver or mail any documents or otherwise respond to the Mr. Tong’s records request.

51. By failing to promptly deliver or mail reproductions of all documents upon which WFB relied to conclude that the Unauthorized Transactions did not occur, WFB violated 15 U.S.C. §1693f(d).

WHEREFORE, Plaintiff, ANDY TONG demands judgment against the Defendant, WELLS FARGO BANK, N.A., for actual damages, statutory damages of $1,000.00, attorneys’ fees and costs, and interest, plus any and all other relief this Honorable Court deems just and proper.

 

COUNT IV

TREBLE DAMAGES UNDER 15 U.S.C. §1693f(e)

52. Plaintiff incorporates by reference in this count all allegations set forth above in Paragraphs 1 through 37.

53. This is an action for violation of 15 U.S.C. §1693f(e), which provides that a consumer shall be entitled to treble damages for any action if the trial court finds a violation of subsection 15 U.S.C. §1693f(c) and the financial institution did not make a good faith investigation of the alleged error; have a reasonable basis for believing the consumer’s account was not in error; or knowingly and willfully concluding the consumer’s account was not in error when such a conclusion could not reasonably have been drawn for the evidence available to the financial institution at the time of the investigation.

54. Upon information and belief, WFB (a) did not make a good faith investigation of the alleged error, or (b) did not have a reasonable basis for believing that the Account was not in error; or (c) knowingly and willfully concluded that the Account was not in error when such conclusion could not reasonably have been drawn from the evidence available to WFB at the time of its investigation; therefore, pursuant to § 1693f(e) of the EFTA, Mr. Tong is entitled to treble damages determined under § 1693m(a)(1) of the EFTA.
WHEREFORE, Plaintiff, ANDY TONG demands judgment against the Defendant, WELLS FARGO BANK, N.A., for treble the amount of actual damage suffered by Plaintiff, ANDY TONG as a result of Defendant’s violations of the EFTA, plus any and all other relief this Honorable Court deems just and proper.

COUNT V

VIOLATION OF UCC ARTICLE 4A (Fla. Stat. Chap. 670)

55. Plaintiff incorporates by reference in this count all allegations set forth above in Paragraphs 1 through 37.

56. The Unauthorized Transactions in Exhibit “A” are governed by Article 4A of the Uniform Commercial Code, codified at Fla. Stat. §§670.101, et seq. (“Article 4A”).

57. WFB’s conduct, as more fully set forth herein, violates Article 4A.

58. The Unauthorized Transactions were processed and facilitated by WFB in violation of §670.202 and/or §670.203, Fla. Stat. and is, therefore, unenforceable against the Plaintiff.

59. Specifically, the Unauthorized Transactions was not caused, directly or indirectly, by a person who was authorized to originate a wire pursuant on the WFB Account as an “Originator.”

60. By failing to contact the Plaintiff, WFB failed to comply with, and adhere to, a commercially reasonable security procedure as expressed to WFB and specifically chosen by the Plaintiff.

61. WFB failed to comply with the security procedures designed to protect the Plaintiff when it failed to contact the Plaintiff to confirm the Unauthorized Transactions. By doing so, WFB failed to accept the wire transfer require in good faith and in compliance with commercially reasonable security procedures.

62. Accordingly, the Unauthorized Transactions were not authorized and is not effective as the order of Plaintiff pursuant to §670.202, Fla. Stat. and/or is not enforceable against Plaintiffs under §670.203, Fla. Stat.

63. WFB is obligated to refund the entire amount of the Unauthorized Transactions to Plaintiff, plus interest pursuant to §670.204, Fla. Stat.

64. As a direct and proximate result of WFB’s multiple statutory violations, Plaintiff has suffered and continue to suffer damages.

WHEREFORE, Plaintiff, ANDY TONG, demands judgment against Defendant, WELLS FARGO BANK, N.A., for damages, costs and such other and further relief as this Court deems just and proper.
Demand for Jury Trial

Plaintiff, ANDY TONG, demands trial by jury on all issues so triable.

DATED this 16th day of December, 2021.

LAW OFFICE OF KELLY B. MATHIS

By: Kelly B. Mathis, Esquire
Florida Bar No. 0768588

James M. Oliver, Esquire
Florida Bar No. 0124458

3577 Cardinal Point Drive
Jacksonville, FL 32257
(904) 549-5755
Primary: kmathis@mathislaw.net
Secondary: carmen@mathislaw.net

Attorneys for Plaintiff

 

YOUR DONATION(S) WILL HELP US:

• Continue to provide this website, content, resources, community and help center for free to the many homeowners, residents, Texans and as we’ve expanded, people nationwide who need access without a paywall or subscription.

• Help us promote our campaign through marketing, pr, advertising and reaching out to government, law firms and anyone that will listen and can assist.

Thank you for your trust, belief and support in our conviction to help Floridian residents and citizens nationwide take back their freedom. Your Donations and your Voice are so important.




U.S. District Court
Middle District of Florida (Jacksonville)
CIVIL DOCKET FOR CASE #: 3:21-cv-01236-MMH-LLL

 

Tong v. Wells Fargo Bank, N.A.
Assigned to: Judge Marcia Morales Howard
Referred to: Magistrate Judge Laura Lothman Lambert
Demand: $455,000
Cause: Civil Miscellaneous Case
Date Filed: 12/16/2021
Jury Demand: None
Nature of Suit: 430 Banks and Banking
Jurisdiction: Federal Question
Plaintiff
Andy Tong represented by Kelly B. Mathis
Law Offices of Kelly B. Mathis
3577 Cardinal Point Drive
Jacksonville, FL 32257
904/549-5755
Email: kmathis@mathislaw.net
ATTORNEY TO BE NOTICED
V.
Defendant
Wells Fargo Bank, N.A.
a foreign profit corporation
Date Filed # Docket Text
12/16/2021 1 COMPLAINT against WELLS FARGO BANK, NA with Jury Demand (Filing fee $ 402 receipt number AFLMDC-19038015) filed by ANDY TONG. (Attachments: # 1 Civil Cover Sheet, # 2 Exhibit Exhibit A, # 3 Exhibit Exhibit B)(Mathis, Kelly) (Entered: 12/16/2021)
12/17/2021 2 NEW CASE ASSIGNED to Judge Marcia Morales Howard and Magistrate Judge Laura Lothman Lambert. New case number: 3:21-cv-1236-MMH-LLL. (SJB) (Entered: 12/17/2021)

L21000185243
Company Name:
ANDY TONG INVESTMENTS LLC

Date of Incorporation:
2021-04-21

Status:
ACTIVE

Company Type:
Florida Limited Liability Company

State
Florida

Annual Reports
No Annual Reports Filed

Principal Address
1044 NW EADIE ST. LAKE CITY, FL 32055

Registered Agent Name:
CASE, JONATHAN A

Registered Agent Address:
4615 WESCONNETT BLVD. JACKSONVILLE, FL 32210

updated on
2021-05-05

Director details (1)

TONG, ANDY

MGR

1044 NW EADIE ST LAKE CITY, FL 32055

Other companies with agent name CASE, JONATHAN A

A-JAX LOCAL VAPE L.L.C.
2021-02-22
ACTIVE

ACS LOADING SERVICES LLC
2019-03-11
INACTIVE

JACASE INVESTMENTS LLC
2017-08-30
ACTIVE

Continue Reading

Acceleration

Rewind 2008: The Home Snatchers Stole Millions of Homes, Lives and Citizen’s Trust By Unimaginable Fraud

Wall Street and the Government decided, if they were to make it through the Greatest Depression, they’d have to spin their biggest lie in the history of the United States of America. It worked.

Published

on

Invasion of the Home Snatchers

How foreclosure courts are helping big banks screw over homeowners

NOV 10, 2010 | REPUBLISHED BY LIT: DEC 4, 2021

The foreclosure lawyers down in Jacksonville had warned me, but I was skeptical. They told me the state of Florida had created a special super-high-speed housing court with a specific mandate to rubber-stamp the legally dicey foreclosures by corporate mortgage pushers like Deutsche Bank and JP Morgan Chase.

This “rocket docket,” as it is called in town, is presided over by retired judges who seem to have no clue about the insanely complex financial instruments they are ruling on — securitized mortgages and laby­rinthine derivative deals of a type that didn’t even exist when most of them were active members of the bench.

Their stated mission isn’t to decide right and wrong, but to clear cases and blast human beings out of their homes with ultimate velocity. They certainly have no incentive to penetrate the profound criminal mysteries of the great American mortgage bubble of the 2000s, perhaps the most complex Ponzi scheme in human history — an epic mountain range of corporate fraud in which Wall Street megabanks conspired first to collect huge numbers of subprime mortgages, then to unload them on unsuspecting third parties like pensions, trade unions and insurance companies (and, ultimately, you and me, as taxpayers) in the guise of AAA-rated investments.

Selling lead as gold, shit as Chanel No. 5, was the essence of the booming international fraud scheme that created most all of these now-failing home mortgages.

Looting Main Street

The rocket docket wasn’t created to investigate any of that. It exists to launder the crime and bury the evidence by speeding thousands of fraudulent and predatory loans to the ends of their life cycles, so that the houses attached to them can be sold again with clean paperwork.

The judges, in fact, openly admit that their primary mission is not justice but speed.

One Jacksonville judge, the Honorable A.C. Soud, even told a local newspaper that his goal is to resolve 25 cases per hour.

Given the way the system is rigged, that means His Honor could well be throwing one ass on the street every 2.4 minutes.

Foreclosure lawyers told me one other thing about the rocket docket. The hearings, they said, aren’t exactly public.

“The judges might give you a hard time about watching,” one lawyer warned. “They’re not exactly anxious for people to know about this stuff.”

Inwardly, I laughed at this — it sounded like typical activist paranoia. The notion that a judge would try to prevent any citizen, much less a member of the media, from watching an open civil hearing sounded ridiculous.

Fucked-up as everyone knows the state of Florida is, it couldn’t be that bad. It isn’t Indonesia. Right?

Well, not quite.

When I went to sit in on Judge Soud’s courtroom in downtown Jacksonville, I was treated to an intimate, and at times breathtaking, education in the horror of the foreclosure crisis, which is rapidly emerging as the even scarier sequel to the financial meltdown of 2008:

Invasion of the Home Snatchers II.

In Las Vegas, one in 25 homes is now in foreclosure.

In Fort Myers, Florida, one in 35.

In September, lenders nationwide took over a rec­ord 102,134 properties; that same month, more than a third of all home sales were distressed properties.

All told, some 820,000 Americans have already lost their homes this year, and another 1 million currently face foreclosure.

Throughout the mounting catastrophe, however, many Americans have been slow to comprehend the true nature of the mortgage disaster. They seemed to have grasped just two things about the crisis:

One, a lot of people are getting their houses foreclosed on.

Two, some of the banks doing the foreclosing seem to have misplaced their paperwork.

For most people, the former bit about homeowners not paying their damn bills is the important part, while the latter, about the sudden and strange inability of the world’s biggest and wealthiest banks to keep proper records, is incidental.

Just a little office sloppiness, and who cares?

Those deadbeat homeowners still owe the money, right?

“They had it coming to them,” is how a bartender at the Jacksonville airport put it to me.

But in reality, it’s the unpaid bills that are incidental and the lost paperwork that matters.

It turns out that underneath that little iceberg tip of exposed evidence lies a fraud so gigantic that it literally cannot be contemplated by our leaders, for fear of admitting that our entire financial system is corrupted to its core — with our great banks and even our government coffers backed not by real wealth but by vast landfills of deceptively generated and essentially worthless mortgage-backed assets.

You’ve heard of Too Big to Fail — the foreclosure crisis is Too Big for Fraud.

Think of the Bernie Madoff scam, only replicated tens of thousands of times over, infecting every corner of the financial universe. The underlying crime is so pervasive, we simply can’t admit to it — and so we are working feverishly to rubber-stamp the problem away, in sordid little backrooms in cities like Jacksonville, behind doors that shouldn’t be, but often are, closed.

And that’s just the economic side of the story.

The moral angle to the foreclosure crisis — and, of course, in capitalism we’re not supposed to be concerned with the moral stuff, but let’s mention it anyway — shows a culture that is slowly giving in to a futuristic nightmare ideology of computerized greed and unchecked financial violence.

The monster in the foreclosure crisis has no face and no brain.

The mortgages that are being foreclosed upon have no real owners. The lawyers bringing the cases to evict the humans have no real clients. It is complete and absolute legal and economic chaos.

No single limb of this vast man-­eating thing knows what the other is doing, which makes it nearly impossible to combat — and scary as hell to watch.

What follows is an account of a single hour of Judge A.C. Soud’s rocket docket in Jacksonville.

Like everything else related to the modern economy, these foreclosure hearings are conducted in what is essentially a foreign language, heavy on jargon and impenetrable to the casual observer.

It took days of interviews with experts before and after this hearing to make sense of this single hour of courtroom drama. And though the permutations of small-time scammery and grift in the foreclosure world are virtually endless — your average foreclosure case involves homeowners or investors being screwed at least five or six creative ways — a single hour of court and a few cases is enough to tell the main story.

Because if you see one of these scams, you see them all.

It’s early on a sunny Tuesday morning when I arrive at the chambers of Judge Soud, one of four rotating judges who preside over the local rocket docket.

These special foreclosure courts were established in July of this year, after the state of Florida budgeted $9.6 million to create a new court with a specific mandate to clear 62 percent of the foreclosure cases that were clogging up the system.

Rather than forcing active judges to hear thousands of individual cases, this strategy relies on retired judges who take turns churning through dozens of cases every morning, with little time to pay much attention to the particulars.

What passes for a foreclosure court in Jacksonville is actually a small conference room at the end of a hall on the fifth floor of the drab brick Duval County Courthouse. The space would just about fit a fridge and a pingpong table.

At the head of a modest conference table this morning sits Judge Soud, a small and fussy-looking man who reminds me vaguely of the actor Ben Gazzara.

On one side of the table sits James Kowalski, a former homicide prosecutor who is now defending homeowners.

A stern man with a shaved head and a laconic manner of speaking, Kowalski has helped pioneer a whole new approach to the housing mess, slowing down the mindless eviction machine by deposing the scores of “robo-signers” being hired by the banks to sign phony foreclosure affidavits by the thousands.

For his work on behalf of the dispossessed, Kowalski was recently profiled in a preposterous Wall Street Journal article that blamed attorneys like him for causing the foreclosure mess with their nuisance defense claims.

The headline: “Niche Lawyers Spawned Housing Fracas.”

On the other side of the table are the plaintiff’s attorneys, the guys who represent the banks.

On this level of the game, these lawyers refer to themselves as “bench warmers” — volume stand-ins subcontracted by the big, hired-killer law firms that work for the banks.

One of the bench warmers present today is Mark Kessler, who works for a number of lenders and giant “foreclosure mills,” including the one run by David J. Stern, a gazillionaire attorney and all-Universe asshole who last year tried to foreclose on 70,382 homeowners.

Which is a nice way to make a living, considering that Stern and his wife, Jeanine, have bought nearly $60 million in property for themselves in recent years, including a 9,273-square-foot manse in Fort Lauderdale that is part of a Ritz-Carlton complex.

Kessler is a harried, middle-aged man in glasses who spends the morning perpetually fighting to organize a towering stack of folders, each one representing a soon-to-be-homeless human being. It quickly becomes apparent that Kessler is barely acquainted with the names in the files, much less the details of each case.

“A lot of these guys won’t even get the folders until right before the hearing,” says Kowalski.

When I arrive, Judge Soud and the lawyers are already arguing a foreclosure case; at a break in the action, I slip into the chamber with a legal-aid attorney who’s accompanying me and sit down. The judge eyes me anxiously, then proceeds.

He clears his throat, and then it’s ready, set, fraud!

Judge Soud seems to have no clue that the files he is processing at a breakneck pace are stuffed with fraudulent claims and outright lies.

“We have not encountered any fraud yet,” he recently told a local newspaper. “If we encountered fraud, it would go to [the state attorney], I can tell you that.”

But the very first case I see in his court is riddled with fraud.

Kowalski has seen hundreds of cases like the one he’s presenting this morning.

It started back in 2006, when he went to Pennsylvania to conduct what he thought would be a routine deposition of an official at the lending giant GMAC.

What he discovered was that the official — who had sworn to having personal knowledge of the case — was, in fact, just a “robo-signer” who had signed off on the file without knowing anything about the actual homeowner or his payment history.

(Kowalski’s clients, like most of the homeowners he represents, were actually making their payments on time; in this particular case, a check had been mistakenly refused by GMAC.)

Following the evidence, Kowalski discovered what has turned out to be a systemwide collapse of the process for documenting mortgages in this country.

If you’re foreclosing on somebody’s house, you are required by law to have a collection of paperwork showing the journey of that mortgage note from the moment of issuance to the present.

You should see the originating lender (a firm like Countrywide) selling the loan to the next entity in the chain (perhaps Goldman Sachs) to the next (maybe JP Morgan), with the actual note being transferred each time.

But in fact, almost no bank currently foreclosing on homeowners has a reliable record of who owns the loan; in some cases, they have even intentionally shredded the actual mortgage notes.

That’s where the robo-signers come in.

To create the appearance of paperwork where none exists, the banks drag in these pimply entry-level types — an infamous example is GMAC’s notorious robo-signer Jeffrey Stephan, who appears online looking like an age-advanced photo of Beavis or Butt-Head — and get them to sign thousands of documents a month attesting to the banks’ proper ownership of the mortgages.

This isn’t some rare goof-up by a low-level cubicle slave: Virtually every case of foreclosure in this country involves some form of screwed-up paperwork.

“I would say it’s pretty close to 100 percent,”

says Kowalski. An attorney for Jacksonville Area Legal Aid tells me that out of the hundreds of cases she has handled, fewer than five involved no phony paperwork.

“The fraud is the norm,” she says.

Kowalski’s current case before Judge Soud is a perfect example.

The Jacksonville couple he represents are being sued for delinquent payments, but the case against them has already been dismissed once before. The first time around, the plaintiff, Bank of New York Mellon, wrote in Paragraph 8 that “plaintiff owns and holds the note” on the house belonging to the couple.

But in Paragraph 3 of the same complaint, the bank reported that the note was “lost or destroyed,” while in Paragraph 4 it attests that “plaintiff cannot reasonably obtain possession of the promissory note because its whereabouts cannot be determined.”

The bank, in other words, tried to claim on paper, in court, that it both lost the note and had it, at the same time. Moreover, it claimed that it had included a copy of the note in the file, which it did — the only problem being that the note (a) was not properly endorsed, and (b) was payable not to Bank of New York but to someone else, a company called Novastar.

Now, months after its first pass at foreclosure was dismissed, the bank has refiled the case — and what do you know, it suddenly found the note. And this time, somehow, the note has the proper stamps.

“There’s a stamp that did not appear on the note that was originally filed,” Kowalski tells the judge. (This business about the stamps is hilarious. “You can get them very cheap online,” says Chip Parker, an attorney who defends homeowners in Jacksonville.)

The bank’s new set of papers also traces ownership of the loan from the original lender, Novastar, to JP Morgan and then to Bank of New York.

The bank, in other words, is trying to push through a completely new set of documents in its attempts to foreclose on Kowalski’s clients.

There’s only one problem: The dates of the transfers are completely fucked.

According to the documents, JP Morgan transferred the mortgage to Bank of New York on December 9th, 2008. But according to the same documents, JP Morgan didn’t even receive the mortgage from Novastar until February 2nd, 2009 — two months after it had supposedly passed the note along to Bank of New York.

Such rank incompetence at doctoring legal paperwork is typical of foreclosure actions, where the fraud is laid out in ink in ways that make it impossible for anyone but an overburdened, half-asleep judge to miss.

“That’s my point about all of this,”

Kowalski tells me later.

“If you’re going to lie to me, at least lie well.”

The dates aren’t the only thing screwy about the new documents submitted by Bank of New York.

Having failed in its earlier attempt to claim that it actually had the mortgage note, the bank now tries an all-of-the-above tactic.

“Plaintiff owns and holds the note,” it claims, “or is a person entitled to enforce the note.”

Soud sighs. For Kessler, the plaintiff’s lawyer, to come before him with such sloppy documents and make this preposterous argument — that his client either is or is not the note-holder — well, that puts His Honor in a tough spot.

The entire concept is a legal absurdity, and he can’t sign off on it.

With an expression of something very like regret, the judge tells Kessler,

“I’m going to have to go ahead and accept [Kowalski’s] argument.”

Now, one might think that after a bank makes multiple attempts to push phony documents through a courtroom, a judge might be pissed off enough to simply rule against that plaintiff for good.

As I witness in court all morning, the defense never gets more than one chance to screw up. But the banks get to keep filing their foreclosures over and over again, no matter how atrocious and deceitful their paperwork is.

Thus, when Soud tells Kessler that he’s dismissing the case, he hastens to add:

“Of course, I’m not going to dismiss with prejudice.” With an emphasis on the words “of course.”

Instead, Soud gives Kessler 25 days to come up with better paperwork.

Kowalski fully expects the bank to come back with new documents telling a whole new story of the note’s ownership.

“What they’re going to do, I would predict, is produce a note and say Bank of New York is not the original note-holder, but merely the servicer,” he says.

This is the dirty secret of the rocket docket

The whole system is set up to enable lenders to commit fraud over and over again, until they figure out a way to reduce the stink enough so some judge like Soud can sign off on the scam.

“If the court finds for the defendant, the plaintiffs just refile,” says Parker, the local attorney.

“The only way for the caseload to get reduced is to give it to the plaintiff. The entire process is designed with that result in mind.”

Now all of this — the obviously cooked-up documents, the magically appearing stamp and the rest of it — may just seem like nothing more than sloppy paperwork. After all, what does it matter if the bank has lost a few forms or mixed up the dates?

The homeowners still owe what they owe, and the deadbeats have no right to keep living in a house they haven’t paid for.

But what’s going on at the Jacksonville rocket docket, and in foreclosure courts all across the country, has nothing to do with sloppiness.

All this phony paperwork was actually an essential part of the mortgage bubble, an integral element of what has enabled the nation’s biggest lenders to pass off all that subprime lead as AAA gold.

In the old days, when you took out a mortgage, it was probably through a local bank or a credit union, and whoever gave you your loan held on to it for life.

If you lost your job or got too sick to work and suddenly had trouble making your payments, you could call a human being and work things out.

It was in the banker’s interest, as well as yours, to make a modified payment schedule.

From his point of view, it was better that you pay something than nothing at all.

But that all changed about a decade ago, thanks to the invention of new financial instruments that magically turned all these mortgages into high-grade investments.

Now when you took out a mortgage, your original lender — which might well have been a big mortgage mill like Countrywide or New Century — immediately sold off your loan to big banks like Deutsche and Goldman and JP Morgan.

The banks then dumped hundreds or thousands of home loans at a time into tax-exempt real estate trusts, where the loans were diced up into securities, examined and graded by the ratings agencies, and sold off to big pension funds and other institutional suckers.

Even at this stage of the game, the banks generally knew that the loans they were buying and reselling to investors were shady.

A company called Clayton Holdings, which analyzed nearly 1 million loans being prepared for sale in 2006 and 2007 by 23 banks, found that nearly half of the mortgages failed to meet the underwriting standards being promised to investors.

Citi­group, for instance, had 29 percent of its loans come up short, but it still sold a third of those mortgages to investors.

Goldman Sachs had 19 percent of its mortgages flunk the test, yet it knowingly hawked 34 percent of the risky deals to investors.

D. Keith Johnson, the head of Clayton Holdings, was so alarmed by the findings that he went to officials at three of the main ratings agencies — Moody’s, Standard and Poor’s, and Fitch’s — and tried to get them to properly evaluate the loans.

“Wouldn’t this information be great for you to have as you assign risk levels?” he asked them.

(Translation: Don’t you ratings agencies want to know that half these loans are crap before you give them a thumbs-up?)

But all three agencies rejected his advice, fearing they would lose business if they adopted tougher standards. In the end, the agencies gave large chunks of these mortgage-backed securities AAA ratings — which means “credit risk almost zero.”

Since these mortgage-backed securities paid much higher returns than other AAA investments like treasury notes or corporate bonds, the banks had no trouble attracting investors, foreign and domestic, from pension funds to insurance companies to trade unions.

The demand was so great, in fact, that they often sold mortgages they didn’t even have yet, prompting big warehouse lenders like Countrywide and New Century to rush out into the world to find more warm bodies to lend to.

In their extreme haste to get thousands and thousands of mortgages they could resell to the banks, the lenders committed an astonishing variety of fraud,

from falsifying income statements to making grossly inflated appraisals to misrepresenting properties to home buyers.

Most crucially, they gave tons and tons of credit to people who probably didn’t deserve it, and why not?

These fly-by-night mortgage companies weren’t going to hold on to these loans, not even for 10 minutes.

They were issuing this credit specifically to sell the loans off to the big banks right away, in furtherance of the larger scheme to dump fraudulent AAA-rated mortgage-backed securities on investors.

If you had a pulse, they had a house to sell you.

As bad as Countrywide and all those lenders were, the banks that had sent them out to collect these crap loans were a hundred times worse.

To sell the loans, the banks often dumped them into big tax-exempt buckets called REMICs, or Real Estate Mortgage Investment Conduits. Each one of these Enron-ish, offshore-like real estate trusts spelled out exactly what kinds of loans were supposed to be in the pool, when they were to be collected, and how they were to be managed.

In order to both preserve their tax-exempt status and deserve their AAA ratings, each of the loans in the pool had to have certain characteristics. The loans couldn’t already be in default or foreclosure at the time they were sold to investors.

If they were advertised as nice, safe, fixed-rate mortgages, they couldn’t turn out to be high-interest junk loans. And, on the most basic level, the loans had to actually exist.

In other words, if the trust stipulated that all the loans had to be collected by August 2005, the bank couldn’t still be sticking in mortgages months later.

Yet that’s exactly what the banks did. In one case handled by Jacksonville Area Legal Aid, a homeowner refinanced her house in 2005 but almost immediately got into trouble, going into default in December of that year.

Yet somehow, this woman’s loan was placed into a trust called Home Equity Loan Trust Series AE 2005-HE5 in January 2006 — five months after the deadline for that particular trust.

The loan was not only late, it was already in foreclosure — which means that, by definition, whoever the investors were in AE 2005-HE5 were getting shafted.

Why does stuff like this matter?

Because when the banks put these pools together, they were telling their investors that they were putting their money into tidy collections of real, performing home loans.

But frequently, the loans in the trust were complete shit. Or sometimes, the banks didn’t even have all the loans they said they had. But the banks sold the securities based on these pools of mortgages as AAA-rated gold anyway.

In short, all of this was a scam — and that’s why so many of these mortgages lack a true paper trail.

Had these transfers been done legally, the actual mortgage note and detailed information about all of these transactions would have been passed from entity to entity each time the mortgage was sold.

But in actual practice, the banks were often committing securities fraud (because many of the mortgages did not match the information in the prospectuses given to investors) and tax fraud (because the way the mortgages were collected and serviced often violated the strict procedures governing such investments).

Having unloaded this diseased cargo onto their unsuspecting customers, the banks had no incentive to waste money keeping “proper” documentation of all these dubious transactions.

“You’ve already committed fraud once,” says April Charney, an attorney with Jacksonville Area Legal Aid. “What do you have to lose?”

Sitting in the rocket docket, James Kowalski considers himself lucky to have won his first motion of the morning.

To get the usually intractable Judge Soud to forestall a foreclosure is considered a real victory, and I later hear Kowalski getting props and attaboys from other foreclosure lawyers.

In a great deal of these cases, in fact, the homeowners would have a pretty good chance of beating the rap, at least temporarily, if only they had lawyers fighting for them in court.

But most of them don’t.

In fact, more than 90 percent of the cases that go through Florida foreclosure courts are unopposed.

Either homeowners don’t know they can fight their foreclosures, or they simply can’t afford an attorney.

These unopposed cases are the ones the banks know they’ll win — which is why they don’t sweat it if they take the occasional whipping.

That’s why all these colorful descriptions of cases where foreclosure lawyers like Kowalski score in court are really just that — a little color.

The meat of the foreclosure crisis is the unopposed cases; that’s where the banks make their money. They almost always win those cases, no matter what’s in the files.

This becomes evident after Kowalski leaves the room.

“Who’s next?” Judge Soud says. He turns to Mark Kessler, the counsel for the big foreclosure mills. “Mark, you still got some?”

“I’ve got about three more, Judge,” says Kessler.

Kessler then drops three greenish-brown files in front of Judge Soud, who spends no more than a minute or two glancing through each one.

Then he closes the files and puts an end to the process by putting his official stamp on each foreclosure with an authoritative finality:

Kerchunk!
Kerchunk!
Kerchunk!

Each one of those kerchunks means another family on the street.

There are no faces involved here, just beat-the-clock legal machinery.

Watching Judge Soud plow through each foreclosure reminds me of the scene in Fargo where the villain played by Swedish character actor Peter Stormare pushes his victim’s leg through a wood chipper with that trademark bored look on his face.

Mechanized misery and brainless bureaucracy on the one hand, cash for the banks on the other.

What’s sad is that most Americans who have an opinion about the foreclosure crisis don’t give a shit about all the fraud involved. They don’t care that these mortgages wouldn’t have been available in the first place if the banks hadn’t found a way to sell oregano as weed to pension funds and insurance companies.

They don’t care that the Countrywides’ of the world pushed borrowers who qualified for safer fixed-­income loans into far more dangerous adjustable-rate loans, because their brokers got bigger commissions for doing so.

They don’t care that in the rush to produce loans, people were sold houses that turned out to have flood damage or worse, and they certainly don’t care that people were sold houses with inflated appraisals, which left them almost immediately underwater once housing prices started falling.

The way the banks tell it, it doesn’t matter if they defrauded homeowners and investors and taxpayers alike to get these loans.

All that matters is that a bunch of deadbeats aren’t paying their fucking bills.

“If you didn’t pay your mortgage, you shouldn’t be in your house — period,” is how Walter Todd, portfolio manager at Greenwood Capital Associates, puts it.

“People are getting upset about something that’s just procedural.”

Jamie Dimon, the CEO of JP Morgan, is even more succinct in dismissing the struggling homeowners that he and the other megabanks scammed before tossing out into the street.

“We’re not evicting people who deserve to stay in their house,” Dimon says.

There are two things wrong with this argument. (Well, more than two, actually, but let’s just stick to the two big ones.)

The first reason is: It simply isn’t true.

Many people who are being foreclosed on have actually paid their bills and followed all the instructions laid down by their banks. In some cases, a homeowner contacts the bank to say that he’s having trouble paying his bill, and the bank offers him loan modification. But the bank tells him that in order to qualify for modification, he must first be delinquent on his mortgage.

“They actually tell people to stop paying their bills for three months,” says Parker.

The authorization gets recorded in what’s known as the bank’s “contact data­base,” which records every phone call or other communication with a home­owner. But no mention of it is entered into the bank’s “number history,” which records only the payment record.

When the number history notes that the home­owner has missed three payments in a row, it has no way of knowing that the homeowner was given permission to stop making payments. “One computer generates a default letter,” says Kowalski. “Another computer contacts the credit bureaus.”

At no time is there a human being looking at the entire picture.

Which means that homeowners can be foreclosed on for all sorts of faulty reasons: misplaced checks, address errors, you name it. This inability of one limb of the foreclosure beast to know what the other limb is doing is responsible for many of the horrific stories befalling homeowners across the country.

Patti Parker, a local attorney in Jacksonville, tells of a woman whose home was seized by Deutsche Bank two days before Christmas. Months later, Deutsche came back and admitted that they had made a mistake: They had repossessed the wrong property.

In another case that made headlines in Orlando, an agent for JP Morgan mistakenly broke into a woman’s house that wasn’t even in foreclosure and tried to change the locks.

Terrified, the woman locked herself in her bathroom and called 911. But in a profound expression of the state’s reflexive willingness to side with the bad guys, the police made no arrest in the case. Breaking and entering is not a crime, apparently, when it’s authorized by a bank.

The second reason the whole they still owe the fucking money thing is bogus has to do with the changed incentives in the mortgage game.

In many cases, banks like JP Morgan are merely the servicers of all these home loans, charged with collecting your money every month and paying every penny of it into the trust, which is the real owner of your mortgage.

If you pay less than the whole amount, JP Morgan is now obligated to pay the trust the remainder out of its own pocket. When you fall behind, your bank falls behind, too. The only way it gets off the hook is if the house is foreclosed on and sold.

That’s what this foreclosure crisis is all about: fleeing the scene of the crime.

Add into the equation the fact that some of these big banks were simultaneously betting big money against these mortgages — Goldman Sachs being the prime example — and you can see that there were heavy incentives across the board to push anyone in trouble over the cliff.

Things used to be different.

Asked what percentage of struggling homeowners she used to be able to save from foreclosure in the days before securitization,

Charney is quick to answer.

“Most of them,” she says. “I seldom came across a mortgage I couldn’t work out.”

In Judge Soud’s court, I come across a shining example of this mindless rush to foreclosure when I meet Natasha Leonard, a single mother who bought a house in 2004 for $97,500.

Right after closing on the home, Leonard lost her job. But when she tried to get a modification on the loan, the bank’s offer was not helpful.

“They wanted me to pay $1,000,” she says. Which wasn’t exactly the kind of modification she was hoping for, given that her original monthly payment was $840.

“You’re paying $840, you ask for a break, and they ask you to pay $1,000?” I ask.

“Right,” she says.

Leonard now has a job and could make some kind of reduced payment. But instead of offering loan modification, the bank’s lawyers are in their fourth year of doggedly beating her brains out over minor technicalities in the foreclosure process.

That’s fine by the lawyers, who are collecting big fees.

And there appears to be no human being at the bank who’s involved enough to issue a sane decision to end the costly battle.

“If there was a real client on the other side, maybe they could work something out,” says Charney, who is representing Leonard.

In this lunatic bureaucratic jungle of securitized home loans issued by trans­national behemoths, the borrower-lender relationship can only go one of two ways: full payment, or total war.

The extreme randomness of the system is exemplified by the last case I see in the rocket docket.

While most foreclosures are unopposed, with homeowners not even bothering to show up in court to defend themselves, a few pro se defendants — people representing themselves — occasionally trickle in.

At one point during Judge Soud’s proceeding, a tallish blond woman named Shawnetta Cooper walks in with a confused look on her face.

A recent divorcee delinquent in her payments, she has come to court today fully expecting to be foreclosed on by Wells Fargo. She sits down and takes a quick look around at the lawyers who are here to kick her out of her home.

“The land has been in my family for four generations,” she tells me later. “I don’t want to be the one to lose it.”

Judge Soud pipes up and inquires if there’s a plaintiff lawyer present; someone has to lop off this woman’s head so the court can move on to the next case.

But then something unexpected happens: It turns out that Kessler is supposed to be foreclosing on her today, but he doesn’t have her folder.

The plaintiff, technically, has forgotten to show up to court.

Just minutes before, I had watched what happens when defendants don’t show up in court: kerchunk! The judge more or less automatically rules for the plaintiffs when the homeowner is a no-show.

But when the plaintiff doesn’t show, the judge is suddenly all mercy and forgiveness. Soud simply continues Cooper’s case, telling Kessler to get his shit together and come back for another whack at her in a few weeks.

Having done this, he dismisses everyone.

Stunned, Cooper wanders out of the courtroom looking like a person who has stepped up to the gallows expecting to be hanged, but has instead been handed a fruit basket and a new set of golf clubs.

I follow her out of the court, hoping to ask her about her case. But the sight of a journalist getting up to talk to a defendant in his kangaroo court clearly puts a charge into His Honor, and he immediately calls Cooper back into the conference room.

Then, to the amazement of everyone present, he issues the following speech:

“This young man,” he says, pointing at me, “is a reporter for Rolling Stone. It is your privilege to talk to him if you want.” He pauses. “It is also your privilege to not talk to him if you want.”

I stare at the judge, open-mouthed. Here’s a woman who still has to come back to this guy’s court to find out if she can keep her home, and the judge’s admonition suggests that she may run the risk of pissing him off if she talks to a reporter.

Worse, about an hour later, April Charney, the lawyer who accompanied me to court, receives an e-mail from the judge actually threatening her with contempt for bringing a stranger to his court.

Noting that “we ask that anyone other than a lawyer remain in the lobby,” Judge Soud admonishes Charney that “your unprofessional conduct and apparent authorization that the reporter could pursue a property owner immediately out of Chambers into the hallway for an interview, may very well be sited [sic] for possible contempt in the future.”

Let’s leave aside for a moment that Charney never said a word to me about speaking to Cooper.

And let’s overlook entirely the fact that the judge can’t spell the word cited.

The key here isn’t this individual judge — it’s the notion that these hearings are not and should not be entirely public. Quite clearly, foreclosure is meant to be neither seen nor heard.

After Soud’s outburst, Cooper quietly leaves the court.

Once out of sight of the judge, she shows me her file. It’s not hard to find the fraud in the case.

For starters, the assignment of mortgage is autographed by a notorious robo-signer — John Kennerty, who gave a deposition this summer admitting that he signed as many as 150 documents a day for Wells Fargo.

In Cooper’s case, the document with Kennerty’s signature on it places the date on which Wells Fargo obtained the mortgage as May 5th, 2010. The trouble is, the bank bought the loan from Wachovia — a bank that went out of business in 2008.

All of which is interesting, because in her file, it states that Wells Fargo sued Cooper for foreclosure on February 22nd, 2010.

In other words, the bank foreclosed on Cooper three months before it obtained her mortgage from a nonexistent company.

There are other types of grift and outright theft in the file.

As is typical in many foreclosure cases, Cooper is being charged by the bank for numerous attempts to serve her with papers.

But a booming industry has grown up around fraudulent process servers; companies will claim they made dozens of attempts to serve homeowners, when in fact they made just one or none at all. Who’s going to check?

The process servers cover up the crime using the same tactic as the lenders, saying they lost the original summons.

From 2000 to 2006, there was a total of 1,031 “affidavits of lost summons” here in Duval County; in the past two years, by contrast, more than 4,000 have been filed.

Cooper’s file contains a total of $371 in fees for process service, including one charge of $55 for an attempt to serve process on an “unknown tenant.”

But Cooper’s house is owner-occupied — she doesn’t even have a tenant, she tells me with a shrug.

If Mark Kessler had had his shit together in court today, Coop­er would not only be out on the street, she’d be paying for that attempt to serve papers to her nonexistent tenant.

Cooper’s case perfectly summarizes what the foreclosure crisis is all about.

Her original loan was made by Wachovia, a bank that blew itself up in 2008 speculating in the mortgage market. It was then transferred to Wells Fargo, a megabank that was handed some $50 billion in public assistance to help it acquire the corpse of Wachovia.

And who else benefited from that $50 billion in bailout money?

Billionaire Warren Buffett and his Berkshire Hathaway fund, which happens to be a major shareholder in Wells Fargo.

It was Buffett’s vice chairman, Charles Munger, who recently told America that it should “thank God” that the government bailed out banks like the one he invests in, while people who have fallen on hard times — that is, homeowners like Shawnetta Cooper — should “suck it in and cope.”

Look: It’s undeniable that many of the people facing foreclosure bear some responsibility for the crisis. Some borrowed beyond their means. Some even borrowed knowing they would never be able to pay off their debt, either hoping to flip their houses right away or taking on mortgages with low initial teaser rates without bothering to think of the future.

The culture of take-for-yourself-now, let-someone-else-pay-later wasn’t completely restricted to Wall Street. It penetrated all the way down to the individual consumer, who in some cases was a knowing accomplice in the bubble mess.

But many of these homeowners are just ordinary Joes who had no idea what they were getting into. Some were pushed into dangerous loans when they qualified for safe ones.

Others were told not to worry about future jumps in interest rates because they could just refinance down the road, or discovered that the value of their homes had been overinflated by brokers looking to pad their commissions.

And that’s not even accounting for the fact that most of this credit wouldn’t have been available in the first place without the Ponzi-like bubble scheme cooked up by Wall Street, about which the average home­owner knew nothing — hell, even the average U.S. senator didn’t know about it.

At worst, these ordinary homeowners were stupid or uninformed — while the banks that lent them the money are guilty of committing a baldfaced crime on a grand scale.

These banks robbed investors and conned homeowners, blew themselves up chasing the fraud, then begged the taxpayers to bail them out.

And bail them out we did:

We ponied up billions to help Wells Fargo buy Wachovia, paid Bank of America to buy Merrill Lynch, and watched as the Fed opened up special facilities to buy up the assets in defective mortgage trusts at inflated prices.

And after all that effort by the state to buy back these phony assets so the thieves could all stay in business and keep their bonuses, what did the banks do?

They put their foot on the foreclosure gas pedal and stepped up the effort to kick people out of their homes as fast as possible, before the world caught on to how these loans were made in the first place.

Why don’t the banks want us to see the paperwork on all these mortgages?

Because the documents represent a death sentence for them.

According to the rules of the mortgage trusts, a lender like Bank of America, which controls all the Countrywide loans, is required by law to buy back from investors every faulty loan the crooks at Countrywide ever issued.

Think about what that would do to Bank of America’s bottom line the next time you wonder why they’re trying so hard to rush these loans into someone else’s hands.

When you meet people who are losing their homes in this foreclosure crisis, they almost all have the same look of deep shame and anguish.

Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world’s richest banks, which continue to rake in record profits purely because they got a big fat handout from the government.

That’s why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won’t pay their fucking bills.

And that’s why most people in this country are so ready to buy that explanation.

Because in America, it’s far more shameful to owe money than it is to steal it.

YOUR DONATION(S) WILL HELP US:

• Continue to provide this website, content, resources, community and help center for free to the many homeowners, residents, Texans and as we’ve expanded, people nationwide who need access without a paywall or subscription.

• Help us promote our campaign through marketing, pr, advertising and reaching out to government, law firms and anyone that will listen and can assist.

Thank you for your trust, belief and support in our conviction to help Floridian residents and citizens nationwide take back their freedom. Your Donations and your Voice are so important.



Continue Reading

Most Read

Copyright © 2022 LawsInFlorida.com is an online brand name which is wholly owned by Blogger Inc., a nonprofit 501(c)(3) registered in Delaware | Caricatures by DonkeyHotey