Brahman v. Bill Erbey, Ocwen Altisource et al Ends in a Private Settlement

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.

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.