summary of lps complaint (5 20 2011)

8/2/2019 Summary of LPS Complaint (5 20 2011)

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LPS Complaint Summary (May 2011)

The Defendants

1. Kennedy- member of LPS B of Ds2. Carbiener- President & CEO of LPS3. Chan- Executive Vice President & CFO of LPS

LPS Offices

Headquarters- Jacksonville, Fl. primarily handles matters related to foreclosure, as well assome special assets

LPS Default Solutions, Inc. subsidiary- Mendota Heights, MN. primarily handles bankruptcymatters

LPS document solutions subsidiary (DocX, LLC)- Alpharetta, GeorgiaLPS Illicit Practices:

Fabrication of documents robo-signing The forging of documents Improper notarization Violation of security protocols The concealment of known mistakes from courts, attorneys and clients

When these problems were discovered by LPS internal auditors, LPS swept them under the rug LPS employees were rewarded for their speed, which resulted in violation of security protocols and

significant errors in the services they were providing

LPS stock price began to plummet in the fall of 2010.

LPS Network of attorneys

LPS created a network of attorneys to help services its clients foreclosure cases.o In order to join the network, attorneys had to execute a Network Agreement with LPSo These network lawyers were required to pay referral fees to LPS as legal work was

accomplished in the cases they were working on

o LPS required its attorneys to follow specific timeframeso LPS strongly discouraged its attorneys from communicating with clients (E.R. 1.4-

Communication)

o LPS managed the flow of information b/n attorneys and clients through its Desktopsystem- the work-flow processing web-based software application through which allatty.-client communications went through.

o Network attorneys were kept in the dark by the limited information they received fromLPS


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o LPS ranked its attorneys through an internal metric know as Attorney PerformanceReview (APR), which ranked attorneys based on how quickly they performed work on

behalf of servicers (possible breach of attorney-client privilege- E.R. 1.6)

o APR ratings were strictly based on speed.o The LPS Desktop system assigns a color to each firm: green for firms that turn out the

work the fastest, yellow for the slower ones and red for those that take the longest.

o Violation of 18 U.S.C. 155, the Bankruptcy Code and numerous professionalresponsibility codes

o In re Taylor, No. 07-15385 (Bankr. E.D. Pa. Apr. 15, 2009): Judge Sigmund stated thatthe barrier that NewTrak supplies to obstruct client/attorney communications is

contrary to the Model Rules of Professional Conduct. Since there is no client

consultation andsince the lawyer is simply tasked to file a motion based on a pre-coded

event or a claim objection based on a claim not filed by that firm, the Rules of

Professional Conduct appear to have been subordinated to this automated system.

o The Network Firms were NOT independent. LPS had control over the attorneyso Sharing legal fees with non-lawyers is illegal, and LPS is not a law firm.

E.R. 1.5, Comment [5]provides that An agreement may not be made whose terms might induce the

lawyer improperly to curtail services for the client or perform them in a way contrary to the clients

interest.

Violation of federal securities laws: LPS did not disseminate accurate and truthful information with

respect to LPS financial condition and performance, growth, operations, financial statements, business,

products, markets, management, earning, present and future business prospects, and to correct any

previously issued statements.

Substantive Allegations

1. LPS did not charge its clients (the mortgage servicers and banks that hire it to do foreclosurework) fees.

2. LPS gained revenues by charging referral fees (aka: administrative fees or administrativesupport fee) to attorneys in its Network and through illegal fee-splitting

3. Bill Newland: V.P. of Operations of LPS Default Solutions, who handles the atty. managementarea

4. According to Newland, these fees fund all of LPS Default Solutions activities, pay all of itsoverhead and comprise all of its profits.

Confidential Witness Information:

5. CW 1:(a) Was the former Project Manager at LPS(b) Worked in Jacksonville headquarters from 11/2006-4/2010(c) Reported to Bill Newland


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(d) Stated that all the money comes from attorneys- no money comes from banks orservicers.

(e) Believed that LPS received $200 per referral6. CW 2:

(a) The former Bankruptcy Specialist at LPS & worked in the MN. Office from 8/2010-11/2010

7. CW 3: the former REO Asset Manager at LPS from 8/2008-9/2009.8. CW 4: the former Financial Support Supervisor and worked in FL. Office from 8/2008-3/2010.9. CW 5: the former LPS Operations Specialist & Auditor, worked at FL. Office from 6/2009-8/2010.10.CW 6: the former DocX Customer Service Representative from 8/2006-5/2010 (footnote 23, p.

30)

11.CW 7: the former DocX Data Entry Clerk from 4/2009-2/2010. (footnote 24, p. 30)12.CW 8: the former Member of the DocX Foreclosure Department, employed from 2006-4/2010.

(footnote 26, p. 31); CW 8 pointed out to his supervisor that some documents were being

released with bogus assignee or bogus assignor as the signatory. CW 8 was instructed to

send out the documents even with the discrepancies, and that he should only worry about it if

the documents were returned.

13.CW 9: the former Client Care Services Manager, employed from 6/2008-9/2010; CW 9confirmed the discrepancies in the assignment documents.

14.CW 10: the former DocX Business Unit IT Executive, employed from 11/1994-10/2010.15.CW 11: the former Document Scanner, employed from 9/2006-2/2010.16.CW 12: the former Document Executioner, employed from 9/2006-4/2010. (footnote 30, p. 35)17.CW 13: the former Document Signer, employed from 3/2009-the end of 2009. CW 13 stated that

employees would even come in on Saturdays to sign from 9:00pm to 6:00pm.

18.CW 14: the former Source Document Specialist, employed from 2003-5/2010. (footnote 34, p.39)

19.CW 15: the former Sales Reporting Supervisor, employed from 5/2007-9/2010. (footnote 35, p.44)

20.CW 16: CW 16 explained that attorneys paid LPS for each process referral, such as the filing ofProof of Claim, a Motion for Relief, and Agreed Order, or other action by the attorneys.

21.CW 17: The Assistant Operations Support Specialist, employed from 2/2009-5/2010. (footnote37, p. 46)

LPS fabricated missing assignments to foreclose on homeowners

22.With DocX, LPS produced significant numbers of invalid assignments on behalf of banks so thatits client could foreclose on homeowners.

23.Services DocX offered for a fee:i) Create Lost Note Affidavitii) Create Missing Intervening Assignmentiii) Cure Defective Assignmentsiv) Recreate Entire Collateral File


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24.Data Entry employees did not perform any analysis or verify any information; they just pulledinformation from one screen and entered into another screen.

25.After data was entered, the documents were printed out and taken into the Signing Room(aka: the forging room) at DocX, where a supervisor took the documents and handed them

out to signers.

26.Managers closed the door when clients came through so the clients would not see the signers.LPS abused client authority and required employees to Robo-Sign documents

1. CW 9 explained that there was a corporate resolution signed b/n DocX and their clients, givingDocX employees the authority to sign as a representative of the client, which was done solely to

speed up the turnaround times of getting the documents completed and filed.

2. CW 12 stated that each signer received a batch of documents and had to sign whatever pagethey had in front of them, even if it was not their name on the page. These pages were signed

without be read or analyzed beforehand.

LPS requires employees to forge signatures through an arrangement called surrogate signing

1. Through this process, LPS required employees to sign or forge the names of those individuals atthe Company who had been given signing authority by clients.

2. Whichever signature they could most closely emulate was the signature they were directed tosign, over and over again.

3. According to Chris Pendley, in an interview for 60 Minutes, he alone signed 4,000 documents aday and DocX employees had to sign at least 350 documents per hour.

4. Former LPS employee Cheryl Denise Thomas testified that she personally signed an assignmentof mortgage as a V.P. for MERS, even though she was not a V.P. of MERS.

5. Employees were routinely assured that everything was above board and legal.6. CW 12 explained that if you ever inquired as to the legality of the practice, you would be fired

immediately.

The Company Encourages Improper Notarization (p. 41)

Company notaries would notarize documents, even though they never observed the actual signingnor verified the identity of the signer.

Although DocX was shut down, illicit practices continued and were widespread

LPS began shifting robo-signing operations to on-site client locations, where LPS signers andnotaries continued to mass-produce the same type of deficient documents generated at DocX and

LPS MN.

The companys business model led to security breaches and significant errors

Employees were pressured to share passwords Password sharing was widespread and constant LPS put intense pressure on employees to do work quickly, rather than accurately


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LPS demanded mandatory overtime so that employees could process all loan files that neededattention

Employees were often told by higher-ups that other people want your job, well just let you go ifyou dont keep up.

LPS employees were only allowed to look at a file for 2 or 5 minutes, in order to maintain high levelsof speed in relation to processing.

phantom referrals went to attorneys who in turn would work on processes and file documentswith courts alleging borrowers failures or defaults that were inaccurate (False statement to a

tribunal and violation of E.R. 3.1: Meritorious Claims and Contentions)

LPS files had numerous errors E.R. 7.3: Direct Contact with Prospective ClientsA lawyer shall notsolicit professional

employment from a prospective client or employ OR COMPENSATE ANOTHER to do so when a

motive for the lawyersdoing so is the lawyers pecuniary gain, unless the person contacted is a

family member or has a close personal, or prior professional relationship with the lawyer.

LPS concealed errors at any cost

Default Management Services was a core operation of the company during the class periods Defendants were aware of the illicit practices at DocX Carbiener would visit the offices regularly with Chan, including the DocX office Defendants also repeatedly acknowledged the problematic business practices at DocX and their

internal investigation of this entity.

Defendants knew of the companys illicit practices from the constant media scrutiny,investigations, and litigation during the class period.

DEFENDANTS FALSE AND MISLEADING CLASS PERIOD STATEMENTS

As a result of Defendants misrepresentations, and resulting analyst affirmation, the Companysstock price climbed to an artificially inflated price.

April 3rd

, 2010- The Wall Street Journal Article

Article entitled U.S. Probes Foreclosure-Data Provider When asked about problems with the Companys paperwork, LPS Kersch stated that

unfortunately, on a few occasions, the document was inadvertently recorded before the field

was updated.materially false and misleading

April 5th

, 2010 Press Release

LPS assured the market that the services offered at its subsidiary were limited to a smallnumber of customers, unrelated to the Companys core default management services, and that

the Company had taken necessary remedial actions false and misleading

May 14th

, 2010- Florida Times Union Article


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Article entitled Florida investigating bogus foreclosure records, it was reported thatFloridas AG was investigating whether LPS was involved with forging real estate documents for

foreclosure lawsuits

Defendant Kersch said that LPS hasnt done anything wrong and would cooperate with anyagency. She also said that DocX has no idea whether documents are being used in foreclosure

suits and that the company just enters information into a standard form and has no

independent discretion concerning the timing of the preparation of the document nor the

information contained. false and misleading

June 7th

, 2010- National Mortgage News Article

It was again reported that the Florida AGs office had launched a civil investigation implicatingLPS in the use of fabricated documents in foreclosure cases

THE TRUTH BEGINS TO EMERGE

Beginning on April 16th, 2009, the market slowly began to learn the truth regarding the variousillicit business practices that Defendants were engaged in to drive LPS revenue growth and

market share.

Rather than reveal the truth, Defendants repeatedly denied any wrongdoing and misled themarket about the TRUE nature of the Companys business practices, their pervasiveness, the

steps Defendants had taken to address those practices, and the impact of the illicit practice on

the Companys financial condition.

LPS stock began to drop when they continued to falsely reassure the market

summary of lps complaint (5 20 2011)

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