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Altisource Portfolio Solutions to pay $32 million to settle class action suit over Ocwen relationship

Investors sued when stock plummeted after NYDFS investigation

When Altisource Portfolio Solutions filed its 10-K yearly filing with the Securities and Exchange Commission earlier this week, the company revealed that the Consumer Financial Protection Bureau is looking into the company’s relationship with Ocwen Financial.

But that wasn’t the only Ocwen-related revelation in Altisource’s SEC filing.

The company also disclosed that it recently reached a $32 million settlement in a class action lawsuit brought by Altisource investors who claimed financial harm after Altisource’s stock plummeted after the New York Department of Financial Services began investigating the company’s relationship with Ocwen in early 2014.

The NYDFS investigation covered Ocwen’s relationship with several of its affiliated companies, all of which were chaired by Ocwen’s founder, William Erbey.

The investigation led to the NYDFS fining Ocwen $150 million and forcing Erbey to resign from his position as chairman of Ocwen and his position as chairman of several Ocwen affiliates, Altisource Portfolio Solutions, Altisource Residential CorporationAltisource Asset Management Corporation, and Home Loan Servicing Solutions.

Before the investigation became public knowledge, Altisource Portfolio Solutions peaked at more than $170 per share in December 2013. Then, over the course of the investigation, the company’s stock dropped precipitously, falling to under $46 per share one year later (as shown in the chart below).

 

On Dec. 22, 2014, the day that the NYDFS fine was announced, Altisource’s stock opened trading at $45.91 and closed at $31.49.

But even before the fine was announced, causing Altisource’s stock to drop by $16 in one day, a series of Altisource investors sued the company for causing them financial harm.

The original class action lawsuit was filed in September 2014 by the West Palm Beach Firefighters’ Pension Fund. Then, in December 2014, the class action was certified, with the International Union of Painters and Allied Trades District Council 35 Pension and Annuity Funds acting as the lead plaintiffs.

Now, after more than two years of fighting in court, and four separate complaints being filed against Altisource by the investors, the two sides are settling to the tune of $32 million.

The settlement was first reported by Law360.

The final complaint in the suit was filed on Dec. 28, 2016. That final complaint claimed that Altisource repeatedly misrepresented both its relationship with Ocwen and Erbey’s involvement in the various companies, all of which contributed to Altisource’s stock dropping and the investors losing quite a bit of money.

Similar claims were at the heart of the NYDFS fine.

For example, according to the NYDFS, Erbey did not recuse himself from the approval process of transactions between the related companies.

The investors echoed that charge, stating in their final complaint:

To assure investors and regulators that the two companies did not engage in self-dealing transactions that would harm Ocwen’s borrowers, both Ocwen and the Altisource Defendants publicly represented to Altisource investors that Defendants managed the conflicts of interest posed by Erbey’s leadership role at and financial interest in the related companies. Specifically, Altisource, Ocwen and Erbey represented that active steps were taken to manage Erbey’s conflicts, including through “oversight” by the “independent” members of each company’s Board of Directors – a representation that assured investors that Erbey was not engaged in devising, negotiating and approving the terms of transactions between the related companies.

Moreover, Defendants and Ocwen explicitly stated that Erbey recused himself from transactions involving the two companies to ensure the absence of conflicts and self-dealing. All of these representations embodied an effective commitment to investors that Defendants were protecting Altisource investors by prohibiting Erbey’s involvement in transactions between companies where he had a financial stake in both companies.

In reality – and in stark contrast to Defendants’ Class Period statements to Altisource investors – Altisource and Ocwen, at Erbey’s direction, engaged in conflicted related party transactions designed to improperly funnel money from innocent homeowners to Altisource and Erbey. Every aspect of this fraud has now been admitted by Ocwen. When the truth of Defendants’ Class Period statements was finally revealed, Altisource’s common stock had lost a total of over $1 billion in market capitalization.

Despite Altisource asking the judge to dismiss parts of that final complaint, the two sides agreed to a preliminary settlement.

And late last week, the judge approved the preliminary terms of the $32 million settlement. The settlement covers investors who owned Altisource’s stock between April 25, 2013 and Dec. 21, 2014.

The two sides will meet in court again on May 30, 2017, to approve the settlement. If that happens, the case will be dismissed with prejudice.

According to Altisource, it will pay a total of $32 million in cash, a portion of which will be funded by insurance proceeds, to a settlement fund.

“The proposed settlement provides that Altisource Portfolio Solutions S.A. and the officer and director defendants deny all claims of wrongdoing or liability,” Altisource stated in its SEC filing.

HousingWire contacted Altisource for an additional comment on the settlement and this article will be updated should the company respond.

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