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Lender Processing Services Makes False Statements About Pending Litigation in SEC Filing

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Shortly after Lender Processing Services became the target of class action lawsuits for alleged illegal legal fee-splititing in early October, an investor commented that he had never seen a company do such a poor job of crisis management. The company halted trading at 3:45 PM for the not legitimate reason that they didn’t like how much the stock price had decayed that day. And when they had an investor conference call (not the next day, which would be the usual response cycle, but the day after that), it was remarkably unpersuasive.

LPS has become the object of more class action litigation in November, this time for alleged securities law claims, namely making false and misleading statements to investors from July 29, 2009 to October 4, 2010, including “deceptive and improper document execution and preparation related to foreclosure proceedings.”

LPS appears to be continuing both to do a lousy job of crisis management and making false statements to investors. The latest instance occurred on December 10. Readers may recall that Reuters published a major story on LPS on December 6, which confirmed many details about the inner workings of LPS’s processes for managing foreclosure mills that had been published on this blog a full two months earlier (LPS acts as an outsourced contractor to servicers). The Florida Times-Union ran a story based on the Reuters piece.

LPS claimed in a December 8 press release that the stories were inaccurate, but did not demand corrections, and Reuters said it stood by its account. On December 10, LPS wrote letters to the editor of Reuters and the Florida Times-Union and also filed them with the SEC as 8-K reports (click to enlarge):

Screen shot 2010-12-16 at 1.53.15 AM

The letter to the Times-Union, which you can read on the LPS website, contains a patently untrue statement about its pending litigation:

Furthermore, the Times-Union article said:

“A lawsuit filed in Mississippi in October alleges that the company engaged in illegal fee-splitting with law firms. A federal bankruptcy trustee has joined the plaintiffs in that suit.”

It is particularly unfortunate that the reporter did not do any fact checking on his reference to the Mississippi case. The statement is false. The Chapter 13 Trustee is named in the caption of the complaint as a matter of course.

Below is a copy of the amended claim, filed with the US Bankruptcy Court for the Northern Mississippi district on October 10. It very clearly states in Item 5 on the second page:

The additional plaintiff added by this amendment is Locke Barkley, the standing Chapter 13 Trustee for the Northern District of Mississippi who is joined as an additional plaintiff and who sues on behalf of herself and a class of persons defined as all Chapter 13 Trustees in the United States of America.

Chapter 13 trustees ARE Federal bankruptcy trustees. This is about as clear-cut a misrepresentation that you will ever see.

Lender Processing Services Federal Bankruptcy Suit: Second Amended Complaint

Now this is the sort of lie which will have no practical consequences for LPS. No one is going to sue because a misrepresentation like this cannot be proven to have led to meaningful damages. But it’s telling that the company has no inhibitions about putting out information that is blatantly false in a SEC filing.

And there is plenty not to like in the rest of the Times-Union letter. Some examples:

“LPS has acknowledged that employees at a subsidiary falsely signed mortgage assignments…”

Instead of casting blame on LPS, the reporter might more fairly have explained that LPS – on its own – uncovered and corrected deficiencies in practices that took place at a former business unit called DocX. LPS not only shut down the DocX operation, but also corrected (“remediated”) errors in documents that DocX had prepared before LPS put a halt to its practices. As part of that process, and as LPS has done consistently, the company publicly disclosed that it had found and corrected problems in assignments of mortgage prepared by DocX. Upon learning of these problems in late 2009 through an internal investigation, LPS remediated the assignments of mortgage signed in this manner.

This is utter crap. LPS tries to claim it was proactive and initiated its “late 2009″ investigation on its own initiative. In fact, the Department of Justice (specifically, the U.S. Trustee) launched a probe of DocX in April 2009, which was reported to be “nationwide” in May 2009. But LPS nevertheless tries to fob off the idea that first learned of problems in “late 2009″ and investigated promptly, when in fact the delay of months meant it was taking action considerably after having not simply concrete, but embarrassingly public indications that something was amiss. And there is also good reason to suspect the internal exam was less than voluntary.

We also have this part:

“[the other publication]…also found LPS placed an emphasis on speed of filing foreclosures, and law firms that did not file quickly enough did not get more work. Court records show that green ratings go to firms that jump on offered assignments from their LPS computer screens and almost instantly turn out ready-to-file court pleadings, often using teams of low-skilled clerical workers with little oversight from the lawyers”

As LPS told the original publication, LPS does not hire law firms. Servicers select the attorneys with whom they want to work and the servicers direct them to use LPS’ technology if the servicers choose to use the LPS technology platform to assist them in their management of foreclosure matters. Additionally, the servicers, not LPS, establish the timeline for the steps required for an attorney to handle a foreclosure matter on their behalf. The attorneys, not LPS, determine who from their firm prepares the documents that they utilize in foreclosure proceedings. Finally, the performance metrics of law firms, which are established by the servicers, are reported to the servicers who may or may not utilize the information in their decision to hire or retain attorneys.

This is misleading, if at points accurate. Contacts of mine have records in their possession in which LPS notifies servicers of the law firms that LPS has chosen for the servicer. So who is really in charge? The servicer is technically the client, but if LPS hires and fires law firms in the servicer’s name, who effectively controls the relationship? Similarly, the operations of the law firm monitoring/performance platform are consistent across foreclosure mills, which is not the result you would see if the parameters were the result of servicer choice. In addition, key features to accelerate the process were clearly devised to not only speed up the process, but accelerate payment to LPS. As we reported in October:

To illustrate the degree of control LPS exercises over its network: we have been told by an LPS insider that the software that LPS uses to coordinate with all law firms in its network, LPS Desktop, incorporates a scoring system called 3/3/30. When LPS sends a referral on a foreclosure, the referee is expected to respond in three minutes. When it accepts the referral, it is auto debited (ACH or credit card).

The extraordinarily fast acceptance/payment cycle clearly benefits LPS and could never have been devised by the servicers, confirming the hand of LPS in the design of this platform.

There is more I could shred, but you get the picture. It’s offensive to see a company carry on this way. However, the lawsuits pending and the potential damages involved suggest that LPS is about to get its just desserts.

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10 comments

  1. Dave

    Yves,

    If you would like to see a copy of a LPS scorecard each department of a foreclosure mill receives every day which monitors all actions feel free to email me.

  2. dejauvuagain

    As far as the involvement of the Chapter 13 Trustee Locke Barkley, on October 9, 2010, Barkley submitted an application to the court to retain the Plaintiffs’ counsel as counsel for the Chapter 13 Trustee and “a class of Chapter 13 Trustees.” [Doc. 7.] These attorneys include a virtual A-list of consumer and class action attorneys, many involved in other cases against LPS, and they come armed with deposition testimony from the other cases. [Doc. 21}.

    In this case, LPS is adamantly claiming that LPS provided no services as to the mortgage foreclosure or bankruptcy of plaintiffs.

  3. Bullsmith

    Remember when if you lied to courts or regulators and got caught, there were serious penalties? Good times.

    1. leapfrog

      Oh that’s still the case…for the ordinary citizen. I’m beginning to think there are no such things as “perjury” and “fraud” charges for corporations.

      I certainly DO hope DocX gets its just deserts, along with MERS.

  4. Fractal

    So who is really in charge? The servicer is technically the client, but if LPS hires and fires law firms in the servicer’s name, who effectively controls the relationship?

    Yves, the highest court of each state adopts its own state’s version of the rules of professional conduct as state judicial rules. I am personally familiar with the rules adopted by state courts where I am admitted and the interpretations of those rules issued by the respective state bar associations’ ethics committees (or committees on professional conduct), as are all attorneys, and generally familiar with American Bar Association (ABA) interpretations of the same rules.

    I think it is quite clear under those rules that an entity such as LPS which controls the relationship with the law firms it employs to the extent revealed in the investigations of LPS is at the very least an agent of the servicers (banks) and possibly an agent of the noteholders (banks or trusts), and thus falls within the “privity” of the attorney-client relationship between the law firms and the banks and/or trusts (trustees). The banks and the trustees of the trusts are responsible for the conduct of their law firms and also for the conduct of LPS. The law firms are responsible for any misrepresentations or fraud committed or enabled by any of their clients or agents of their clients, including LPS, the servicers, the trusts and the trustees.

    In other words, for the purposes of enforcement of the rules of professional conduct, as far as the state high courts are concerned, they are all individually or jointly culpable if any one of them fucks up and/or any of the others know about the fuckups and fail to disclose & remedy the fuckups.

  5. Francois T

    Now this is the sort of lie which will have no practical consequences for LPS. No one is going to sue because a misrepresentation like this cannot be proven to have led to meaningful damages. But it’s telling that the company has no inhibitions about putting out information that is blatantly false in a SEC filing.

    You mean that putting out false info in a SEC filling does not entail any punishment per se?

    Must be nice to be a corporation nowadays.

  6. Bob

    I think you’re off base on the claim that LPS was misrepresenting the involvement of the trustee. They are clearly drawing a distinction between “Federal” trustees and regional trustees. There is no such thing as a “Federal” trustee. A Regional Banktuptcy Trustee like Mr. Barkley is not a federal employee nor are they an arm of the DOJ. They are private individuals who join a panel of trustees available to help with the disposition of assets, collection of funds and generally safeguarding the interest of the bankruptcy estate. I will grant you that the US Trustee’s office is responsible for administering the regional trustees, but I think you’re confusing the roles (even though you apparently understand it in the context of the DOCX investigation). It is the US Trustee, not the Regional Trustee, that concern itself with the investigation and prosecution of bankruptcy fraud. While Mr. Barkley may be speaking for interests of the Regional Bankruptcy Trustees, his entrance into the case is not as a “Federal Bankruptcy Trustee” whatever the reporter meant that to mean.

    I’ve been loosely following this story, and I thought the whole Docx investigation thing blew up in April of 2010, not April of 2009 as you suggest.

    1. Yves Smith Post author

      Bob,

      With all due respect, you are 100% wrong here. I am well aware of the difference between the US Trustee’s office versus Chapter 7 and 13 trustees. There is nothing in the post that suggests that the Ch. 13 trustee is an investigator, that is your projection. There is no term of art “regional bankruptcy trustees”. All three types of trustees, the US Trustee’s office, the Ch. 7 trustees, and the Ch. 13 trustees, are all considered to be federal trustees.

      The bankruptcy court is a Federal court. Your statement is tantamount to saying that bankruptcy courts are not federal court. It’s false on its face. And your distinction about how the Ch. 13 trustees are paid is erroneous. FDIC employees are paid out of bank deposit fees, they do not receive any budgetary funding. By your logic, the FDIC is not a Federal bank regulator because its employees get their income from private sector fees.

      Specifically:

      A Chapter 13 trustee, also called a standing trustee, has additional duties…The standing trustee is appointed by the United States Trustee under 28 U.S.C. §586(b), and typically serves as the trustee of the debtor’s estate pending fulfillment of the debtor’s repayment obligations under a plan confirmed by the U.S. Bankruptcy Court where the case was filed.

      http://thismatter.com/money/credit/bankruptcy/bankruptcy_trustee.htm

      The US Trustee is part of the DOJ, as you clearly note. The Ch. 13 trustees are thus appointed by the DOJ and serve to help monitor fulfillment of plans confirmed by a federal court.

      If you read the entire section, the LPS statement is additionally false by trying to claim the Ch. 13 trustee has not joined the case as a plaintiff!

      And you did not even bother checking the links in the story. They show clearly that the DoJ investigation started in April 2009. The last DocX operation was closed in 2010.

  7. Reacher

    Yves – you post the following:
    “To illustrate the degree of control LPS exercises over its network: we have been told by an LPS insider that the software that LPS uses to coordinate with all law firms in its network, LPS Desktop, incorporates a scoring system called 3/3/30. When LPS sends a referral on a foreclosure, the referee is expected to respond in three minutes. When it accepts the referral, it is auto debited (ACH or credit card).”
    Guess what – your “LPS Insider” is not an insider. In fact, they have no idea what they are talking about. There is (and was) no such thing as 3/3/30. In fact, the entire premise of 3/3/30 (as so ably described by your BK Bootcamp connection/source Nick Wooten) literally makes no sense (and is not even an achievable or desirable goal in the judicial or nonjudicial foreclosure process across the country! That’s the difference between journalism and bloggers, bloggers have no responsibility to get their facts straight. You can say anything you want online these days, and yell “Fire!” in the proverbial movie theater, and its ok because it’s just free speech, right? Actually, those lines continue to get blurred, as the Reuters article you are commenting about makes clear since it appears to not be all what it cracked up to be either.
    I have read your blog, and think some of your viewpoints and commentary are well done. But from what I can tell, much of the content of, to put it nicely, your “vehement diatribes” against LPS are simply off-base
    and misinformed. I’m not sure what your motivation is or what you personally have to gain (any connection we should know about Yves?), but rest assured, the facts will come out. Perhaps when that happens, maybe you admit you made a mistake on some of these posts. Or not…

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