Several failed and struggling mortgage companies are the subject of a rash of recent lawsuits. Accountants and auditors are defendants in two of the cases.
The bankruptcy trustee for New Century Financial Corp. has blamed auditing giant KMPG for the subprime lender’s failure in April 2007. Trustee Alan Jacobs filed lawsuits on April 1 in the Superior Court of California in Los Angeles and the U.S. District Court in the Southern District of New York.
The lawsuits claim KPMG overlooked problems in order to satisfy New Century, according to information posted on the Web site of Jacobs’ firm — Thomas, Alexander and Forrester. Accounting errors uncovered in 2007 led to the company’s demise.
In Milwaukee a state court judge dismissed a $15 million racketeering lawsuit against Central States Mortgage Co. founder Richard Jungen on April 7. It can be re-filed, however, by the court-appointed receiver for the company.
Central States abruptly closed in March. The state of Wisconsin has filed a $3 million lien on behalf of 220 workers who lost their jobs when the company closed.
Jungen and others were accused of defrauding the company, which was forced into receivership by state regulators.
Former senior executives of Residential Mortgage Capital — which shut down early last year — are being sued in Marin Superior Court in California for allegedly squandering capital on huge compensation packages, personal expenses and lavish entertainment, according to a story from the Contra Costa Times. Named in the lawsuit, which was filed in September 2008, are former chief executive officer James Chapman and former president Thomas Halbach.
In addition, former outside accountant Robert Boliard and former board member David Martinez are reportedly accused of helping Chapman and Halbach set up Pinnacle Capital Mortgage Corp. — a competing mortgage banker.
In Kansas City, Mo., NovaStar Financial Inc. settled a lawsuit brought by note holders who claimed the company did not make payments on nearly $81 million in trust preferred securities. The holders were Taberna Preferred Funding I Ltd, Taberna Preferred Funding II Ltd and Kodiak CDO I Ltd.
In a Feb. 24 announcement, NovaStar — which is on the brink of insolvency — agreed to pay the note holders $5.7 million in interest. The note holders agreed to dismiss an involuntary bankruptcy they were trying to force on the company.
In a case involving claims of racketeering, loan sharking, fraud and other criminal activities, U.S. Bankruptcy Court Judge Joel B. Rosenthal of Massachusetts ruled on April 10 that LBM Financial failed to extend a contract on two properties. As a result, it could not collect about $5 million in was seeking.
Developers Robert and David Depietri successfully argued that LBM did not comply with federal mortgage laws that required the loan to be extended within a five-year time limit.
LBM and its operators are also accused in several federal and state lawsuits of breaking laws and agreements involving mortgages and other financial agreements and arrangements.
In California, federal regulators settled on April 16 an insider-trading lawsuit involving a proposed acquisition of LendingTree, an online mortgage lender.
J. Thomas Talbot agreed to turn over $94,797 he made on his stock trades and pay a $135,762 civil penalty to settle the case, according to an announcement from the Securities and Exchange Commission. Talbot was on the board of Fidelity Financial Inc., owner of a 12 percent stake in LendingTree.
According to the SEC, Talbot learned in April 2003 that LendingTree was going to be acquired by IAC. He then bought and sold shares of the company, the SEC said.
Lender Processing Services issued a statement clarifying what it termed “inaccuracies” published in the Dow Jones Bankruptcy Review. The April 17 report indicated that LPS was the target of a U.S. Department of Justice investigation. News sent the company’s stock down by about 30 percent.
The Jacksonville, Fla.-based provider of technology services to the mortgage industry said in its statement that it was “not aware, nor has it been informed, that it is the subject of a formal investigation.”
LPS did say it has provided information to the federal government on a case involving the use of its products, but that a federal bankruptcy judge concluded the company had no culpability in the case.
CSMC Inc vs. Interim Funding LLC et al.
Milwaukee County Case Number 2009CV001723
DePietri et al. v. David G. Massad, et al.
CV40267 (U.S. Bankruptcy Court District of Massachusetts)
U.S. Securities and Exchange Commission v. J. Thomas Talbot.
CV 04-04556 (U.S. District Court Central District of California)
Tice v. NovaStar Financial Inc. et al.
04-0330-CV-W-ODS (U.S. District Court for the Western District of Missouri
Taberna v. NovaStar.
08-12125-CSS (U.S. Bankruptcy Court for the District of Delaware)
