Recruitment Spawns Lawsuit

The Connecticut Attorney General’s Office and Department of Consumer Protection filed a lawsuit alleging that CTX violated state law and public policy against corporate raiding and the misappropriation of trade secrets, according to an announcement today.

“CTX acted as a corporate parasite — illegally draining the lifeblood from its competition,” Attorney General Richard Blumenthal said in the written statement. “With cunning calculation, CTX raided Danbury Mortgage for employees and consumers over the course of several months. This unconscionable pillaging stifled competition and in some cases lead to some consumers paying higher interest rates on home mortgages.”

It all started in September 2004, when Nevada-based CTX met with one or more employees of Charter Oak Lending Group, which did business locally as Danbury Mortgage, at a training conference in which it initiated a strategic effort to recruit Danbury employees, the office reported.

CTX paid bonuses and other benefits to those employees to continue recruiting additional Danbury employees and access confidential information, including consumer lists, loan applications and referral sources. It eventually opened an office — staffed entirely with the illegally recruited employees — in the Danbury, Conn., area where the competitor is based, the office said.

The state’s action follows a civil action by Danbury’s owners, Don DeRespinis and Debra Killian. The husband and wife claimed their company was one of the largest independent mortgage companies — with 32 employees and two field offices in its heyday.

That case came down to “a loan officer’s freedom of choice for employment,” CTX executive Danny Deaton told MortgageDaily.com in an e-mailed statement. “Apparently, the problems at Charter Oak included significant reductions in their loan officer commission structure.”

But CTX was “surprised and disappointed at the recent action by the Attorney General and the Department of Consumer Protection,” CTX said in an e-mail statement to MortgageDaily.com.

“We are confident that when the Department reviews and fully understands all of the facts and circumstances surrounding the matter, it will agree that nothing improper occurred,” the lender added. “CTX is proud to be in the Connecticut marketplace, and is a firm believer in fair competition.”

The regulators allege CTX mailed postcards to about 1,000 Danbury customers and referral sources that informed the competitor’s agents now worked for CTX. Those recruited agents were then instructed to tell prospects who had started loans at Danbury that their loan would be closed at CTX, which resulted in higher interest rates on some of the loans.

In addition to consumer restitution, the regulators’ suit seeks to prohibit CTX from using any consumer lists, files, documents or information obtained through its illegal acts or practices for commercial gain; the return of all such information to Danbury; an order banning CTX from communicating with any consumers obtained through the illegal practices; and disgorgement of all ill-gotten gains, the announcement said.

Related:

Couple Claims CTX Stole Staff
CTX Mortgage is being sued in Connecticut state court by a husband-and-wife team who say the Texas-based lender stole their employees using sales training seminars as recruiting grounds.