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BOBMSHELL, THE DAVID J. STERN ALLEGATIONS, WHO KNOW WHAT…AND WHEN?

WITHOUT WAITING FOR THE END, MY BIG QUESTION IS WHAT DOES THIS MEAN FOR THE HUNDREDS OF THOUSANDS OF CONSUMERS THAT WERE VICTIMIZED BY ALL OF THIS?

Just today a massive lawsuit was filed in Broward County that has extraordinarily significant national implications.   Now, first things, first.   Allegations in lawsuits are not facts…not until a finder of fact confirms that the allegations alleged are true.   But having said that, many of the base factual statements in this lawsuit regarding the underlying transaction wherein a lawyer in Florida sold the essential parts of an operation whose purpose was to throw Floridians out into the street are facts that are already part of many filings with the Securities and Exchange Commission.   For more about those statements, read what I wrote more than a year ago about it here.

So I read the prospectus a long, long time ago and realized this was bad, bad news.   I screamed loud and hard about it.   But no one listened.   I read the prospectus over and over and it just blew my mind….I recognized that this was not going to end well for my profession or for the court system that I took an oath to defend and protect.

Now, I could care less about investors….my interest was then and is now, the protection of Floridians who were victims of this operation and importantly, I was terribly concerned about the long-term implications for this state’s court system and the dramatically negative impact this transaction was going to have on the profession of law.   The public already held lawyers in low regard and this entire operation was set up to give my profession a much bigger black eye than it already had.

I screamed and argued in my cases, and to the credit of a great many good judges…most of them here in the Tampa Bay area, they caught on real quickly….they listened…and my clients were protected.   But too many other people would not listen.   Who was I after all….just some street fighting consumer lawyer that had developed a passion for sticking up for the little guy.   And since then, “our” court system has been choked by the chaos I warned about so long ago.

But enough about then and what should have been.   Read carefully the allegations that are being made from the insiders in the transaction where a lawyer essentially sold a law office to a group of investors.   But before you do, remember:

1) This lawyer had been the target of a major class action lawsuit filed in Federal Court in 1999.

2) Fannie Mae and Freddie Mac are taxpayer dependent organizations.

3) Fannie Mae and Fredie Mac were aware of the problems with David J. Stern.

4) Fannie/Freddie are misleading the public about how much their malfeasance will cost.

5) Every man, woman and child in the entire USA will pay dearly for Fannie and Freddie’s malfeasance.

So this is all very much every one of our business….after all, we’re all going to be paying for it for our entire lifetimes.   And this is not just a Florida problem….every single taxpayer in America will be paying for this so you’re bought into this problem.   So the questions we all need to be asking as taxpayers, as voters, as the people who are picking up the tab for all of this are….who knew about all of these allegations and how long did they know about them?

And now for the allegations, taken directly from the complaint:

The instant action arises from fraudulent misrepresentations and omissions made by Defendants, Stern, DSI, PTA andDS Law (the ” Seller Defendants”) to induce DJSP to purchase the non-legal mortgage foreclosure processing and support serviceoperations of DS Law

After the real estate market crashed in 2008, the Seller Defendants’ law business boomed with DS Law’s mortgageforeclosure caseload rising from 15,000 in 2006 to 70,400 in 2009. In 2009, DS Law handled approximately 20% of all repossessionsin the State of Florida. The Seller Defendants’ largest clients included Fannie Mae, Freddie Mac, Citibank, Bank of America, GoldmanSachs, GMAC and Wells Fargo. Indeed, the Seller Defendants’ clients included all of the top 10, and 17 of the top 20, mortgageservicers in the U.S

The associated Target Business also enjoyed exponential growth as a result of the real estate market crash, and, in2009, the Target Business reportedly brought in a purported $260 million in revenues. However, as more fully explained below, theSeller Defendants fraudulently and artificially inflated the revenues of the Target Business and concealed material information regardingthe unlawful foreclosure practices of DS Law to induce DJSP and DAL into purchasing the Target Business

The Seller Defendants fraudulently induced Plaintiffs DAL and DJSP into entering into the Transaction by fraudulentlyand artificially inflating the Target Business’ actual revenues, by intentionally failing to disclose that the Target Business and DS Lawwere not, in fact, operating in accordance with all applicable laws, and by concealing that DS Law was in jeopardy of losing its largestclients due to DS Law’s unlawful conduct. Indeed, before entering into the Transaction, the Seller Defendants knew that DS Law and theTarget Business had been systematically falsifying and/or back-dating pertinent legal documents, submitting such documents to thecourts, routinely misplacing and losing original key documents, filing foreclosures with inaccurate and/or incomplete documents,prosecuting foreclosure cases without obtaining proper service of process, and were in jeopardy of losing the Seller Defendants’ largestforeclosure clients due to such conduct.

By cutting corners in the foreclosure process without following the rule of law, the Defendants artificially reduced theexpenses of the Target Business which falsely inflated the profitability of the Target Business.

To summarize, the Seller Defendants failed to disclose to DJSP and DAL that DS Law and the Target Business weresystematically operating in an unlawful manner. In addition, the Seller Defendants failed to disclose to DJSP and DAL that the TargetBusiness’ reported revenues were not accurate, inflated, and improperly calculated and that the expenses of the business were alsodistorted due to the systematic practices designed to ” shorten” the legal process. The Seller Defendants falsely led DAL and DJSP tobelieve that they were acquiring a long-term profitable business that operated in accordance with all applicable laws to induce DAL andDJSP to enter into the Transaction.

The Seller Defendants’ fraudulent and illegal foreclosure practices prior to the Transaction, and the subsequent demiseof the Seller Defendants’ law practice, have now been well documented and reported upon in the local and national media.
Prior to the Transaction, the Seller Defendants were at all times well aware that DS Law and the Target Business were intentionally perpetuating a fraud on the courts by, inter alia, systematically filing forged documents, forging signatures on suchdocuments, fraudulently backdating documents, improperly notarizing and witnessing documents, fabricating documents, signingaffidavits without reviewing or verifying the information contained therein, prosecuting foreclosure cases without obtaining properservice of process, and filing foreclosures with inaccurate and/or incomplete documents.
Indeed, the Seller Defendants directed employees of DS Law and the Target Business to purposefully overlook glaringinaccuracies in foreclosure pleadings and to essentially rubber stamp computer generated documents without reviewing or verifying theaccuracy of the documents. New attorneys at DS Law were not only encouraged, but were even ordered to sign legal filings andpleadings without reading them. As a result, false and inaccurate documents were routinely executed and filed with the courts in aneffort to hasten foreclosure proceedings and illegally obtain final judgments of foreclosure for the Seller Defendants’ clients.
The Seller Defendants even incentivized these unscrupulous and unlawful practices by giving their employees bonusesand extravagant gifts for churning out the highest number of foreclosure cases in the least amount of time. The Seller Defendantsencouraged contests between DS Law attorneys to see who could jam a foreclosure case through the courts the fastest.
Prior to the Transaction, the Seller Defendants also knowingly and systematically inflated their process of servicecosts to the Court. Specifically, Seller Defendants engineered a fraudulent scheme whereby they directed their process servicing work toa process servicing company called ProVest. The Seller Defendants caused each file to generate four or five separate fees for service of  process regardless of whether service of process on multiple defendants was necessary or appropriate and regardless of whether serviceof process for multiple defendants could be achieved at the same address.
In exchange for receiving these inflated service of process fees, ProVest, in turn, routinely referred back to PTAservicing requests for ” skip tracing” to locate defendants for whom ProVest purportedly did not have accurate street address informationto effect service of process. ProVest ” hired” and paid fees to PTA for ” skip tracing” services despite the fact that ProVest had theability and resources to perform ” skip tracing” itself and routinely did so itself.
The Seller Defendants’ arrangement with ProVest amounted to a kickback scheme. DS Law padded and inflated itsprocess servicing costs which were billed to its clients and added to the court costs assessed to foreclosure defendants. In exchange forfeeding this work to ProVest, PTA earned manufactured ” skip tracing” fees which inflated PTA’s revenues and profits and whichrepresented another way in which the Seller Defendants artificially inflated the revenues of the Target Business prior to the Transaction.
In short, prior to the Transaction, the Seller Defendants and the Target Business routinely and systematically engagedin illegal and unfair and deceptive business practices. The Seller Defendants were well aware that such conduct severely threatened theviability of its valuable continuing relationships with their primary revenue generating clients, such as Fannie Mae, Freddie Mac, andCitibank, which, in turn, threatened the continued viability and existence of DJSP.
None of these illegal business practices were known to DJSP or disclosed by Seller Defendants to DJSP prior to theTransaction.
In fact, the Seller Defendants purposefully concealed such deceptive and systematic practices, and made numerousfalse representations regarding the revenues and propriety of the Target Business’ operations with the specific intent to fraudulentlyinduce DJSP into entering into the Transaction.
The Seller Defendants’ unlawful and negligent business practices spawned investigations by the Florida AttorneyGeneral’s Office, which, in August of 2010, announced its investigation of DS Law regarding its handling of foreclosure paperwork andcourt filings. Soon thereafter, DS Law’s largest clients, Fannie Mae, Freddie Mac and Citibank, began pulling their cases from DS Law,resulting in DJSP’s rapid decline.
Moreover, in early March, 2011, DS Law announced that it was ceasing the practice of law with respect to all pendingforeclosure matters in the State of Florida effective March 31, 2011.
DS Law’s demise has directly and necessarily resulted in the destruction of DJSP’s business. It has forced DJSP tolayoff hundreds of employees and has caused its revenues to plummet.
Stern was fully aware of and failed to correct the illegal, unethical, and unfair practices that were a systemic part of  DS Law.
Despite his professional obligations as an attorney and member of The Florida Bar, Stern knew that the SellerDefendants engaged in a systematic practice of fraudulently, negligently and unethically prosecuting its clients’ foreclosure cases, andStern failed to implement any preventative or corrective measures to ” reasonably ensure” that such conduct no longer took place beforeor after the Transaction.
Stern failed to conduct DS Law’s practice in accordance with the laws of the State of Florida and the regulations of  The Florida Bar and failed to ensure that DS Law sufficiently supervised DJS LLC’s performance of its non-legal foreclosure relatedservices.
As such, Stern was professionally reckless and negligent in discharging his duties both as an attorney and as an officerof DAL, DJS LLC and DJSP
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About the Author

Matthew D. Weidner, Esq.

Matt Weidner is known as a persistent, diligent and competent advocate passionate about protecting consumers. First admitted as member to the Florida Bar Association in 1999 he is admitted to practice in the Federal Court, Middle District of Florida, Northern District of Florida and the United States Court of Appeals for the Federal 11th Circuit in Atlanta, Georgia.  Mr. Weidner has been practicing civil litigation since 1999 and has represented clients in foreclosure, consumer and commercial finance transactions and civil litigation since that time.

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