Law Offices of David J. Stern
Action Date: January 4, 2012
Location: FT. Lauderdale, FL
DJSP Enterprises, the publicly-traded company that was supposed to make millions for investors from the foreclosure services it provided to The Law Offices of David Stern (“the Stern Firm”), sued David J. Stern and the Law Offices of David Stern.
Stern Law mortgage foreclosure caseload rose from 15,000 in 2006 to 70,400 in 2009.
In 2009, Stern Law handled 20% of all foreclosures in Florida.
Stern Law’s clients included all 10 of the top 10, and 17 of the top 20 mortgage servicers in the U.S. including Fannie, Freddie, Citibank, BOA, Goldman Sachs, GMAC and Wells Fargo.
The non-legal, back room servicers related to foreclosures included REO services: property inspection, valuation, eviction, broker assignment – these were performed by DJSP Enterprises – the sole client was Stern Law.
Here are Paragraphs 29 -35:
29. The Seller Defendants fraudulently induced Plaintiffs DAL and DJSP into entering into the Transaction by fraudulently and artificially inflating the Target Business’ actual revenues, by intentionally failing to disclose that the Target Business and DS Law were not, in fact, operating in accordance with all applicable laws, and by concealing that DS Law was in jeopardy of losing its largest clients due to DS Law’s unlawful conduct. Indeed, before entering into the Transaction, the Seller Defendants knew that DS Law and the Target Business had been systematically falsifying and/or back-dating pertinent legal documents, submitting such documents to the courts, 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’ largest foreclosure clients due to such conduct.
30. By cutting corners in the foreclosure process without following the rule of law, the Defendants artificially reduced the expenses of the Target Business which falsely inflated the profitability of the Target Business.
31. To summarize, the Seller Defendants failed to disclose to DJSP and DAL that DS Law and the Target Business were systematically operating in an unlawful manner. In addition, the Seller Defendants failed to disclose to DJSP and DAL that the Target Business’ reported revenues were not accurate, inflated, and improperly calculated and that the expenses of the business were also distorted due to the systematic practices designed to “shorten” the legal process. The Seller Defendants falsely led DAL and DJSP to believe that they were acquiring a long-term profitable business that operated in accordance with all applicable laws to induce DAL and DJSP to enter into the Transaction.
33. 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 such documents, fraudulently backdating documents, improperly notarizing and witnessing documents, fabricating documents, signing affidavits without reviewing or verifying the information contained therein, prosecuting foreclosure cases without obtaining proper service of process, and filing foreclosures with inaccurate and/or incomplete documents.
34. Indeed, the Seller Defendants directed employees of DS Law and the Target Business to purposefully overlook glaring inaccuracies in foreclosure pleadings and to essentially rubber stamp computer generated documents without reviewing or verifying the accuracy of the documents. New attorneys at DS Law were not only encouraged, but were even ordered to sign legal filings and pleadings without reading them. As a result, false and inaccurate documents were routinely executed and filed with the courts in an effort to hasten foreclosure proceedings and illegally obtain final judgments of foreclosure for the Seller Defendants’ clients.
35. The Seller Defendants even incentivized these unscrupulous and unlawful practices by giving their employees bonuses and extravagant gifts for churning out the highest number of foreclosure cases in the least amount of time. The Seller Defendants encouraged contests between DS Law attorneys to see who could jam a foreclosure case through the courts the fastest.
h/t Lynn S.
DJSP ENTERPRISES, INC. 8K Item 1.01 Entry into a Material Definitive Agreement.
On December 29, 2011, DAL Group, LLC (“DAL”), a subsidiary of DJSP Enterprises, Inc. (the “Company”), and DAL Holding Company – DS, LLC (formerly Default Servicing, LLC) (the “Target”), which is a subsidiary of DAL, entered into a First Amendment to Asset Purchase Agreement (the “Amendment”) by and among DAL, the Target, Homeland Security Capital Corporation (“HSCC”) and Default Servicing USA, Inc. (“Buyer”), which is a subsidiary of HSCC. The Amendment amended that certain Asset Purchase Agreement dated as of June 22, 2011 (the “Purchase Agreement”), which Purchase Agreement was described in and attached to the Company’s Current Report on Form 8-K filed on June 23, 2011. Under the terms of the Purchase Agreement, DAL sold substantially all of the assets of the Target to Buyer for cash and certain future contingent payments. Pursuant to the terms of the Amendment, DAL agreed to relinquish its rights to receive all future contingent payment amounts due and owing to the Target (as required under the terms of the Purchase Agreement) relating to the period from and after January 1, 2012, in consideration of a cash payment by the Buyer to the Target in the amount of $200,000.00. The foregoing description of the Amendment and the agreements and transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the complete Amendment, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.1.
On December 30, 2011 (the “Effective Date”), DAL Group, LLC (“Borrower”), a subsidiary of DJSP Enterprises, Inc. (the “Company”), and Borrower’s subsidiary, DJS Processing, LLC (“DJS”), as well as the Law Offices of David J. Stern, P.A. (the “Law Offices”) and BA Note Acquisition LLC (“Lender”), entered into a Forbearance Agreement (the “Forbearance Agreement”) pursuant to which Lender has agreed to forbear from exercising any of its available default rights and remedies, including not taking action to enforce payment of the principal and interest on Borrower’s revolving line of credit (the “Line of Credit”), which Line of Credit is evidenced in part by that certain Loan Agreement dated as of March 18, 2010, pursuant to which Lender’s predecessor-in-interest, Bank of America, N.A., made a loan to Borrower in the original principal amount of $15,000,000.00, through June 30, 2012, as long as Borrower makes weekly payments to Lender of cash held by Lender in its operating accounts in excess of agreed upon levels, as well as providing to Lender the proceeds of any sale not in the ordinary course of business and to which another secured creditor does not have a priority interest. On the Effective Date, Borrower also paid Lender $650,000 to reduce its indebtedness to Lender under the Line of Credit. During this forbearance period, Borrower and DJS are required to operate pursuant to an operating budget agreed upon by the parties. Similarly, the Forbearance Agreement requires the Law Offices, the primary account receivable debtor of DJS, to operate pursuant to an operating budget and to make weekly payments to Lender of cash held by Law Offices in excess of agreed upon levels, which cash payments will be applied to reduce the amount of Law Office’s indebtedness to DJS. Such payments will be applied in turn to reduce amounts outstanding and due by Borrower and DJS under the Line of Credit to Lender. The Law Offices also assigned to DJS and Lender the proceeds of any causes of action (less the cost of collection and a 10% consulting fee payable to David J. Stern) of Law Offices against its account debtors. Because the Forbearance Agreement requires all Excess Cash (as defined in the Forbearance Agreement) of Borrower and its subsidiaries to be paid to Lender, in the event Borrower, DJS, or the Law Offices do not have sufficient cash to fund their expenses as set forth in their approved operating budgets, Lender may in its sole discretion make additional advances to them under the Line of Credit to fund such expenses, thereby increasing their respective debt obligations to Lender and DJS under the Line of Credit. As of the Effective Date, the outstanding principal balance of the Line of Credit was $3,020,846.12. Kerry S. Propper, a member of the Board of Directors of the Company, owns a non-controlling interest in Lender. An affiliate of David J. Stern, the former Chairman, President and Chief Executive Officer of the Company, owns a non-controlling interest in Lender. The foregoing description of the Forbearance Agreement and the agreements and transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the complete Forbearance Agreement, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.2.
Item 7.01Regulation FD Disclosure.
On January 3, 2012, the Company, DAL, and DJS filed a complaint in the Circuit Court of the Seventeenth Judicial Circuit, in and for Broward County, Florida (Case #CACE12000096, the “Stern Lawsuit”) against David J. Stern, Law Offices of David J. Stern, P.A., Stern Holding Company-DS, Inc. f/k/a Default Servicing, Inc., Stern Holding Company-Professional Title and Abstract Company of Florida, Inc. (collectively referred to as the “Stern Parties”), and P&M Corporate Finance, LLC, a Michigan limited liability company (“P&M”). The Stern Lawsuit alleges, among other things, fraud and legal malpractice by the Stern Parties arising out of a business combination transaction (the “Transaction”) in which the Company acquired the Stern Parties’ non-legal mortgage foreclosure processing and support service operations in December 2009. In the Stern Lawsuit, the Company also alleges that P&M, which provided financial advisory services in connection with the Transaction, failed to act with due professional care in its design and review of a financial model for the Company and in preparing pro forma financial statements on which the Company relied prior to entering into the Transaction. As a result of the allegations contained in the complaint, the Company, DAL and DJS suffered damages for which they seek redress in the Stern Lawsuit. The foregoing description of the Stern Lawsuit and the allegations and requests for relief therein does not purport to be complete and is qualified in its entirety by reference to the Stern Lawsuit complaint, a copy of which is attached as Exhibit 99.1 hereto.
On January 3, 2012, the Company filed a lawsuit against the professional financial and accounting firms, McGladrey & Pullen, LLP (“MP”) and Grant Thornton, LLP (“GT”) in the Circuit Court of the Seventeenth Judicial Circuit, in and for Broward County, Florida (Case #CACE12000097, the “Accounting Professionals Lawsuit”). The Accounting Professionals Lawsuit alleges, among other things, that MP and GT failed to act with due professional care in preparing financial statement and reports on which the Company relied prior to entering into the Transaction, which resulted in the Company suffering damages for which it seeks redress in the Accounting Professionals Lawsuit. The foregoing description of the Accounting Professionals Lawsuit and the allegations and requests for relief therein does not purport to be complete and is qualified in its entirety by reference to the Accounting Professionals Lawsuit complaint, a copy of which is attached as Exhibit 99.2 hereto.
The information under Item 7.01 of this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is being “furnished” in accordance with General Instruction B.2. of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any registration statement or other filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
First Amendment to Asset Purchase Agreement, dated December 29, 2011, by and among Homeland Security Capital Corporation, Default Servicing USA, Inc., DAL Holding Company – DS, LLC (formerly Default Servicing, LLC), and DAL Group, LLC.
Forbearance Agreement dated as of December 30, 2011 by and among BA Note Acquisition LLC, DAL Group, LLC, DJS Processing, LLC, and Law Offices of David J. Stern, P.A.
Complaint [Case #CACE12000096] related to the Stern Lawsuit filed January 3, 2012 in the Circuit Court of the Seventeenth Judicial Circuit, in and for Broward County, Florida.
Complaint [Case #CACE12000097] related to the Accounting Professionals Lawsuit filed January 3, 2012 in the Circuit Court of the Seventeenth Judicial Circuit, in and for Broward County, Florida.
Copy of the complaint and 8K below…
h/t Michael O
DJSP ENTERPRISES vs DAVID.J STERN
DJSP ENTERPRISES, INC. 8K Filing
[…] Response: Stern has been sued by his own former company, DJSP (which had direct access to the Stern mill practices and documents), for the exact conduct that the report seeks to legitimatize; document fraud, forgery, fabrication, multi-corporate identity, mortgage assignment fraud, etc. See DJSP ENTERPRISES vs DAVID J. STERN […]
I would be interested to know how many of Stern’s staff invested — likely many and for their retirement funds. Like many entities such as this, it seems that those who are close to the entity invest oodles.
Assets depleted, foreclosures pending…what goes around tends to come around.
Goes to show that Stern had no hesitations about screwing people. Greed all the way for him and the really distrubing part is he may get away with it.
Bloomberg reported today that Goldman Sachs had millions invested in m f global….,.what a scam..!
Dude, really? Wow it was good enough for them when they were making money hand over fist but now that things go astray and they turn on one another like sharks in a feeding frenzy.Unethical bas####s.
The crooks are so good at being crooks and when one crook gets caught the other crooks go after his crook pot ;). Now this makes me lauugh. All the crooks know what they were doing was fraud and criminal but the judges do not. Here is where it looks like even the Florida Supreme Court does not even want to address the crooks. The entire consumer protection provisions are all now void. Oh Pam will still go after the door to door sales people, the gypsies who tar driveways and do roofs illegally, but she lacks care for the public in these mortgage fraud cases. So when I read about the case above, I can see where this will go no where. Sterns must be allowed to escape because any finding of guilt by any judge will change the game plan of the court foreclosure play book.