By Abigail Caplovitz Field | December 16, 2011
Document fraud infects many if not most foreclosures across the country, and Lender Processing Services (LPS) is a major reason why. As a result, many are celebrating Nevada Attorney General Catherine Cortez Masto’s civil fraud suit against the company. Her suit details, based on numerous witnesses’ testimony, documents, and other evidence, how LPS’s business model was deceptive and fraudulent.
LPS organized its workforce to churn out documents that were replete with lies, improperly directed foreclosure and bankruptcy attorneys, misrepresented its fees, and made numerous misleading statements to investors. Frankly, it’s hard to see how LPS survives this suit and the shareholder and other cases that are sure to follow.
The suit’s tremendous clarity and detail raise several questions beyond “when will LPS declare bankruptcy?”
One is, when will a criminal RICO indictment follow? I mean, Nevada has laid a path so clear it’s hard to see how the “Justice” Department misses it. First, Nevada indicted LPS employees for criminal document fraud involving fraudulent notarizations and forgeries. Second, Nevada has sued with today’s complaint, spelling out how LPS’ business model was based on the production of such fraudulent documents. Connect those two dots and you’ve got a criminal enterprise.
The next question is: will a judge or jury finally get the opportunity to declare that LPS is engaged in the illegal practice of law, with the “kickbacks” it demands from lawyers in its network (kickbacks is AG Masto’s word) amounting to illegal fee splitting? Masto’s complaint essentially makes that charge, and two class actions have tried to do the same although neither reached the merits of the allegations.
A third question is: will the SEC take action against LPS, following a shareholder lawsuit filed last year, the shareholder lawsuits that are sure to come now, or simply responding to the materially false statements LPS made that the Nevada AG cites in today’s suit?
And a final question, the one so many of us are hoping is answered soon: will any bankers and banks face similar claims from AGs soon? While Masto’s complaint against LPS is protective of the servicers, and notes LPS’s deliberate efforts to deceive them, it’s also true that banks had in-house robosigners and cannot plead ignorance of LPS-type activities. Wells Fargo, for example, had John Kennerty.
Nevada Attorney General Masto continues to shame the other AGs for her fearless willingness to call fraud fraud and crime crime. For this suit to filed now, when rumors of an AG settlement with the banks that will absolve them of far too much for far too little–a rich gift for bankers that deserve coal, not presents, is deeply gratifying. Even more gratifying would be follow up from other law enforcers. Is that really too much to ask?
I mean, after this suit, how can any AG that wants to get re-elected really sign off on such a deal? Some Democrats have clued in; most of the California delegation (where are you, Rep. Pelosi?) signed a strong letter backing the California AG‘s brave decision to team up with AG Masto, and Washington Senator Maria Cantwell’s equally strong letter that by implication has really highlighted the WA AG’s decision to date not to walk away from the settlement.
And as to the five questions this suit raises about LPS’s future and the banks’, well, the clock has started ticking on the answers, but surely they won’t come before the new year.