In a complaint filed this week in federal court in Fort Lauderdale, two Ohio residents allege that Stern and DJSP Enterprises, a public company that gets most of its business from Stern's firm, "materially misled" them and other investors about the company's revenue prospects.The suit states specifically, Stern and DJSP were slow to disclose a "substantial decrease" in foreclosure cases referred to Stern's firm by one of its bank clients in April and May.
According to this suite, that drop, along with a slowdown in foreclosures because of government loan modification programs, led to lower-than-expected earnings forecast for DJSP and a nearly 29% plunge in its stock price in a single day.
In January, Stern sold his "nonlegal" operations, such as document preparation, to DJSP for $58 million. The company is registered in the British Virgin Islands but is based in Plantation and gets more than 90% of its business from Stern's law firm. Stern is DJSP's chairman and CEO as well as a major shareholder.
The lawsuit was filed by Stan Cooper and Neeraj Methi on behalf of all investors who bought DJSP stock between March 16 and May 28, when the stock dropped from $8.98 per share to $6.33. It closed Friday at $4.98.
On March 16, the suit says, DJSP filed a statement with federal regulators that included comments Stern had made that day touting the company at a California investors conference.
Noting that the U.S. foreclosure growth rate has averaged 12% annually over the past 25 years, Stern predicted that foreclosures would grow to "historical heights" and remain at "high levels" until 2017. He said DJSP also stood to benefit from helping banks sell millions of repossessed homes and condos.
Stern told investors:
"So no matter what the Obama administration brings our way, we have found the way to create a profit center on it and that I think is part of the success."
On May 27, though, DJSP "shocked the market," the suit says, by announcing it had lowered its 2010 forecast for adjusted net income by up to $17 million. It also disclosed for the first time that one of Stern's bank clients was converting to a new foreclosure data system, resulting in a temporary drop in cases referred to Stern's law firm.
The suite claims:
"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiffs and other class members have suffered significant losses and damages."
Stern's high-volume practice has made him a controversial figure. You could call him the foreclosure king of Florida.
As lawyer for several major banks, Stern handles one-fifth of all foreclosure cases in the nation's fourth most populous state. It is from Stern's law firm that well over 100,000 Floridians have received the dreaded notice to pay up or face losing their homes.
In March 2010, a Pasco County judge dismissed a foreclosure case after ruling Stern's firm had submitted a clearly fraudulent document.
In 2000, Stern paid $2.1 million to settle a class action suit alleging his firm had overcharged homeowners for title searches and other expenses. And in 2002, the Florida Bar publicly reprimanded him for misleading and overcharging some of his own bank clients.
Despite the reprimand, Stern's law firm ballooned along with the foreclosure rate. From its headquarters in Plantation, it now handles nearly 100,000 foreclosure cases at any one time.
Assignments of mortgage which transfer ownership of a loan from one party to another are key in determining who has the legal right to foreclose. A back-dated assignment could mean that the bank didn't own the note at the time it started foreclosing, or worse, that the assignment was created to show ownership that didn't actually exist.
In an amended registration statement filed with the Securities and Exchange Commission in June, DJSP Enterprises touts Stern's years of legal experience. But the statement does not mention the reprimand, even though the company's business could be affected by state laws and Florida Bar rules.
"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiffs and other class members have suffered significant losses and damages."
Stern's high-volume practice has made him a controversial figure. You could call him the foreclosure king of Florida.
As lawyer for several major banks, Stern handles one-fifth of all foreclosure cases in the nation's fourth most populous state. It is from Stern's law firm that well over 100,000 Floridians have received the dreaded notice to pay up or face losing their homes.
In March 2010, a Pasco County judge dismissed a foreclosure case after ruling Stern's firm had submitted a clearly fraudulent document.
In 2000, Stern paid $2.1 million to settle a class action suit alleging his firm had overcharged homeowners for title searches and other expenses. And in 2002, the Florida Bar publicly reprimanded him for misleading and overcharging some of his own bank clients.
Despite the reprimand, Stern's law firm ballooned along with the foreclosure rate. From its headquarters in Plantation, it now handles nearly 100,000 foreclosure cases at any one time.
Assignments of mortgage which transfer ownership of a loan from one party to another are key in determining who has the legal right to foreclose. A back-dated assignment could mean that the bank didn't own the note at the time it started foreclosing, or worse, that the assignment was created to show ownership that didn't actually exist.
In an amended registration statement filed with the Securities and Exchange Commission in June, DJSP Enterprises touts Stern's years of legal experience. But the statement does not mention the reprimand, even though the company's business could be affected by state laws and Florida Bar rules.
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