Ocwen Financial Corp. has agreed to settle for $56 million a long-running class action securities fraud lawsuit.
The action stems from accusations that the Florida-based company misled investors by hiding servicing misconduct and potential conflicts of interest in 2013 and 2014, according to a filing with the Securities and Exchange Commission. The agreement needs court approval.
In a cash-and-stock agreement, Ocwen has agreed to pay the plaintiffs $49 million in cash and 2.5 million shares of common stock with a value of $7 million, according to the Form 8-K SEC filing.
The company said in the filing that it expects to recover $12 to $14 million of the proposed settlement amount from insurance proceeds.
The plaintiffs’ attorneys fees will be paid out of the settlement.
The agreement came after the parties agreed to recommendations made by a mediator and was reached three days before trial.
The parties have asked the Florida federal trial court to adjourn further legal proceedings pending court approval of the mediated settlement.
Ocwen said in the SEC filing that, while it believed it had “sound legal and factual defenses,” it agreed to the settlement to “avoid the uncertain outcome of trial and the additional expense and demands on the time of its senior management that a trial would involve.”
This sentiment was echoed in an emailed statement provided by John Lovallo, a spokesman for Ocwen.
“We are pleased to have reached an agreement in principle to resolve this matter,” Lovallo said. “While the company believes that it has sound legal and factual defenses, Ocwen agreed to this settlement in order to avoid the uncertain outcome of trial and the additional expense and demands on the time of its senior management that a trial would involve.”
An Ocwen attorney, Sharan Nirmul of Kessler, Topaz, Meltzer & Check LLP said, “This was a hard fought case and we believe we reached the best possible outcome for the class.”
The company may have provided in the filing a strong hint about its future if the settlement is not approved.
Ocwen noted that, if the court does not approve the settlement, the lawsuit will continue and the company will “vigorously defend” itself because the “business, financial condition, liquidity and results of operations could be materially and adversely affected” if its defense against the claims is not successful.
In the 2014 court filing, the company was accused of inflating the price of its shares by hiding regulatory risk over its servicing policies and not having procedures in place to prevent conflicts of interest involving companies spun off by former chairman William Erbey. Investors who bought Ocwen’s stock between May 2013 and December 2014 asked for damages.
Ocwen has recently been fending off much government scrutiny.
It
was hit in April 2017 with multiple government lawsuits and regulatory orders issued by more than 20 states over its servicing practices and handling of escrow accounts.
