Miami Herald reporta demanda ya presentada contra David J Stern

Challenges mount at law firm
10/12/2010 © Miami Herald

A Plantation-based law firm is struggling to deal with a state investigation and foreclosure

freezes that threaten its bottom line.

By Toluse Olorunnipa
tolorunnipa@MiamiHerald.com

The Law Offices of David Stern, which rode a wave of growth by processing foreclosures during the financial crisis, is now dealing with its own distress, as the foreclosure freeze has added to the firm's growing list of problems.
On Tuesday, the law firm's lawyers plan to challenge a state investigation into Stern's
foreclosure practices in Broward County circuit court.
Florida's attorney general's office, leading the state's investigation of Stern and three other
foreclosure law firms, announced Monday that it would press forward with its probe, despite a
Palm Beach County judge's ruling against the state inquiry last week. Attorney General Bill
McCollum also said he was joining 39 other states in a national investigation of shoddy
foreclosure practices.

But the legal fight with Attorney General Bill McCollum is only one of the Plantation based firm's many problems. In addition to the state's investigation, a whistle-blowing former employee has claimed forgery and numerous other crimes are rampant at the firm. The firm is also facing declining revenue and a number of lawsuits.

LAYOFFS?
And a freeze in foreclosures by some of the firm's biggest clients threatens to further
stall business and may have already set in motion emergency cost-cutting measures, including
layoffs.
Rumors have swirled that the embattled firm let go a large number of workers last
week, but Stern's legal counsel declined to comment.
“Lawyers have to hold themselves up to a higher standard, and [Stern] hasn't done
that,'' said Thomas Ice, a foreclosure defense attorney who has investigated questionable
activities at the law firm. “To get where we are today you have to have a lot of failures in the
chain.''
Armed with the sworn testimony of a whistleblower who once worked at Stern, the
attorney general is looking to move forward with collecting evidence that could implicate the
firm.

PARALEGAL'S TESTIMONY
The whistleblower's testimony, released last week, is a jarring account alleging
widespread fraud and criminal activity at the law firm. Tammie Lou Kapusta, a one-time
paralegal at Stern's office, detailed a corporate environment where tampering documents and
forging signatures were normal practices, endorsed by high-level executives.
“They wanted us to start changing the documents and stuff and doing stuff that we
weren't supposed to be doing as far as service,'' Kapusta told McCollum's staff.
Jeffrey Tew, lawyer for Stern's law office, has dismissed Kapusta's testimony as
categorically false.
“It's not true what she says,'' he said. “She was terminated for cause. It sounds like a
cliché but it's a disgruntled employee out for revenge.''
Because of a cooling foreclosure market this year, referrals were already falling, even
before foreclosure freezes and fraud investigations.
The firm grew five-fold in the past five years as foreclosures skyrocketed and launched
a publicly traded offshoot to handle its 70,000-case-a-year foreclosure-processing operation,
but in the past few months, things have begun to unravel.

PROFITS DOWN
As a result, profits are down at Stern's publicly traded foreclosure processing
company, DJSP. Adjusted net income for the first half of 2010 was $7.8 million, down 50
percent from $15.8 million in the first half of 2009, according to company filings.
With some of Stern's largest clients listed among the group of lenders halting
foreclosure processes -- and with the bad press from a fraud investigation -- its foreclosure
processing unit is vulnerable to even more declines in net income.
The DJSP foreclosure processing operation got a glimpse of the effect of foreclosure
freezes in April, when one of its clients halted foreclosures to update its electronic system. The
company announced a drop in foreclosures in May, and its stock price began to drop as well,
sliding from $11.18 on May 17 to $5.45 on June 9. Lawsuits followed in July, with investors
claiming that Stern failed to disclose the foreclosure suspension.
Since foreclosure freezes began last month, DJSP's stock price has dipped more than
20 percent. It closed at $2.97 on Monday, down 6 percent for the day.

Miami Herald business writer Ina Paiva Cordle contributed to this report.