Broward County attorney David J. Stern, whose law firm handles 20 percent of all foreclosure cases against Florida homeowners, is being sued himself.
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.
Specifically, the suit states, 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.
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 percent plunge in its stock price in a single day, the suit states.
The 50-year-old Stern did not respond to a request for comment.
Founded in 1994, Stern's law firm represents most of the nation's biggest banks, including Bank of America, Wells Fargo and Citigroup.
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 percent 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 percent 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.
"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,'' Stern told investors.
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.
"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," the suit says.
As the St. Petersburg Times recently reported, Stern's high-volume practice has made him a controversial figure.
In March, 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.
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.
St. Petersburg attorney Jack Kiefner, an expert in securities law, noted that public companies are supposed to disclose "material'' facts that could affect an investor's decision to buy the company's stock.
"The test is, is it something that a reasonable investor or prospective investor would want to know?'' Kiefner said. "My opinion is that if the chief cook and bottle washer has a practice-of-law disciplinary history I would think that would be material.''
Susan Taylor Martin can be reached at [email protected]