The Securities and Exchange Commission announced Monday that it has charged Home Loan Servicing Solutions (HLSS) for making "material misstatements" about handling transactions with related parties, including Ocwen Financial Corp.
The charges also included "inadequate internal accounting controls" within HLSS.
According to the SEC, HLSS, which was purchased by New Residential Investment in April, misstated its handling of transactions with related parties, including Ocwen.
Other implicated companies by HLSS were not mentioned by the SEC.
Glancy Binkow & Goldberg LLP alerted HLSS shareholders on Tuesday about the suit, which targets HLSS for not being open about the company's close relationship with Ocwen, which has suffered from wave after wave of regulatory setbacks in the last year.
HLSS revealed that it required William Erbey, Chairman of the Board and Excutive Chairman of Ocwen to rescue himself from transactions with Ocwen and other parties in order to avoid potential conflicts of interest from 2012 to 2014.
The SEC deemed this to be false, finding that HLSS had no "written policies or procedures concerning recusals for related party transactions" and the Chairman approved "many transactions between HLSS and Ocwen."
In addition, the SEC charges found that HLSS misstated its net income in 2012, 2013, and the first quarter of 2014.
These misstatements resulted from an internal accounting controls failure that allowed the company to adopt a valuation methodology that did not conform to U.S. Generally Accepted Accounting Principles (GAAP).
“As a result of its lax internal controls environment, HLSS failed to properly value its primary asset and to make accurate and complete disclosures in its public filings,” said Michael J. Osnato, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “It failed to meet requirements that are fundamental to ensuring that investors receive reliable information, including in matters involving complex assets.”
HLSS agreed to pay a $1.5 million penalty to settle the charges and stop disclosure and books and recordkeeping violations.
The company did not immediately respond to a comment request.
Click here to view the SEC's order against HLSS.