FIS sued for $50 million for alleged fraud, conspiracy

February 12, 2019

Jacksonville-based Fidelity National Information Systems Inc. (NYSE: FIS) has been accused of defrauding a client and a California regulator as well as orchestrating a conspiracy to conceal its behavior.

 

West Palm Beach-based Ocwen Loan Servicing LLC, a large national mortgage company, filed the suit against FIS and its subsidiary, Fidelity Information Services, in a Sacramento, California court Tuesday after FIS charged it more than $60 million for about a year of audit services.

 

Ocwen originally filed a suit in 2017 against only the subsidiary, but emails, whistleblower testimony and other evidence obtained during discovery led it to believe that Fidelity National was not only aware of its subsidiary's alleged misconduct, but encouraging it. Ocwen is now seeking $50.6 million in damages.

 

“Since Ocwen’s original filing in May 2017, discovery in this case has established that Fidelity Information Services’ (FIS) misconduct was much worse and more pervasive than Ocwen ever imagined," Ocwen spokesperson John Lovallo said by email. "Our amended complaint adds new fraud claims and names FIS’s parent company, publicly-traded Fidelity National Information Services (Fidelity National), as a defendant. Fidelity National not only knew about the fraud, but facilitated it to increase their financial performance. Ocwen will continue to vigorously pursue all remedies stemming from FIS’s fraudulent and abusive billing scheme to hold FIS and Fidelity National fully accountable for their actions.

 

”FIS declined to comment.

 

FIS' misdeeds began, according to Ocwen's lawsuit, when it misrepresented its capabilities to the California Department of Business Oversight in order to win the opportunity to audit Ocwen's services in California. Ocwen was then compelled by the regulator to enter into a contract with FIS. 

 

"We basically lied to get this work," Cynthia Treadwell, FIS's former director for compliance consulting, testified in civil court.

 

The company allegedly misrepresented its technological capabilities, specialized expertise and auditing infrastructure, according to Treadwell.

 

FIS then worked to extend the contract – originally intended to be a $44.8 million, two-year contract. After about a year, FIS had billed more than $60 million, and its estimate for the entire project ballooned to $85 million. Correspondence between Fidelity National and Fidelity executives discuss strategies to extend the audit past two years, according to document excerpts in the civil complaint.

 

One employee described work in the first few months of the contract, when FIS was working to build the capacity it told the DBO it already had, as "like a circus" and added, "I felt like I was getting a paycheck for doing nothing."

 

Another employee, FIS's former director for risk management Sharon Blanchette, in an email to her superior informed him that he was not seeing major progress in the audit because of how much the associates had to redo. Blanchette also informed her superior that this rework was being hidden from Ocwen.

 

"We’re producing a lot, but we’ve been told to bury it and disguise it, so the numbers aren’t really showing,” she wrote.

 

The alleged scheme continued, according to Ocwen, with fraudulent expense charges. Despite the fact that Fidelity charged Ocwen $5 million for project oversight and repeatedly assured it that all expenses had been reviewed and verified, Ocwen said it was made to pay for expenses charged at strip clubs and casinos, expenses for office parties and family vacations and expenses for miles that associates never travelled, according to the suit.

 

A single employee expensed more than $27,000 over four months, including a ham and a dozen crabs. At one point, Ocwen said it received an anonymous fax, allegedly from an FIS employee, recounting how a coworker was bragging about buying a home based off of the income he got from misreporting his mileage.

 

Ocwen also believes that associates misrepresented the hours they worked, based on the actual times associates swiped in and out of work.

 

“Thousands of examples show discrepancies between Associates’ first swipe of the day and the arrival times they claimed on corresponding sign-in sheets, reflecting that Associates routinely falsified their arrival times, in some cases by as many as seven hours in a day," Ocwen's suit reads. "FIS thus ensured maximum revenue (and profit) for itself and Fidelity National by encouraging the Associates to bill as many hours as they could write down.”

 

All of this was done, Ocwen alleges, with the knowledge and encouragement of executives, who in some cases allegedly helped conceal the behavior.

 

Blanchette told superiors the audit had become the "wild-wild west" and claimed "we ourselves would [c]ite [our practices] as a finding if the banks we reviewed acted this way." 

 

Similarly, Treadwell likened the audit to "the inmates basically running the asylum" in the absence of management and claimed, "Over and over, I have been forced to do things on this project that I disagree with, for which there has been no proper forethought or which are arbitrary [and] ridiculous with no justification ... and some of which I believed were flat out unethical."

 

Both Blanchette and Treadwell ultimately resigned over the behavior they criticized. Before Treadwell resigned, she reported the behavior she witnessed to an executive vice president at Fidelity National and sent a "detailed dossier" to FIS's human resources department, according to the suit. Treadwell included in her resignation letter the following warning:

 

"If the lid gets peeled off this thing, the impact will be heavy. I am not trying to be a doomsday thinker here, but I honestly think your entire executive team is crossing their fingers and plugging their ears, hoping the fuse will not blow."

 

One executive, Sai Huda, is accused in the suit of playing an active role in the alleged misconduct. Huda, an FIS senior vice president, served as general manager of the entire Ocwen engagement, according to the suit.

 

Correspondence from Huda quoted in the suit shows him telling superiors, "We are working very hard to maximize and boost revenues from Ocwen in both Q1 and Q2. The key is to find material issues in our review that will make the regulator happy and require our continuing expert services."

 

Huda is accused throughout the suit of instilling unrealistic expectations for his associates, with the plaintiffs saying he was focused on getting as much revenue as possible out of the contract and was generally misleading Ocwen.

 

As Treadwell put it in a 2016 email to her superior, "The arrow points to Sai setting impossible expectations and lying to the client over and over.” In its suit, Ocwen alleges that FIS is continuing to act inappropriately.“This lawsuit has not changed the Defendant’s ways," the

 

In its suit, Ocwen alleges that FIS is continuing to act inappropriately.“This lawsuit has not changed the Defendant’s ways," the suit reads. "Indeed, shortly after it was filed, FIS took yet another step to cover up FIS’s fraud – threatening Associates with legal repercussions if they spoke to Ocwen about the lawsuit.” And since Ocwen is still reviewing documents it obtained during discovery, it expects to find more evidence of fraud, it claims in the suit."

 

These allegations are based on Ocwen’s ongoing (but not yet complete) review of the information available to date," the suit reads. "Ocwen expects to uncover additional evidence of FIS’s fraud and other malfeasance."

 

Update: The parties to this suit entered into a confidential settlement agreement to dismiss all claims. The details of the settlement have not been revealed.

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