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Ocwen Financial pays $2 million for misstated financials

Atlanta, GA
Fine Amount: 
$2 million
Penalty Type: 
Issued by: 

The Securities and Exchange Commission has announced that Ocwen Financial Corp. has agreed to settle charges that it misstated financial results by using a flawed, undisclosed methodology to value complex mortgage assets. Ocwen agreed to pay a $2 million penalty after an SEC investigation found that the company inaccurately disclosed to investors that it independently valued these assets at fair value under U.S. Generally Accepted Accounting Principles (GAAP). In fact, Ocwen merely used the valuation performed by a related party to which it sold the rights to service certain mortgages that remained a financing liability in Ocwen’s accounting. Ocwen’s audit committee failed to review the methodology with company management or its outside auditor, and the related party’s valuation deviated from fair value measures. Ocwen consequently misstated its net income for the last three quarters of 2013 and the first quarter of 2014.

According to the SEC’s order instituting a settled administrative proceeding, Ocwen’s internal controls also failed to prevent conflicts of interest involving Ocwen’s executive chairman, who played a dual role in many related party transactions. Ocwen disclosed to investors that its executive chairman was required to recuse himself from transactions with related companies where he also served in a leadership position. But Ocwen had no written policies or procedures on recusals for related party transactions, and the recusal practice that existed was flawed, inconsistent, and ad hoc. Therefore, Ocwen’s executive chairman was able to approve transactions from both sides, including a $75 million bridge loan to Ocwen from a company where he also served as chairman of the board.

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