Hedge Fund Uses Hitler Parody in Campaign Against Ocwen Chairman

If you’re looking for a little attention, it’s hard to go wrong with Hitler.

Glaucus Research, a little-known hedge fund in California, has started an attack on the billionaire William C. Erbey, the chairman of Ocwen Financial, and to publicize its efforts, it has posted a video on YouTube based on the widely parodied German film “Downfall.”

The video features a frantic Hitler in a war room during the final days of his reign, with a subtitled conversation about two of Mr. Erbey’s publicly listed companies to convey the firm’s argument that the walls are closing in on his loan and mortgage-servicing empire. It is the latest rendition of a clip that has become an Internet phenomenon, used hundreds of times for political and financial satire. Users insert their own subtitles to illustrate any kind of dispute or conflict.

But it’s the first time the scene has been used as part of a campaign by a short-seller â€" someone who makes a financial bet against a company and reaps the benefits if the share price falls.

“It’s really just a starting point for a discussion,” says Soren Aandahl, head of research at Glaucus, which is named after the Greek god of the sea “blessed with the power of prophecy,” according to its website.

Glaucus is focusing on two publicly traded companies controlled by Mr. Erbey: the Altisource Residential Corporation, which owns a collection of foreclosed single-family homes and nonperforming loans, and Altisource Asset Management, its asset manager.

In a headache-inducing investment, Glaucus has shorted Altisource Asset Management while buying shares in Altisource Residential. Even though its stake in Altisource residential is tiny, Glaucus has threatened to sue the company’s independent directors, contending they are violating their fiduciary duty to shareholders.

They argue that there is a conflict of interest between the management of both companies because Altisource Asset Management’s only revenue stream comes from the so-called incentive fee paid by Altisource Residential. Glaucus contends that Altisource Residential is paying as much as seven times the market average for these fees and has called on the four directors â€" Michael A. Eruzione, Robert J Fitzpatrick, James H. Mullen Jr. and David B. Reiner â€" to renegotiate the terms of fees.

Representatives for Mr. Erbey and his various companies could not be reached for comment.

Glaucus is capitalizing on enhanced regulatory scrutiny of Mr. Erbey’s flagship company, Ocwen Financial. In a letter to Ocwen released on Feb. 26, Benjamin M. Lawsky, New York State’s top banking regulator, outlined a “number of potential conflicts of interest between Ocwen and other public companies with which it is closely affiliated,” referring to, among other things, the fact that Ocwen’s chief risk officer was also the chief risk officer at Altisource Portfolio Solutions, another company controlled by Mr. Erbey.

Glaucus is a tiny shareholder in Mr. Erbey’s collection of companies, whose investors include big name hedge funds like Omega Advisors, SAC Capital Advisors and Hayman Capital, but its decision to release a controversial video shows it is willing to punch above its weight.

“Traditionally on Wall Street, there is this framework of talking about your investments, which has been around for a long period of time,” said Mr. Aandahl, referring to the public campaigns of famous activists like Daniel S. Loeb and Carl C. Icahn

“We don’t have that luxury,” Mr. Aandahl said. “We’re younger and have to be more nimble and use the social media at our disposal.”