Ex-Sprout employees: no paychecks, no severance and now, no medical insurance  

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When non-QM lender Sprout Mortgage abruptly shut down on July 6, greater than 300 employees expected their last paychecks to be delivered the next day as scheduled. Additionally they expected Sprout to supply severance packages to cushion the blow. 

As a substitute, paychecks weren’t delivered to employees, and severance wasn’t offered, former employees said. There’s more grim news, too. 

One week after shutting down, the corporate retroactively cut off the medical insurance to May 1, even though it collected insurance premiums from employees’ paychecks, in line with multiple former employees and documents reviewed by HousingWire. 

Some former employees, with no job and liable to having to pay tens of 1000’s of dollars in medical bills, filed complaints with the Latest York State Attorney General’s office. 

The Long Island-based lender, headed by industry veteran Michael Strauss, shut down suddenly after a deal for funding fell through, sources told HousingWire. Sprout, like many lenders, had been hemorrhaging money after a pointy rise in mortgage rates saddled it with tens of tens of millions of dollars in loans it couldn’t sell to investors within the secondary market at par.

“Sprout collected money from our paychecks to pay the medical insurance premiums in May and June, but we were told we don’t have the coverage for this era,” said a former worker who requested anonymity. 

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He added: “When you will have a family of 4 and the insurance company tells you would possibly should pay back every part since you didn’t have coverage on the time of services, it’s an enormous deal.”

HousingWire reviewed multiple former employees’ paychecks – for May 6, May 23, June 7 and June 22 – to verify they paid medical insurance premiums.  

Medical health insurance provider Empire Blue Cross Blue Shield spokesperson Alessandra Simkin confirmed that the contract terminated on May 1, 2022. Simkin declined to say when Sprout asked to terminate the contract or provide any additional details.  

“I called Empire Blue Cross Blue Shield and so they said they received an email from Sprout on July 12 saying that the advantages can be discontinued retroactively to May 1,” one other former worker told HousingWire. 

She added: “That’s once I felt it went above business practices and more of a Ponzi scheme. The choice to shut the business is one thing, but going ahead and actively ending their medical advantages for 2 months is horrible. It’s a blatant disregard for people.”

A spokesperson for Sprout didn’t immediately reply to a request for comment. Strauss, who sources said has holed up with a couple of dozen employees because the closure, couldn’t be reached for comment.  

A longtime fixture within the mortgage industry, Strauss has been accused of improper shutdowns before. In 2009, he paid $2.5 million to the Securities and Exchange Commission to settle charges of accounting fraud and concealing deteriorating funds at American Home Mortgage Investment Corp. because the subprime crisis struck in 2007.

Strauss and other senior executives “did not only occupy a front row seat to the mortgage meltdown — they were a part of the show,” Robert Khuzami, the then-director of the SEC’s Division of Enforcement, said in 2009. “Because the housing market imploded, these executives kept secret that the corporate’s holdings were collapsing like a house of cards.”

Strauss was banned from serving as an officer or director of a public company for five years. He founded Sprout in 2015.

Two weeks after the shutdown, former employees at Sprout are still searching for answers. To this point, they are saying they haven’t received specific, actionable information on methods to receives a commission or cover health care costs.

“We understand that you’ll have concerns regarding pay and insurance coverage. Sprout is committed to working on an answer to handle these issues and, hopefully, alleviate the concerns,” Rebecca Yoselowitz, who leads human resources for Sprout, wrote in a July 13 email to pick former employees. 

Some former employees said they now are stuck with as much as $50,000 in bills for medical exams, doctors’ appointments, prescriptions and surgeries.

“I called Empire Blue Cross Blue Shield and so they said there will probably be an audit done, and the claims will probably be overturned: it means I will probably be liable for the complete amount since the insurance isn’t any longer effective for the period,” a 3rd former worker said. 

Multiple former employees told HousingWire they filed complaints with the Latest York Attorney General’s Office. A spokesperson for the office told HousingWire that the AG’s office is “looking into” the claims.

The closure of Sprout was swift and unexpected, regardless that it got here on the heels of one other non-QM lender – First Guaranty Mortgage Corporation – also closing. On the afternoon of July 6, Sprout president Shea Pallante told greater than 300 employees in a conference call that the corporate was closing that day. Employees were quickly locked out of their systems, several sources said. 

Two days after it abruptly shut down its operations, the corporate became the goal of a class-action-seeking lawsuit. Two former employees are suing Sprout, its affiliated company Recovco Mortgage Management LLC, and Strauss, alleging they laid off around 100 employees on the Latest York office without giving legally required written notice and didn’t pay their paychecks due the next day.

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