A new lawsuit from shareholders of mortgage giant Rocket Companies Inc. is alleging breaches of fiduciary duties and violations of federal law in 2021 by the company, chairman Dan Gilbert, outgoing CEO Jay Farner and other members of the board of directors.
The suit filed by Michele Rayner-Altenbernd in the U.S. District Court for the Eastern District of Michigan alleges "several false and misleading statements" regarding the company's performance and insider trading by Gilbert. Such claims have resulted in an ongoing securities class action against the company; an attorney for the defendants has denied that suit's allegations, and Rocket issued a similar denial Tuesday of the latest complaint.
"This lawsuit is nothing more than a regurgitation of an existing spurious case brought forward by another plaintiff's firm trying to cash in," Rocket Cos. said in a statement. "The hodge podge of allegations is a work of fiction — based on a complete distortion of reality. Our leadership and company have been forthcoming and transparent in all releases, disclosures and statements — and all stock sales were done in complete accordance with company policy.
"We will vigorously defend the reputation we have built for doing the right thing and will hold accountable anyone who makes false claims or attempts to tarnish our company, our founder, or the hard work of our team members."
Rayner-Altenbernd's suit suggests misleading statements began after demand for loans began to decrease in November 2020 and as interest rates began to rise, reducing demand for refinances in February 2021.
According to the complaint, Gilbert during a board meeting on March 23, 2021, received internal financial forecasts, including a decrease in almost $1 billion of revenue for the year and a decline in gain-on-sale margin, a key measure of the Detroit-based lender's profitability. Six days later, while this information remained unavailable to the public, Gilbert sold off 20.2 million share of the company's stock for approximately $500 million, the suit alleges.
After revealing second-quarter guidance after the market closed on May 5, 2021, the company's stock declined about 17% the following day. It forecasted a decrease of about $18.5 billion in the lender's actual results from the first quarter of 2021 and a 2.93 percentage-point decline year-over-year of gain-on-sale margin.
The lawsuit seeks greater oversight from the board on compliance, strengthening financial disclosures and controls, implementing more shareholder input, restitution and fees for attorneys, accountants and other experts.
