Rocket Companies shareholders lawsuit cites Gilbert’s $ 500 million giveaway
Detroit-based Rocket Companies was hit on Tuesday by a shareholder lawsuit accusing the company and its executives of giving misleading indications that the lawsuit artificially raised Rocket’s share price in the weeks leading up to the launch. sale of 500 million dollars of shares by founder Dan Gilbert to finance a major philanthropic effort in the city’s neighborhoods.
The lawsuit, filed in U.S. District Court in Detroit, says Rocket executives were extremely optimistic to the point of deception and fraud earlier this year when they forecasted the expected “gain on sale” margin for its mortgages. . Gain on sales margin is generally viewed by investors as a basic measure of profitability.
But once the May 5 release of Rocket’s first quarter results showed those margins were falling rapidly, the company’s stock price fell to $ 19.01 per share, from $ 22.80. per action in one day.
During that May earnings call, Rocket CFO Julie Booth “admitted” the trend of declining earnings on selling margins began “at the end of the first quarter,” according to the lawsuit. . The shrinking margins are the result of increased competition among lenders and the compression of the price differential between the primary and secondary mortgage market, among other factors, according to the lawsuit.
Rocket said during the May earnings call that he was on track for a 2.65% to 2.95% gain in second quarter selling margins. Previously, it had a 4.41% margin in the fourth quarter of 2020 and 3.74% in the first quarter of this year.
This timing of Rocket’s contraction margins is a key fact, according to the lawsuit, because on March 29 – two days before the end of the first trimester and well before news of the contraction went public – Gilbert and his wife sold 20.2 million Rocket shares at $ 24.75 at $ 500 million in net revenue for their Detroit neighborhoods initiative. The 10-year initiative includes an initial amount of $ 15 million to cover overdue property taxes for low-income Detroit residents.
A representative from Rocket Companies did not respond to a request for comment on Tuesday evening. Gilbert, who is Rocket’s chairman, is also charged.
The plaintiff of the lawsuit, Zoya Qaiyum, bought 500 shares of Rocket at $ 36.19 on March 2. His lawsuit seeks class action status on behalf of anyone who purchased Rocket stock between February 25 and May 5. She is represented by three law firms, including The Miller. Rochester law firm owned by E. Powell Miller.
Miller lawyer Sharon Almonrode declined to comment.
Rocket Companies went public last August at $ 18 a share on the New York Stock Exchange and, buoyed by historically low mortgage rates and a refinancing boom, had its most profitable year in history in 2020 at $ 9 billion. dollars in profits.
Its stock closed at $ 20.20 on Tuesday.