Rocket Cos. is asking a federal judge to toss a shareholder lawsuit because a Reddit-fueled meme stock trading frenzy impacted its stock price during the period in question.
A proposed class of investors is suing the Rocket Mortgage parent company and its executives, accusing them of misleading shareholders in 2021 in statements regarding the lender’s growth. Attorneys for the Rocket defendants are seeking to block a class certification, arguing last week the internet-driven stock price volatility should invalidate plaintiffs’ claims.
“During the short two-month Class Period Rocket’s stock was targeted on the Reddit forum as a so-called “meme stock,” resulting in an irrational trading frenzy by non-professional retail investors that is highly indicative of an inefficient market,” counsel for Rocket wrote.
The lawsuit points to Rocket’s stock between February and May of 2021, when it rose from $19.90 per share to a high of $39.47 on March 3, before fading to $22.80 on May 5. Plaintiffs blame stock losses on four public statements by executives during that period, in which the leaders spoke about origination volume and interest rate impacts during the refinance boom.
A federal judge in July allowed the lawsuit initially filed in 2021 to move forward, but tossed two other scrutinized executive statements from the case. Counsel for the industry giant now blame the lender’s stock swings on the Reddit and Twitter hype, which a few months earlier sent video game vendor GameStop’s stock skyrocketing.
“Social media users decided to make Rocket’s stock price shoot up apparently just because they liked the rocket emoji, which they used as their rallying cry for driving up the price of stocks ‘to the moon’ through coordinated irrational trading,” the Dec. 8 filing read.
A spokesperson for Rocket referred to the attorneys’ filing and a prior statement in July in which the company said its leadership was in compliance with legal standards. Opposing attorneys didn’t respond to requests for comment this week.
Rocket also filed a motion to exclude an expert witness for the plaintiffs, alleging other factors that nullify the investors’ burden to prove an “efficient market” during the specified trading window. Defendants point to the short trading window in question, which began only six months after the company’s initial public offering. Only 7% of Rocket’s stock is publicly traded, counsel continued, noting the remaining 93% is held directly or indirectly by founder and chairman Dan Gilbert.
Attorneys are also seeking to toss an insider trading claim against Gilbert, arguing a lead plaintiff suffered no harm in the founder’s massive $500 million private trade in late March 2021, days before a Rocket earnings report. Gilbert, according to a Securities and Exchange Commission filing, planned to use a portion of those proceeds for a philanthropic effort.
Other lawsuits remain pending against the business, including a discrimination claim and a complaint by former employees that the lender failed to pay them overtime
Rocket’s stock as of Wednesday afternoon was trading at $11.59 per share, wavering under $10 per share for most of 2023. The firm’s stock, like other publicly traded mortgage companies, fell sharply as interest rates began climbing in 2022. The Detroit-based business is coming off its second consecutive quarter of profitability, although executives anticipate a difficult winter.
