Rocket Mortgage investors are pushing for a federal Michigan court to certify their class action lawsuit, which accuses the mortgage giant of misleading shareholders regarding the company’s financial health in 2021. The suit has been pending for almost three years.Their plea comes one month after Rocket asked a federal judge to toss the litigation because during the time in question, a Reddit-fueled meme stock trading frenzy impacted its stock price.
But the proposed class of investors argues that even during the meme stock event, which took place March 2 to March 3, “the stock price still reflected defendants’ lies,” the Jan. 26 filing reads.
“While the price may have risen above Rocket’s intrinsic value, that possibility does nothing to undermine the relevant concept of market efficiency, because the price was still reflecting a view —affected by the fraud—of Rocket’s intrinsic value,” the plaintiffs argue.
The complaint, which presumes a class of thousands of shareholders, was filed in June 2021 and consolidated last April.
Rocket Mortgage did not immediately respond to a request for comment. In December, the lending giant said its leadership was in compliance with legal standards.
The shareholder 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 deceptive statements made by Rocket leaders about interest rates, company growth and market share. Specifically, the litigation points to Rocket claiming that rising rates would not harm it and that its closed loan volume was increasing for all of its business channels. Plaintiff’s note discovery has borne out that defendants “were well-apprised of Rocket’s downward trajectory due to rising interest rates.”
The suit also claims the founder and chairman Dan Gilbert made $500 million from an insider trade with information ahead of an earnings report. Rocket’s attorney’s have sought to toss the 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.
A private mediation between the parties is scheduled to take place in New York on March 27, 2024, court documents show.
Rocket’s supposed weakness in a purchase market has been highlighted by a recent report published by investment banking company Keefe, Bruyette & Woods.”Reliance on the refinance market made [Rocket] the No. 1 originator during the refinance boom in 2021, but the company’s market share has fallen meaningfully since then as refinance activity has plummeted and peers with greater exposure to the purchase market have grown market share,” the note published in January said. “While the company has a number of initiatives to grow its purchase share, we do not expect them to have any meaningful impact over the next few years.”
