Shareholder sues Rocket Companies over disclosures

2 minute read

A screen displays the logo of Rocket Companies (RKT), in Times Square during the company's IPO on the New York Stock Exchange (NYSE) in New York, August 6, 2020. REUTERS/Mike Segar

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  • Lawsuit alleges first quarter statements concealed adverse trends
  • Seeks damages for stock drop in second quarter
  • Rocket Companies says claims are without merit

(Reuters) - An investor has sued Rocket Companies Inc in Detroit claiming the online mortgage lender concealed rising competition and other factors that caused a key financial metric to contract in May.

The securities class action filed on Tuesday in federal court seeks damages on behalf of investors for a stock drop that followed what it called the "stunning collapse" of the lender's gain on sale margin in May.

The Detroit-based company operates Quicken Loans, the largest mortgage lender in the U.S.

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Rocket Companies spokesman Aaron Emerson said on Wednesday that while the company has not yet been served with the complaint, any suggestion that its disclosures were untruthful are "false and spurious."

"We will stop at nothing to defend the strong reputation we have built over the last 36 years," he said.

Investor Zoya Qaiyum, represented by Robbins Geller Rudman & Dowd, targeted Rocket executives' statements between February 25 and May 5, 2021, when Rocket's share price fell 17% on news that its quarterly gain on sale margin was at its lowest in two years.

The metric tracks Rocket's net gain on sale of loans divided by the unpaid principal of loans subject to interest rate locks, according to the complaint.

The investor alleges the company and executives touted the metric's strength in February but failed to disclose pressure from competition, a shift to a lower-margin business segment and a tightening gap between mortgage prices on the primary and secondary markets.

As support for the idea that insiders knew more than they let on, the lawsuit points to the first quarter sale of 20.2 million Rocket shares by Rock Holdings Inc, which is majority owned by Quicken Loans founder Daniel Gilbert.

Gilbert is named as a defendant in the lawsuit along with Quicken Loans Chief Executive Officer Jay Farner, Chief Financial Officer Julie Booth and President and Chief Operating Officer Bob Walters.

Quicken Loans is changing its name to Rocket Mortgage at the end of July.

The case is Qaiyum v. Rocket Companies Inc, U.S. District Court, Eastern District Of Michigan, No. 21-cv-11528.

For the investor: Brian Cochran, Samuel Rudman and Vicki Multer Diamond of Robbins Geller Rudman & Dowd, Powell Miller and Sharon Almonrode of The Miller Law Firm, Michael Fistel of Johnson Fistel

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com