misled investors before SPAC deal stalled, ex-executive says

A former senior executive has alleged in a lawsuit that the online mortgage lender misled investors in financial documents and other statements it made as it tried to go public.

Sarah Pierce, former executive vice president of sales and operations at, alleged in the lawsuit that chief executive Vishal Garg and company misrepresented’s business and outlook to keep investors on board. with a merger project with an ad hoc acquisition company or SPAC. The deal was completed in May 2021 and has yet to close.

Ms Pierce said in the lawsuit that she was kicked out of her job with the company in February in retaliation for raising the issues. She also filed a complaint alleging retaliation with the Occupational Safety and Health Administration under the Sarbanes-Oxley Act, according to a footnote in the lawsuit.

“We have reviewed the allegations in the complaint and firmly believe that they are without merit,” said in a statement after this article was originally published. “The company has confidence in our financial and accounting practices, and we will vigorously defend this lawsuit.” was one of the big winners from the house price boom and mortgage refinancing that has accompanied the pandemic and low interest rates. The company increased revenue nearly 10 times to $876 million in 2020 from a year earlier, posted a profit of $172 million and hired thousands as it raced to keep up the market, according to company filings. This raised $500 million of

SoftBank Corp Group.

last spring and weeks later announced that it planned to go public at a $7 billion valuation. has since been rocked by rising interest rates and the resulting sharp decline in refinances and a high-profile controversy when Mr Garg laid off 900 workers. through a Zoom call in December. He took a brief leave after the call sparked an uproar. The company laid off thousands of others as a marketplace for SPAC transactions also cooled.

In the aftermath of the December layoffs, Mr Garg said in a public letter that he took responsibility for the decision to lay off staff but “blundered the execution”. He started a holiday the next day, and said it hired an outside firm to assess its culture and leadership. Mr. Garg returned to his position in January, according to an email sent to employees.

In her lawsuit, filed Tuesday in Manhattan federal court, Ms. Pierce claims that Mr. Garg and the company’s allegations of misrepresentation were made in an effort to keep its merger on track. Ms. Pierce’s complaint alleged that the treatment of her by Mr. Garg and constituted unlawful retaliation, defamation and the intentional infliction of emotional distress.

The company lost $304 million last year, according to company filings. Last winter, Mr. Garg allegedly told the company’s board and investors that the company would return to profitability by the end of the first quarter of 2022, according to the lawsuit. Ms. Pierce said her operations team, in partnership with the company’s finance department, presented Mr. Garg with internal projections that showed the company could not expect to break even before at least the second half of this year.

The lawsuit contains colorful remarks allegedly made by Mr. Garg. He reportedly replaced one of the words in the acronym for the accounting phrase, GAAP, or “Generally Accepted Accounting Principles” with profanity. He told other executives that interest rates would stay low because President Biden would contract Covid-19 and die, according to the suit. Another former executive said he also remembered GAAP comments and Mr. Garg’s expectation that unforeseen events would keep rates low.

Ms Pierce also alleges in the lawsuit that the company overstated the strength of its brand in financial documents relating to its potential merger.

In the prospectus for its SPAC deal, said it believes 30% of its direct-to-consumer lending comes from internet traffic that isn’t generated by paid marketing efforts. This compares favorably to other major financial brands despite lower ad spend. In her complaint, Ms Pierce says internal company data showed that number was no more than 12%.

Ms. Pierce raised concerns about the alleged misrepresentation to Mr. Garg and before the filing was released, according to the lawsuit.

Mr. Garg is said to have repeatedly defied the advice of other executives regarding Zoom’s mass layoff in December, leading the company to likely violate the California Worker Adjustment and Retraining Notification Act, which requires employees to be given notice. 60 days before the mass layoffs, according to the lawsuit.

Corrections & Amplifications’s SPAC deal was made in May 2021. An earlier version of this article incorrectly stated last May. (Corrected June 8)

Write to Ben Foldy at

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