A former senior executive of better.com claims the digital non-bank lender and its CEO and founder, Vishal Garg, violated securities and labor laws as the company plans to go public through a merger with a blank check company.
Sarah Pierce, former executive vice president for customer experience, sales and operations, filed a lawsuit Monday in federal court for the Southern District of New York, including Better Holdco, Garg and General Counsel Nicholas Calamari as defendants. .
She included several claims in the lawsuit, such as violation of labor laws, defamation and breach of fiduciary duty. It seeks approximately $200 million in compensatory damages, punitive damages and civil penalties, interest and other costs.
Better.com’s attorney said the allegations were without merit. “The company has confidence in our financial and accounting practices, and we will vigorously defend this lawsuit.” The Wall Street Journal first reported on the case.
Pierce worked for Better.com for more than five years, reporting directly to Garg from September 2020 to February 2022. She reportedly complained unsuccessfully to executives and the board about the CEO’s “misleading” statements.
On one occasion, after laying off 900 employees via Zoom and receiving a mountain of poor media coverage in December 2021, Garg reportedly told the board and investors that the company would report a profit by the end of the month. first quarter of 2022.
However, Pierce and other senior executives have explicitly stated that this is impossible. In partnership with the financial management, she prepared a detailed report showing that the company could not reach profitability until the third quarter of 2022 at the earliest.
On another occasion, Better.com allegedly misled investors in a May 2021 document that reported that 30% of direct-to-consumer funded loans in 2020 came from converted internet traffic without paid marketing efforts.
According to Pierce, the correct share was only 12%. She reportedly voiced her concerns about the misrepresentation to Garg and Calamari, but claimed they ignored her.
Better.com is privately held but in May 2021 announced plans to go public for $7.7 billion via a merger with the blank check company Aurora Acquisition Company, Sponsored by Capital of Novatar. The transaction was expected to take place in the fourth quarter of 2021.
But the company is struggling to cope with rising mortgage rates, dwindling refinances and the need to invest in new products amid fierce competition.
In November 2021, Better and Aurora entered into a new agreement, including $750 million in bridge financing from a venture capital fund Soft Bank. The companies did not provide a new date to close the transaction.
Since then, Better.com’s performance has deteriorated. According to an amended S-4 filed by Aurora with the Security and Exchange Commission (SEC) in April, the company posted a loss of $303.8 million in 2021, unlike its profitable non-bank counterparts.
Consequently, Better.com announced layoffs involving more than 4,000 employees since December. Garg gained infamy when he fired 900 employees during a Zoom meeting in December. In early March, the company cut 3,000 additional jobs, some of them in India. In April, the company carried out a third layoff.
According to the lawsuit, for several months prior to the layoffs, Garg ordered top executives to hire hundreds more people, despite the difficult landscape for mortgage companies because “President Biden will die of COVID.”
The former executive said Garg ignored the California Worker Adjustment and Retraining Notification Act, which requires 60 days notice for compensation for terminated employees.
In the lawsuit, Pierce claimed the CEO and company retaliated against her, blaming the company’s deteriorating financial condition on her incompetence, putting her on unexplained administrative leave and cutting off her computer access. and to email.
According to Pierce, Garg wrote an email to the board saying that “the company’s metrics are a black box” and that the company would seek to replace her by hiring a “seasoned operator who can help manage and drive performance across all business functions. .”
Her job was terminated on February 4, 2022, without cause, severance or benefits, she claimed. Pierce also filed a complaint alleging retaliation with the Occupational Safety and Health Administration.