A former top executive at Better.com claims the digital nonbank lender and its chief executive officer and founder, Vishal Garg, violated securities and labor laws as the company plans to go public via a merger with a blank check company.
Sarah Pierce, former executive vice president for customer experience, sales and operations, filed a lawsuit on Monday in the federal court in the Southern District of New York, including Better Holdco, Garg and the general counsel Nicholas Calamari as defendants.
She included multiple claims in the suit, such as violation of labor laws, defamation, and breach of fiduciary duty. She is asking for around $200 million in compensatory damages, punitive damages and civil penalties, interests and other costs.
A Better.com’s lawyer said the claims are without merit. “The company is confident 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 over five years, reporting directly to Garg from September 2020 through February 2022. She allegedly complained to executives and the board of directors about the CEO’s “misleading” statements without success.
On one occasion, after firing 900 employees via Zoom and receiving a mountain of bad media coverage in December 2021, Garg supposedly stated to the board of directors and investors that the company would report a profit by the end of Q1 2022.
However, Pierce and other senior leaders explicitly stated that it was impossible. In partnership with the finance department, she prepared a detailed report showing the company could not achieve profitability until, at the earliest, the third quarter of 2022.
On another occasion, Better.com allegedly misled investors in a May 2021 document that stated 30% of the direct-to-consumer funded loans in 2020 came through internet traffic converted without paid marketing efforts.
According to Pierce, the correct share was only 12%. She allegedly raised concerns about the misrepresentation to Garg and Calamari but claimed they ignored her.
Better.com is a private company but announced in May 2021 plans to go public valued at $7.7 billion via a merger with the blank check company Aurora Acquisition Corp, sponsored by Novatar Capital. The transaction was expected to happen in Q4 2021.
But the company is struggling to cope with the rising mortgage rate landscape, the decrease in refinancings, and the need to invest in new products amid fierce competition.
In November 2021, Better and Aurora entered into a new agreement, including a $750 million bridge financing from venture capital fund SoftBank. 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 Securities and Exchange Commission (SEC) in April, the company posted a loss of $303.8 million in 2021, a contrast to its profitable nonbank peers.
Consequently, Better.com has announced layoffs involving more than 4,000 employees since December. Garg gained infamy when he laid off 900 employees in a Zoom meeting in December. In early March, the company cut 3,000 additional jobs, part of them in India. In April, the company instituted a third layoff.
According to the lawsuit, for several months before the layoffs, Garg directed top executives to hire hundreds of additional staff, despite the challenging 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 a 60 days notice for compensation to terminated employees.
In the lawsuit, Pierce claimed the CEO and the company retaliated against her, blaming the company’s deteriorating financial situation on her incompetence, putting her on unexplained administrative leave, and shutting off her access to computer and email.
According to Pierce, Garg wrote an email to the board of directors saying the “metrics of the company are a black box,” and the company would seek to replace her by hiring a “seasoned operator who can help manage and drive performance across business functions.”
Her employment was terminated on February 4, 2022, without reason, severance or benefit, she claimed. Pierce also filed a complaint alleging retaliation with the Occupational Safety and Health Administration.