By now, Better.com Founder and CEO Vishal Garg is no stranger to public scrutiny. Considering the backlash he gained for laying off 900 people weeks before Christmas over a Zoom call, the online mortgage company and its leader have had to weather several storms since then.
Through a rollercoaster ride of significant labor cuts and a shifting lending market, Garg and Better.com were dealt another blow that could have untold implications for the company’s future. On Tuesday, Sarah Pierce, Better’s former executive vice president for sales and operations, filed a lawsuit against the company and Garg, alleging that they “duped” investors and shareholders by misrepresenting its business and financial forecasts.
“Since the May 2021 SPCA Transaction announcement, CEO Garg has engaged in inappropriate and potentially illegal conduct, intended to ensure that the SPAC Transaction closes and that the investors do not exercise their contractual rights right to withdraw from that transaction due to a material adverse change in Better’s financial condition,” read an excerpt from the lawsuit.
The Softbank-based start-up planned to go public through a merger with blank-check firm Aurora Acquisition Corp in a deal valued at $7.7 billion. According to Wall Street Journal reports, the planned merger was delayed late last year and has yet to close.
Softbank did not immediately respond to RISMedia requests for comment on this story.
The lawsuit accuses Garg of misrepresenting Better’s organic internet traffic for the company’s “direct to consumer funded loans” while also knowingly making false statements about the company’s timeline to become profitable.
The case file stated that Pierce and Better CFO Kevin Ryan provided projections of the company’s performance and “Advised CEO Garge and General Counsel Calamari, that it was unlikely that Better would achieve profitability in 2022.”
“Despite this detailed analysis, CEO Garg represented to the Board of Directors and investors—without any basis—that the company would achieve profitability by the end of the first quarter of 2022.”
Despite rising interest rates and a shifting market, the suit claims that Garg directed Pierce and other executives to ramp up hiring instead of a suggested cost-cutting and reducing the workforce.
“CEO Garg overruled Pierce, stating to Pierce and other executives that company sales would increase because ‘President Biden will die of COVID,’ this will cause interest rates to fall and save the company from its worsening financial condition,” read the lawsuit.
The alleged predictions didn’t happen, and Better saw its sales decline like several other mortgage companies that have struggled amid the shrinking refinance origination market.
According to recent documents filed with the U.S. Securities and Exchange Commission, Better incurred a net loss of $303.8 million in 2021 despite earning $1.2 billion last year. The company indicated in the document that its financial performance deteriorated due to numerous factors, including increasing interest rates, reorganizing our sales and operations teams, and the effects of negative media coverage amid its controversial workforce reductions.
“On December 1, 2021, CEO Garg terminated 900 employees via a Zoom call in which he disregarded company-approved talking points that specifically categorized the event as a reduction in force and made the event about himself,” read an excerpt from Pierce’s lawsuit.
It went on to state, “In an attempt to deflect blame, CEO Garg continued to state that the terminated employees had stolen from the company to leadership, to the press, and on social media forums such as Blind. He also began to state to the Board of Directors and investors that the company would achieve profitability in Q1 2021, despite Pierce and other senior leaders explicitly stating that this outcome was not possible.”
Pierce, who parted ways with Better in February for undisclosed reasons, alleges in the suit that she was driven out of her role after she repeatedly raised concerns about Garg’s misleading statements regarding the company’s financial standing, market forecasts, and its labor cuts.
The lawsuit also accuses Garg and Better of placing Pierce on an “unexplained leave of absence,” submitting a “resignation letter” on her behalf, and eventually firing her without reason, severance, or benefits.
In response to RISMedia inquiries about the lawsuit, Better.com’s lawyer says, “We don’t comment on ongoing litigation. However, we have reviewed the claims in the complaint and strongly believe them to be without merit. The company is confident in our financial and accounting practices, and we will vigorously defend this lawsuit.”
While Pierce’s lawsuit marks the latest blow to the online mortgage company, it also presents a new challenge for the company, which has tried to repair its image since 2021.
As 2022 has unfolded, more details have come to light regarding Better’s troubles.
In a leaked video of a town hall meeting that immediately followed the company’s infamous Zoom-call events, Garg admitted that he made several mistakes within the past two years, including over-hiring and bringing in “the wrong people.”
“I was not disciplined over the past 18 months,” he said in the video. “We made $250 million last year, and we probably pissed away $200 million. We probably could’ve made more money last year and been leaner, meaner, and hungrier.”
In the same video, Garg referred to his vision of a “leaner and meaner” company that would spend time “grinding the business forward” in what he characterized as a bloodbath in the mortgage industry.
Better was among several mortgage lending companies that benefited from the past two years of hyperactive home buying and refinancing activity under record-low mortgage rates, resulting in a surge in hiring and production.
It’s also among the list of companies that have been downsizing its staff after a glut of hiring to account for demand in the pandemic.
In previous SEC filings, the company has also admitted that “company culture” issues have contributed to its performance and financial decline. Better indicated that it addressed those challenges by hiring a third-party company to conduct a cultural assessment and recruiting a Chief Human Resources Officer.