LoanDepot faces new shareholder lawsuit

LoanDepot shareholder Tuyet Vu is suing the company for allegedly misleading investors, claiming the firm’s leadership artificially inflated its stock at the time of its initial public offering last February.

Vu filed the shareholder derivative complaint late last week in the U.S. District Court in Delaware, and accused seven company leaders including CEO and chairman Anthony Hsieh of unjust enrichment, gross mismanagement and regulatory violations, among other allegations.

The lawsuit is the third federal complaint against loanDepot over its alleged misrepresentations. Two class action lawsuits filed last year alleging the lender of securities fraud remain pending in the U.S. District Court for the Central District of California.

The new shareholder derivative complaint alleges wrongdoing by defendants between loanDepot’s IPO in February through its Q2 2021 earnings report in August. The suit was first reported by Law360.

“During the IPO and throughout the Relevant Period, the Individual Defendants failed to disclose that LoanDepot’s refinance originations and margins had declined substantially at the time of the IPO and that, accordingly, LoanDepot’s revenue and growth were negatively impacted,” the filing reads.

The lawsuit also alleges defendants failed to disclose loanDepot’s revenue and growth were artificially inflated by an alleged overcharging of interest scheme between 2016-19 and closing of loans without proper documentation prior to the IPO. Those claims were brought forward by former loanDepot chief operating officer Tamara Richards last September in an Orange County, California court.

A representative for loanDepot declined to comment on the suit Tuesday, and an attorney for Vu didn’t return a request for comment.

Vu alleges loanDepot in a Q1 2021 report failed to disclose its gain-on-sale margins had declined substantially by the time of its IPO, and that significantly lower growth and refi originations had forced the company to embark on an expense reduction plan. The complaint claims loanDepot’s misconduct became clear in August, when the company reported “disappointing” earnings for Q2 2021 with a quarter-to-quarter decline of more than 93%. Its stock was trading at $8.07 per share by mid-August, an approximate 42% decline from the IPO price.

The plaintiff claimed that defendants misrepresented earnings so that loanDepot would be able to repurchase its own stock at artificially inflated prices. The company repurchased on Feb. 19 nearly 2.7 million shares of Class C common stock at $14.00 per share for a total of $37.8 million.

“As the company’s stock was only actually worth $8.07 per share…at closing on August 17,2021, the company overpaid by approximately $21.8M in total,” the filing states.

The complaint names as defendants the following individuals as well as the company: Chief Financial Officer Patrick Flanagan; Nicole Carrillo, chief accounting officer; Andrew Dodson, John Dorman, Brian Golson and Dawn Lepore, all of whom are directors. Carrillo in June sold 11,867 shares of loanDepot stock at $13.87 per share for a total of $164,571, according to the lawsuit.

Vu is seeking unspecified damages, greater company controls and a provision to allow shareholders to nominate at least four candidates for election to the board. A summons to loanDepot was issued Monday, and no court date has been set.

The lawsuit comes a month after loanDepot reported Q4 2021 results in which its earnings sank over 90%, following a resilient performance in the prior quarter.