A shareholder lawsuit against Rocket Cos., a complaint already facing scrutiny because of a meme stock frenzy, has more issues.
A federal judge Monday rejected class certification for the investor lawsuit, because of concerns about the reliability of its lead plaintiffs. The suit claims Rocket leadership made misleading statements about origination volume in 2021, and accuses founder and chairman Dan Gilbert of insider trading.
U.S. District Judge Thomas L. Ludington was skeptical of lead plaintiff Carl Shupe, who omitted a profitable trade of Rocket stock from earlier case filings. Shupe sued Rocket in 2021 after he lost $434,000 that spring by trading the company's stock.
The investor however netted close to $250,000 in a trade of Rocket stock a day prior to purchasing the eventual losing shares in March. Ludington said Shupe's testimony in a January deposition explaining his earlier omission was "contradictory, self-serving and borderline nonsensical."
A Rocket spokesperson Tuesday said the company was pleased with the ruling in the "baseless" lawsuit.
"The judge correctly denied class certification," a statement from Rocket read. "He even casts doubt onto the plaintiff's credibility, honesty and trustworthiness and the evidence showed the plaintiff's lack of basic knowledge of the groundless claims they were bringing."
The judge also rejected the second lead plaintiff, the Construction Laborers Pension Trust for Southern California, because a representative for the organization had trouble understanding the lawsuit during testimony.
Attorneys for plaintiffs didn't return requests for comment Tuesday.
The suit hinges on executive comments about interest rate impacts on Rocket's production volume during the refinance boom. Rocket's stock during the contested period was $19.90 per share in February, before rising to $39.47 on March 3 and fading to $22.80 by May 5.
Gilbert also made a $500 million private trade of his firm's stock in late March 2021 ahead of an earnings report. Although Gilbert at the time announced a $500 million philanthropic effort, he
Attorneys for Rocket argue the volatile stock price was the result of a Reddit-fueled "meme stock" event, which dramatically lifted Gamestop shares months earlier. Shupe testified he considered purchasing Rocket stock in November 2020, but admitted browsing the notorious "r/wallstreetbets" forum which sparked the "short sale" activity.
In his defense, Shupe claimed he also spoke about investing in Rocket with his brother and a friend. Rocket subpoenaed the men, and Ludington Monday overrode their objections to a deposition.
"While Shupe can provide his recollection of conversations with Branson and Orlyn, only Branson and Orlyn can testify about their recollections of these conversations," wrote Lundginton, referring to the non-party witnesses. "Indeed, it takes two to talk."
In another filing, Ludington also denied requests by both parties to exclude testimony from expert witnesses. Legal questions to certify the class hinge on "thousands of pages of pleadings" which rely on the proposed testimony of the experts, the judge wrote.
A jury trial in the case is tentatively scheduled for next February.
Rocket has recovered from the depths of the recent mortgage market, posting
