loanDepot has agreed to settle a securities class action lawsuit filed by shareholders that alleged the company, its executives and investment banks made false or misleading disclosures before and after the lender’s initial public offering in 2021. 

According to court filings, the parties agreed to settle and release all claims against the defendants in exchange for a cash payment of $3.5 million. However, the defendants deny any fault, liability, wrongdoing or damages.  

“On July 26, plaintiffs filed a motion for preliminary approval of the settlement, which is pending approval,” loanDepot disclosed in a 10-Q filing on Thursday morning. 

loanDepot declined to comment on the case, which was filed in California. A representative for the shareholders did not respond to a request for comments.

Defendants include loanDepot, its founder Anthony Hsieh, former chief financial officer Patrick Flanagan and former accounting officer Nicole Carrillo, among other executives. Bank underwriters of the IPO, such as Goldman Sachs, BofA Securities, Credit Suisse Securities, Morgan Stanley, Barclays Capital and Citigroup Global Markets, were also named. 

The class action was filed on behalf of investors who purchased loanDepot’s class A common stock in connection with the company’s initial public offering on February 16, 2021. It also includes investors who acquired company stock between March 16, 2021 and September 22, 2021.

loanDepot debuted on the stock exchange in February 2021, raising $54 million. loanDepot stock was trading at $2.14 on Thursday around noon. 

The shareholders allege loanDepot improperly collected double daily interest from refi borrowers, inflating its interest income. The plaintiffs claimed the matter was brought to Hsieh’s attention in late 2019, but he returned improperly collected interest only to borrowers in states with active attorneys general. Ultimately, the lender misrepresented its compliance practices and omitted to disclose its “years-long improper collection of double interest payments,” the lawsuit alleges. 

In addition, the shareholders claimed that loanDepot’s registration statement for the IPO misrepresented to investors exactly when—and how quickly—the company’s “gain-on-sale margins” had begun to erode. 

The plaintiffs also alleged that loanDepot’s registration statement misleadingly omitted to disclose “Project Alpha” and “Project Beta.” These projects systematically violated mandatory loan origination and underwriting requirements to allow the lender to close loans as quickly as possible and boost the lender’s performance, capturing additional market share, shareholders alleged.

The shareholders’ complaint mentions another lawsuit filed by Tammy Richards, formerly loanDepot’s chief operations officer. In September 2021 Richards alleged that loanDepot and its subsidiary Closing USA had engaged in interest overcharging between 2016 and 2019. Richards also claimed that the lender closed 8,000 loans without proper documentation, at the behest of Hsieh. 

loanDepot’s 10-Q filing says that the company deposed Richards and “anticipates filing its Motion for Summary Judgment, or in the alternative, Summary Adjudication on or before November 15, 2023.” Richards is seeking damages north of $75 million. 

A representative for Richards did not reply to a request for comments. 

Lawsuits had an impact on loanDepot’s financials in the second quarter. In a call with analysts on Tuesday, executives said the company sustained $8 million in costs related to the “settlement of legacy litigation” during the second quarter of 2023. 

“Excluding volume-related expenses, Vision 2025 related charges and the litigation settlement accrual, our adjusting operating expenses decreased by $10 million compared to the previous quarter, reflecting the ongoing benefits of our efficient improvements,” David Hayes, loanDepot’s Chief Financial Officer, told analysts.

The lender narrowed its losses in Q2 2023. It recorded a non-GAAP adjusted net loss of $34.3 million, compared to a $60.2 million loss in the previous quarter.  

There are two separate shareholders lawsuits still pending against loanDepot, in California and Delaware. Beginning in June 2023, three similar shareholder derivative complaints were filed in the Delaware Court of Chancery, and actions are in their preliminary stages.

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