Redfin stockholder files suit over disclosures in Rocket deal

While much of the housing industry views Rocket Companies’ proposed acquisition of Redfin as a foregone conclusion at this point, at least one common stock holder is saying not so fast. 

On Friday in U.S. District Court in Seattle, plaintiff Jason Morano filed a lawsuit accusing the two companies of breaching their contracts, engaging in fraudulent activities, misrepresenting facts, misappropriating trade secrets and unjust enrichment.

Defendants in the suit include Rocket, Redfin and Redfin CEO Glenn Kelman. Several members of Redfin’s board of directors are also named, inclued Robert Bass, Julie Bornstein, Kerry D. Chandler, Austin Ligon, Brad Singer, James Slavet, Selina Tobaccowala and chairman of the board David H. Lissy. 

Morano claims that Rocket, Redfin and its board of directors violated both the federal securities law and Delaware fiduciary duty statutes in negotiating Rocket’s acquisition of Redfin. He alleges that the defendants filed a misleading and incomplete proxy statement with the Securities and Exchange Commission (SEC) in order to persuade shareholders to vote in favor of the acquisition. 

The two firms announced the proposed acquisition in early March. 

According to the complaint, the proxy statement omitted and misrepresented material facts. This includes the assertion of a conflict of interest with Goldman Sachs, as it served as Redfin’s financial advisers, had a lending relationship with Rocket, and held stock in both Redfin and Rocket.

Goldman Sachs, in conjunction with other lenders, provided Rocket with access to a $1.15 billion revolving credit facility in July 2024. The revolver requires Rocket to pay interest to Goldman Sachs and the other lenders on outstanding balances that fall under the revolver. 

“In order to allow Redfin shareholders to contextualize the potential conflict posed by Goldman Sachs’ concurrent lending relationship with Rocket, the Proxy must disclose (i) the nature of the lending relationship between Goldman Sachs and Rocket, and (ii) the sums paid to Goldman by Rocket in connection with that relationship during the two years prior to March 9, 2025 (the date of Goldman Sachs’ fairness opinion  to the Board in connection with the Proposed Merger). Currently, the Proxy discloses none of that information, and is therefore materially deficient,” the complaint states.

In approving the proxy statement and failing to ensure that the potential conflicts of interest with Goldman Sachs were disclosed, Morano claims that Redfin’s board members breached their fiduciary duties. 

Redfin stockholders are set to vote on the merger on June 4, and the complaint claims that on May 5, Redfin stockholders were persuaded to vote in favor of the deal at a “special meeting.” 

“In order to allow Redfin stockholders to cast fully informed votes with respect to the Proposed Merger, it is imperative that the Board cure the Disclosure Violations described above no later than five (5) days prior to the Stockholder Vote,” the complaint states.

“If the Disclosure Violations are not cured, and the Proposed Merger is consummated, Plaintiff reserves the right to recover damages suffered by himself and similarly-situated investors as a result of such Disclosure Violations.”

The two companies previously announced that they expect the deal to close in the second or third quarter of 2025. Rocket is slated to pay $1.75 billion in equity for Redfin.

Neither Rocket nor Redfin immediately returned HousingWire’s requests for comment.