Better.com Misled Investors Ahead of Stalled SPAC Deal, Former Executive Alleges

Ms. Pierce said in the suit that she was pushed out of her role at the company in February in retaliation for raising these issues. She has also filed a complaint alleging retaliation with the Occupational Safety and Health Administration under the Sarbanes-Oxley Act, according to a footnote in the suit.

“We have reviewed the claims in the complaint and strongly believe them to be without merit,” Better.com said in a statement after the initial publication of this article. “The company is confident in our financial and accounting practices, and we will vigorously defend this lawsuit.”   

Better.com was a major winner of the boom in housing prices and mortgage refinancing that accompanied the pandemic and low interest rates. The company grew revenue nearly 10-fold to $876 million in 2020 from the year prior, posted a profit of $172 million and hired thousands as it rushed to keep up with the market, company filings said. It raised $500 million from

SoftBank Group Corp.

last spring and weeks later said it planned to go public at a valuation of $7 billion.

Better.com has since been rocked by the rise in interest rates and resulting sharp pullback in refinancings and a highly publicized controversy when Mr. Garg laid off 900 workers via a Zoom call in December. He took a brief leave after the call sparked an uproar. The company has laid off thousands more as the market for SPAC deals has also cooled. 

In the aftermath of the December layoffs, Mr. Garg said in a public letter that he took responsibility for the decision to lay off the staff but “blundered the execution.” He began a leave the following day, and Better.com said it hired an outside company to assess its culture and leadership. Mr. Garg returned to his position in January, according to an email sent to employees.

In her complaint, filed Tuesday in federal court in Manhattan, Ms. Pierce says Mr. Garg and the company’s alleged misrepresentations were made in an effort to keep its merger on track. Ms. Pierce’s complaint alleged Mr. Garg and Better.com’s treatment of her constituted unlawful retaliation, defamation and intentional infliction of emotional distress.

The company lost $304 million last year, according to company filings. Last winter, Mr. Garg allegedly told the company’s board and investors that the company would become profitable again by the end of the first quarter in 2022, according to the lawsuit. Ms. Pierce said her operations team, in partnership with the company’s finance department, had presented internal projections to Mr. Garg that showed the company couldn’t expect to break even until at least the second half of this year. 

The lawsuit contains colorful remarks allegedly made by Mr. Garg. He allegedly replaced one of the words in the acronym for the accounting phrase, GAAP, or “generally accepted accounting principles” with a profanity. He told other executives at Better.com that interest rates would stay low because President Biden would contract Covid-19 and die, according to the suit. Another former Better.com executive said they also remembered the GAAP comments and Mr. Garg’s expectations that unforeseen events would keep rates low.

Ms. Pierce also alleges in the suit that the company had overstated the strength of its brand in financial filings relating to its potential merger.

In the prospectus for its SPAC deal, Better.com said it believed that 30% of its loans made directly to consumers came through internet traffic that wasn’t generated by paid marketing efforts. That compared favorably to other large financial brands despite lower advertising spending. In her complaint, Ms. Pierce says that company’s internal data showed that number to be no more than 12%.

Ms. Pierce raised concerns about the alleged misrepresentation to Mr. Garg and Better.com ahead of the filing’s publication, according to the lawsuit.

Mr. Garg allegedly repeatedly defied advice from other executives regarding the mass Zoom layoff in December, leading the company to likely violate the California Worker Adjustment and Retraining Notification Act which requires employees receive 60 days notice in advance of mass layoffs, the suit said.

Write to Ben Foldy at ben.foldy@wsj.com