A Redfin shareholder has filed a class action lawsuit in federal court to halt the company's proposed merger with Rocket Companies, alleging that Redfin and its board misled investors by omitting critical information from a key proxy statement. The suit, filed May 9, 2025, by investor Jason Morano on behalf of all Redfin stockholders, argues that shareholders are being asked to vote on the merger without access to material facts needed to make an informed decision.
According to the complaint, Redfin’s board approved a merger agreement with Rocket on March 9, 2025. The deal would convert each share of Redfin common stock into 0.7926 shares of Rocket Class A common stock. Upon closing, Redfin would cease to be publicly traded. To secure shareholder approval at a June 4 vote, Redfin issued a proxy statement that plaintiff Morano alleges is "materially incomplete and misleading," in violation of federal securities laws and Delaware fiduciary duties.
The lawsuit centers on two primary "disclosure violations" that it calls out. First, it highlights what it alleges is a conflict of interest involving Goldman Sachs, Redfin’s financial advisor. The proxy mentions that Goldman has an “existing lending relationship” with Rocket but provides no details. In fact, Goldman Sachs is a lender in a $1.15 billion revolving credit facility provided to Rocket. The amount committed by Goldman is redacted in public filings, and the proxy omits how much Rocket has paid Goldman in fees or interest during the two years preceding the merger.
The complaint argues that this financial involvement creates a conflict that undermines the integrity of Goldman’s fairness opinion on the merger and that shareholders should have been informed of it in detail.
In addition, the suit alleges that Goldman Sachs held 2.51% of Redfin’s shares and 0.27% of Rocket’s as of the end of 2024. Yet the proxy doesn’t disclose this potential source of bias, according to the lawsuit, nor does it say whether the Redfin board knew about Goldman’s equity stakes before relying on its advice.
The second issue raised by the lawsuit involves Goldman’s discounted cash flow (DCF) analysis, which underpins the board’s recommendation to approve the merger. The proxy statement summarizes this analysis but plaintiffs argue that it leaves out key inputs such as the beta used to calculate discount rates, the assumed market risk premium, and other financial metrics. The complaint stresses that those figures are essential to understanding how Goldman arrived at a valuation range of $6.37 to $17.30 per share for Redfin.
Moreover, Goldman’s DCF included net operating loss (NOL) projections that added $0.50 to $0.61 per share to the valuation. These projections are not disclosed in the proxy, despite accounting for nearly 10% of the low-end valuation estimate.
The plaintiff asks the court to block the shareholder vote until Redfin issues corrected disclosures and gives investors at least five days to review them. If the vote proceeds without this remedy, the plaintiff reserves the right to seek damages on behalf of the class, which includes all holders of Redfin common stock as of April 22, 2025.
The complaint accuses Redfin and its board of violating Sections 14(a) and 20(a) of the Securities Exchange Act and breaching their fiduciary duties under Delaware law. It claims that shareholders cannot make an informed choice when denied access to relevant facts—especially when the proposed merger could significantly affect the value of their holdings.
As the June 4 vote approaches, the court is being asked to intervene to ensure that investors receive the full and fair disclosure required by law before deciding the future of Redfin.
Redfin Corporation did not immediately responded to NMP's request for comment, nor has Rocket Companies, Inc.
Ongoing Litigation
Additionally, Rocket Companies and several of its top executives face an ongoing securities class action lawsuit that was initially filed June 29, 2021. The complaint alleges that Rocket misled investors during a period between February 25 and May 5, 2021, resulting in significant financial losses after the company’s stock price plummeted nearly 40%.
According to the complaint, Rocket touted its gain-on-sale margin performance in late 2020 and early 2021, suggesting that favorable market conditions, company technology, and company branding would continue to support high profit margins. However, the lawsuit claims these statements concealed emerging challenges that were already undermining the company’s performance. Plaintiffs argue that by the start of 2021, Rocket’s gain-on-sale margins were contracting at their fastest pace in two years.
