Better.com, its controversial CEO Vishal Garg, and other top executives at the company are the target of a lawsuit by a former executive claiming she was terminated in retaliation for raising concerns that the company had violated securities laws and misled investors.
Filed Tuesday in U.S. District Court for the Southern District of New York by Sarah J. Pierce, the company’s former executive vice president for sales and operations, the lawsuit seeks a total of $195 million in compensatory and punitive damages.
In the lawsuit, Pierce claims that after she raised concerns that Garg and Better.com had violated securities laws and misled investors, the CEO and the company retaliated by “scapegoating her for the company’s deteriorating financial state” before eventually terminating her on Feb. 4, 2022.
In an emailed statement from Better.com, a company attorney stated, "We don't comment on ongoing litigation. However, we have reviewed the claims in the complaint and strongly believe them to be without merit. The company is confident in our financial and accounting practices, and we will vigorously defend this lawsuit."
In the lawsuit, Pierce states she had been the “functional equivalent of chief operating officer” for the company, “overseeing all its business … and 85% of its 10,000+ person workforce,” and had received four promotions and “consistently outstanding performance reviews,” as well as merit-based salary increases and other bonus compensation.
She claims she repeatedly spoke to Garg, General Counsel Nicholas Calamari, CFO Kevin Ryan, General Counsel Paula Tuffin, and the board of directors about misleading statements Garg made about the company’s financial prospects and performance. This included a Jan. 12, 2022, “on the record” employee interview with Tuffin in which Pierce stated that Garg “had a history of providing misleading financial statements and information to investors and disregarding the notice requirements of, at least, the California Warn Act.”
The lawsuit specifically describes a now famous Zoom meeting held in December, in which Garg coldly announced the layoff of 900 employees. According to the lawsuit, Garg “disregarded company-approved talking points that specifically categorized the event as a reduction in force and made the event about himself.” The lawsuit adds that Garg “publicly defamed the 900 employees,” stating they had “stolen from the company,” and that the terminations “violated the notice provision of, at least, the California WARN Act.”
In addition, the lawsuit states, following that meeting Garg “began to state to the board of directors and investors that the company would achieve profitability” in the first quarter of 2022, “despite Pierce and other senior leaders explicitly stating that this outcome was not possible.”
According to company filings with the Securities & Exchange Commission, Better.com lost more than $300 million last year.
In addition, the company had previously announced plans to go public via a Special Purpose Acquisition (SPAC) transaction, in which Better Holdco Inc. would merge with Aurora Acquisition Corp., shell company sponsored by Novator Capital. As part of that deal, a SoftBank Group subsidiary committed to make a $1.5 billion investment in the combined company. Novator also committed to investing $200 million in the merged company.
According to the lawsuit, “Since the May 2021 SPAC transaction announcement, CEO Garg has engaged in inappropriate, and potentially illegal, conduct … intended to ensure that the SPAC transaction closes and that the investors do not exercise their contractual right to withdraw from that transaction due to material adverse change in Better’s financial condition.”
The lawsuit adds that Garg’s conduct, “aided by General Counsel Calamari, was designed to benefit CEO Garg’s personal interests at the expense of the company’s, and its shareholders’, interests.”
In all, the lawsuit includes five causes of action and seeks compensatory and punitive damages for each. They include claims that:
- Better.com and Garg violated New York labor laws, including retaliating against a whistleblower; seeking $25 million in compensatory damages and $50 million in punitive damages.
- Garg breached his fiduciary duty; seeking seeking $25 million in compensatory damages and $50 million in punitive damages.
- Garg defamed Pierce; seeking $5 million in compensatory damages and $10 million in punitive damages.
- Garg and Calamari inflicted emotional distress; seeking $5 million in compensatory damages and $10 million in punitive damages, and
- Calamari aided and abetted Garg in his breach of fiduciary duty; seeking $5 million in compensatory damages and $10 million in punitive damages.
It's been a rough several months for Better.com and Garg. Following the brutal layoff of 900 employees in December and the disclosure of an email in which Garg referred to the Better.com team as "dumb dolphins," the board imposed a month off from the company on Garg. That was followed by another mishandled layoff in March, when the company laid off about 3,000 people, but some employees found out about the cuts when they discovered a severance check in their corporate payroll app before the official announcement was made.
In addition to the layoffs, the online mortgage lender in April also offered some of its remaining employees in the United States the option of taking a voluntary severance package. The company has not said how many employees accepted the offer.