A federal judge in California granted preliminary approval to loanDepot's $3.5 million settlement to resolve a proposed class-action lawsuit that alleged it misled investors leading up to its initial public offering (IPO).
The judge's decision comes over objections from a shareholder who argued that the settlement amount was insufficient and that the deal was reached prematurely.
U.S. District Judge Josephine L. Staton, in a 13-page order, determined that the seven-figure settlement, amounting to approximately 11% of the potential $32 million in recoverable damages estimated by the investors' expert, appeared to be fair, reasonable, and adequate.
Lead plaintiff investor Eljon Lako opposed the settlement in August, asserting that the two investors who negotiated the deal had not adequately represented the class and had reached a purportedly insignificant settlement before the class certification stage.
Lako also objected to the proposed deal because class counsel sought attorney fees amounting to roughly 28% of the settlement fund.
In response to Lako's objection, Judge Staton requested additional information from the investors who negotiated the deal. After reviewing the supplemental information and the revised notice packet, the judge granted preliminary approval and set a hearing date for final approval and attorney fees motions for April 19.
The lawsuit stems from allegations that loanDepot's IPO registration statement was negligently prepared and failed to disclose relevant facts to investors, including a decline in the company's refinance originations at the time of the IPO. LoanDepot executed its IPO in February 2021, raising approximately $54 million. However, six months later, the company's stock price reportedly declined by 42%.
Following an amended complaint in 2022 and a subsequent motion to dismiss by the defendants, a settlement was reached in August, leading to the recent preliminary approval by the judge.
Since that time loanDepot continued to report quarterly losses, but said business has leveled off.
The company's core mortgage origination volume was $6.1 billion, a decrease of $0.2 billion or 3% for the quarter. The pull-through, gain-on-sale margin was 2.93%, up from 2.85% in the second quarter.
During the earnings call, CEO Frank Martell said the company expects to be profitable in the second or third quarters of 2024. The company's third-quarter loss of $26.8 million was smaller than its second-quarter loss of $34.3 million.
